NEWS
Feb-10-2010 Germany Delays Taking Action Against Users of Tax Havens
By Katja Meyer-Paysan
Germany will hold off on imposing sanctions on companies and individuals who transfer money to tax havens. Tax havens, according to the Ministry of Finance, no longer exist.
During the recent recession, Germany’s tax laws came under close scrutiny. A completely legal tax avoidance industry has developed in the country, whereby wealthy individuals and corporations implement aggressive tax models to reduce their actual wealth. Surprisingly, seminars on “International Tax Structuring” are even tax-deductible in Germany as professional training. Critics believe that the industry thrives on the mistakes made by the legislature and parliament in drawing up tax legislation. Hardly any other industry is as successful, irrespective of the current recession, or operates as efficiently, claims the “Der Spiegel” newspaper. The apparent unfairness of the system has always been a bone of contention. Wiesbaden-based economist Lorenz Jarass stated in a recent interview that Germany is a tax haven for large companies and rich individuals, while those with “normal” incomes are at the mercy of the Inland Revenue and are bled dry.
The German Institute for Economic Research (DIW) calculates a gap of €100 billion between the demonstrated profits of corporations and partnerships and the profits actually reported for purposes of taxation. In fact, German corporations structure their international subsidiaries in such a way that the most profitable ones are located in the countries with the lowest tax rates. Corporate tax paid by corporations makes up only 2.8 percent of the government’s total tax revenues of €561 billion. Germany’s army of salaried individuals contribute the largest share.
As a result, shortly after the LTG Bank scandal, and by popular demand, the German Ministry of Finance, then run by Social Democrat Peer Steinbrueck, pushed through new legislation in 2009 that allowed the government to take new stringent measures against German residents (corporations or individuals) transferring money to countries notorious for low taxation (so-called “Steueroasen”, or tax havens). The regulations stated that businesses with business partners in countries and areas that did not apply the OECD standard would lose the right to companies’ privileges (such as offsetting running costs against profits) unless they complied with a stringent new rules that required them to submit all their transaction documents to the tax office. Failure to comply would trigger penalties.
Furthermore, all relationships with foreign banking and credit institutions that did not operate under the OECD standard would be subject to the government’s right to receive information.
Only a few months on, however, newspapers have reported that the German government had no grounds to pursue sanctions against Germans who carried out bank transactions with states it had previously accused of being tax havens. Wolfgang Schäuble, now Minister of Finance, said that with the recent update of the OECD grey list, “no state or area fulfilled the criteria for prohibitive measures suggested in the September tax evasion law. At this point, [Germany] sees no reason to force taxpayers or banks to provide documentation of accounts.”
Michael Offer, a spokesman for the German Ministry of Finance, called the findings “a positive sign”. “It’s clear that those states that had previously been suspected of enabling tax evasion have reacted to international pressure to fulfill the standards outlined in the new law,” he said.
The OECD Committee on Fiscal Affairs decided to remove all three remaining jurisdictions (Andorra, the Principality of Liechtenstein and the Principality of Monaco) from the list of unco-operative tax havens, in the light of their commitment to implement the OECD standards of transparency and effective exchange of information in May 2009, some four months before the new anti-avoidance law was passed through the German parliament. As a result, no jurisdiction is currently listed as an unco-operative tax haven by the Committee on Fiscal Affairs.
Green Party economic expert Gerhard Schick said Finance Minister Wolfgang Schäuble was “effectively ending the fight against tax evasion in Germany” with his statement.
Schäuble, meanwhile, unperturbed, has pursued other avenues to combat the tax deficit. Recent indications show that the German government intends to buy a CD containing information about tax evaders with Swiss bank accounts, regardless of whether this CD is technically a stolen good, and despite the fact that buying it would be a criminal offence under German law.
The CD in question is believed to contain sensitive data relating to the bank accounts of about 1,500 German citizens who have allegedly stashed their money in Switzerland in a bid to avoid paying tax in Germany. An informant offered the CD to the German tax authorities some time ago for an asking price of €2.5 million. In 2007, the Bundesnachrichtendienst (BND), Germany’s foreign intelligence agency, paid €5 Million for a CD that included evidence of tax evasion by German citizens in the principality of Liechtenstein. That turned out to be a good investment for the German tax authorities. According to the public prosecutor’s office in the western city of Bochum, the information resulted in tax evaders paying close to €180 million in back taxes by the end of 2009. It is believed that the new CD could potentially yield up to €100 million.