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Tax experts critical as Germany targets Liechtenstein banks

A landmark German assault on tax dodgers who allegedly stash cash in Liechtenstein overlooks domestic failings and practices by neighbors like Luxembourg and Switzerland, tax experts say.

The finance ministry threatened last week to tax all financial transfers to Liechtenstein unless the Alpine nation relaxed its banking secrecy codes and helped track Germans targeted in a massive tax fraud probe.

But a foreign lawyer who works in Germany called the threat "ridiculous."

"The only way this proposal works is to organize an international boycott against Liechtenstein," said the tax expert, who asked to remain anonymous.

And "civil and tax laws of modern nation-states are simply too complex -- and too frequently in flux -- to make rigorous international cooperation anything other than a pipe dream," he said.

Finance Minister Peer Steinbrueck was quoted yesterday by the Bild am Sonntag newspaper as saying that Germany sought a new tax agreement with Liechtenstein, warning that Berlin was mulling "the possibility of significantly complicating business transactions" with the principality.

The finance ministry suspects wealthy Germans of hiding up to 4 billion euros (US$6 billion) in Liechtenstein trusts, depriving Berlin of hundreds of millions of euros in tax revenues.

Meanwhile, the Organization for Economic Cooperation and Development (OECD), which has placed Liechtenstein on a list of "uncooperative tax havens," urges governments to reach out to taxpayers as officials clamp down on fraud.

The OECD advises countries "to try to make their tax systems as simple as possible so that taxpayers who want to comply are able to comply easily," said Grace Perez-Navarro, deputy director of the body's center for tax policy and administration.

She said that people "are not always fully aware of where the line is between legal and illegal."

A previous German campaign managed to diminish flows of funds to Luxembourg, along with pressure from the EU, but international tax specialist Francois Hellio said loopholes still exist.

Luxembourg ditched a 1929 tax-free holding company statute, "but it recently created an inheritance holding scheme that resembles the previous one," said Hellio, a partner at CMS Bureau Francis Lefebvre, outside Paris.

Austria, Belgium, Luxembourg and Switzerland have also resisted disclosing the identity of foreign account holders.

They compromised by agreeing to an EU withholding tax, which the foreign lawyer said was "sometimes referred to as the `tax on the stupid' because it is so easy to avoid."

German professor and tax specialist Lorenz Jarass said the German push on Liechtenstein was "peanuts" and that Berlin was sending a message to Bern.

"Germany will do all it can to snare a Swiss bank," he said.

Meanwhile, because the means of money transfers are so quick, the foreign lawyer said Germany "was reduced to picking the pockets of those who can't move.

"They tax labor and they tax consumption, those are the primary sources of revenues," he said.
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