Liechtenstein Case Pushes EU on Tax Evasion

Europe’s tax havens are feeling nervous, now that national tax authorities are in the market for stolen data.

The Germans paid €5 million for a disk detailing trust accounts which had been lifted six years ago from Lichtenstein’s LGT bank. Former head of Deutsche Post Klaus Zumwinkel is having to pay the price (about €1 million according to some reports), as no doubt will many other wealthy Germans.

The British Revenue has paid £100,000 to the thief and hopes to nail 100 people who had allegedly planned to avoid UK tax by setting up trusts in the principality.

Purchasing stolen goods in this way sets quite a precedent. I recall some years back when the disgruntled Luxembourg employee of a major Belgian bank produced a list of all the prominent Belgians who had tucked away their savings in a tax-free environment, but that could be described as whistle-blowing. The Brussels-Luxembourg motorway was always much used, so it was said, by Belgian dentists depositing their earnings.

Payment for stolen information is a grey area from an ethical standpoint, but also a reminder of just how vulnerable we may all be to data theft, not because we are trying to evade tax, but because so much of the personal information which is held on commercial or official databases could have a value to someone else, including blackmailers, fraudsters and phishers.

The only alternative to relying on such dubious methods of intelligence-gathering is for the EU to refine its own systems for tackling tax evasion. I see that Commissioner Laszlo Kovacs has told finance ministers that he intends to publish a report in June which would look at an extension of the 2005 rules to cover bonds, shares, funds and other instruments which are not currently covered by the savings tax provisions.

The dreaded Internal Revenue Service already has a deal with Liechtenstein which obliges the principality’s banks to inform the US of deposits from American citizens and there may be a precedent here. Liechtenstein’s application to join the Schengen area may be a useful lever for the EU to demand greater compliance with EU legislation.

The big question is whether Kovacs will go for complete disclosure between the tax authorities of member states, and thereby open the way for a parallel procedure with non-member countries.

Banking secrecy is the key. In 2005 Belgium, Luxembourg and Austria would only agree to the savings directive if they were allowed to impose a withholding tax rather than disclosing information to other tax authorities. We can expect pressure on these three countries to accept the need for change and we can also expect resistance. However, they are by no means the only ones within Europe’s borders who have come under scrutiny.

Luxembourg leader Jean-Claude Juncker, who chairs the Euro Group ministerial meetings, is reported to have said that he looks forward to “many years of fascinating, fundamental discussion”. Quite so.