Neighbours Switzerland and Austria have reached a bilateral deal to legalise undeclared assets in Swiss banks and introduce a withholding tax, a move similar to treaties agreed between the Swiss authorities with the UK and Germany, media reports said.

The agreement, which needs to be approved by the parliaments in both countries, is the third so-called “Rubik” deal that Switzerland has negotiated.

The Austrian treaty, designed to take effect in 2013, was signed by Swiss finance minister Eveline Widmer-Schlumpf and her Austrian counterpart, Maria Fekter.

The bilateral treaties have been controversial, however. The European Commission has even challenged their legality, saying they are at odds with other EU measures. Critics of so-called tax havens claim these treaties let alleged tax evaders off too lightly. There remains debate on how to encourage greater tax compliance in such countries without compromising legitimate needs for banking privacy.

Under the Swiss-Austria deal, residents in Austria can make a one-off payment – at a rate of between 15 per cent and 38 per cent on the assets concerned - or disclose their accounts to regularise their existing banking relationships in Switzerland.

Future investment income will be subject to a withholding tax at a rate of 25 per cent.

The finance ministry says both countries also agreed to ease access to cross-border financial services and facilitate conditions for banking licences in Austria.