Liechtenstein und der German Pastime, Tax Evasion

♠ Posted by Emmanuel in , at 2/24/2008 12:15:00 AM
It is always a sign of more difficult times when governments start cracking down harder on perceived tax cheats. The whole non-dom brouhaha here in the UK attests to this, but there's another quarrel going on in Germany that has attracted less attention. The recent free-for-all began when the former head of Germany's largest mail carrier Deutsche Post, Klaus Zimwinkel, came under fire from the government for using the tiny nearby country of Lichtenstein to help avoid taxes to the tune of Eur 1M. The Principality of Liechtenstein has fallen afoul of the OECD in recent times for being one of three non-cooperative tax havens which allegedly do not disclose information on tax cheats. In particular, the royalty-owned bank LGT is said to have facilitated the evasive maneuvers of Herr Zimwinkel and a host of other wealthy Germans. From the Financial Times:

Germany plans to “tighten the screws” on Europe’s tax havens, the country’s finance minister vowed on Friday amid a growing global government backlash against financial centres with bank secrecy rules that foster tax evasion.

The warning from Peer Steinbr├╝ck marks another escalation of the tensions with Liechtenstein that have flared over a mammoth tax investigation into bank accounts of Germans held at the principality.

Mr Steinbr├╝ck said Berlin was considering bilateral measures against Liechtenstein, such as levies on wire transfers to the principality or an obligation for German banks to declare such transfers...

Ms Merkel’s diplomatic push comes as a tax investigation of at least 750 suspected tax evaders enters its second week. The probe sprang from documents about German accounts at Liechtenstein’s LGT bank, which the BND intelligence agency bought for €4.2m ($6.2m) in 2006.

Other countries including the US, Finland and Sweden have opened, or are considering opening, investigations.

The leverage that the EU currently has over Liechtenstein is the latter's wish to enter the Schengen visa zone which facilitates easier travel across various European countries. The principality is likely keen to join to promote tourism. With the US looking into LGT as well [no, it's not a bank catering to the lesbian, gay, and transsexual market as far as I can tell], Crown Prince Alois is firing back at critics using that standard retort, "if you didn't have such a messed-up tax system, then maybe your citizens wouldn't want to evade taxes in the first place":

After days of sniping from German politicians, enraged about a domestic tax-fraud scandal involving accounts in the Alpine tax haven, the 39-year-old prince on Tuesday accused Germany of running a “campaign” against little Liechtenstein.

Germans had discovered that prosecutors bought stolen bank data from a whistleblower and were targeting hundreds of residents for owning trusts in Liechtenstein, including members of the corporate elite, such as Klaus Zumwinkel, chief executive of Deutsche Post . The Germans lashed out at Liechtenstein .

Although a quiet, reflective man, the prince decided to take a rare public stand. Accused of aiding and abetting tax fraud – the banking principality does not recognise it as a criminal offence – he shot back that Germany had “trafficked in stolen goods.”

In an apparent allusion to Germany’s belligerent history last century, he added it “still” did not know how to treat friendly nations and obviously placed “fiscal interests above the rule of law”. If it were a more direct democracy with a better tax system perhaps its citizens would not cheat, he suggested.

Last, the prince alluded to something interesting: with tax rates that are quite high, most Germans have been understandably keen on lessening the take of the tax man. The Germans are stereotyped as very thorough people in presumed contrast to their American and British counterparts. There are good reasons why Homer Simpson and Basil Fawlty caricatures do not have German equivalents. Why, just look at this bestselling German book "1000 Legal Tax Tricks" from the Amazon Germany site. It's not just 99, 100, or 101 tax tricks, it's 1000 of them. The tome clocks in at 816 pages, can you believe! That's much longer than even The Canterbury Tales. Even when they're up to mischief, our German friends do not leave much to chance. As I said, they're thorough. It seems that tax reform has a long way to go in Deutschland. Until then, taxpayers large and small will Lie-cheat-en-stealin' [just kidding; I hope I don't get hate mail from Prince Alois] the German way--with characteristic guile and persistence. From Bloomberg:

When Andreas bought a new hard drive at a Munich computer shop the clerk offered it for 127 euros with a receipt or 80 euros without. He took the lower price.

Most Germans make similar deals to avoid high taxes, the film production manager said. Klaus Zumwinkel, the former Deutsche Post AG chief executive officer being investigated for using Liechtenstein foundations to evade 1 million euros ($1.5 million) in taxes, is no different, said Andreas, who asked not to use his full name because he's breaking the law.

``Zumwinkel did nothing wrong if you take into account the fact that everyone is doing it,'' said Andreas, 22. ``The guys who make millions every year aren't going to be able to hide it without someone to help them.''

Chancellor Angela Merkel has failed to fulfill a campaign promise to simplify the tax code and reduce tax avoidance. Germans evade about 30 billion euros in taxes every year, estimated Dieter Ondracek, head of the German tax collectors' union DStG. That's more than 6 percent of the 495.3 billion euros of taxes collected at all levels of government last year.

``Unfortunately, tax evasion has become a popular sport in Germany,'' Ondracek said Feb. 19 in an interview with Bloomberg Television in Berlin.

Germany last year increased its top income tax rate to 45 percent, ranking it eighth among the 27 European Union nations. Capital gains taxes of as much as 50 percent are also among the highest in Europe.