In Europe, widening probe targets tax haven

(Agencies)
Updated: 2008-03-26 10:12

Britain, meanwhile, has written to 5,000 citizens believed to have offshore accounts warning them to disclose details of their savings, after an earlier initiative recovered $800 million. Ireland recently recovered almost €1 billion in an investigation, while an Italian tax amnesty raked in €84 billion, according to the OECD.

OECD: 'excessive' banking secrecy Tax experts say it is perfectly legitimate to bank offshore for a number of reasons such as lower costs or lighter regulation.

"What needs to be made clear is that there is nothing illegal about holding bank accounts in Liechtenstein and wanting secrecy as long as you pay the right amount of tax in your own jurisdiction," says Chas Roy-Chowdhury, head of taxation at Britain's Association of Chartered Certified Accountants.

He says part of the objection is that smaller jurisdictions can afford attractive, low tax rates that result in "capital flight" from bigger countries. "Governments should open themselves up to the wind of global competition and accept that they need to run efficiently to keep tax rates low."

Ms. Perez-Navarro insists that it is "excessive" banking secrecy – and not the competitive tax regimes – that governments are objecting to. The OECD has fostered a range of international agreements to share information on bank accounts, which has increased cooperation from formally secretive havens such as Bermuda and Switzerland.

Perez-Navarro adds that individuals should have the right to a certain banking confidentiality, but that when investigators want to see numbers they should be handed over. "It's all about establishing a balance between the individual right to privacy and the law-enforcement need for information," she says.

How tax evasion is being tackled Countries such as Liechtenstein, Luxembourg, and Switzerland have long cited their banking secrecy laws to avoid tackling tax evasion, say experts. The three nations "cooperate on any other crime: drugs, traffic violation, prostitution, weapons dealing, everything," says Caspar Von Hausenschild, a former banker who sits on the board of the German branch of Transparency International. "But there is no cooperation on tax evasion and tax avoidance. This is a scandal that's been discussed in Brussels over the last 20 years, but finance officials have never been able to close any loopholes."

In recent weeks, German Chancellor Angela Merkel has met with Prime Minister Otmar Haslar of Liechtenstein and Prince Albert of Monaco, demanding they overhaul their banking sectors and begin complying with European tax disclosure requirements. German officials are also lobbying the EU to rewrite tax-evasion legislation to target countries with strict banking-secrecy laws.

"I think that these countries, and that includes Luxembourg, with a scandal like Liechtenstein, will probably come under somewhat more pressure to abolish their bank secrecy rules," says Frederic Feyten, a tax expert at the law firm of Oostvogels Pfister Feyten in Luxembourg.

Mr. Feyten also says Brussels should recast its 2005 savings tax directive, which requires EU countries to report foreign money in their bank accounts. Austria and Luxembourg, and non-EU Switzerland, have a special agreement whereby they don't disclose account holders in exchange for charging them a withholding tax – now 25 percent – which would be split between the country where the account is held and the country where the account holder is from. Liechtenstein also charges a withholding tax, but doesn't share that revenue.

European finance ministers earlier this month also backed calls for reform. Austria and Luxembourg resisted.

John Christensen, director of TJN and former economic adviser to the government in the reforming tax haven of Jersey, says the tax directive generates only small change. The problem, he says, is that wealthy individuals who bank offshore do not open easily traceable accounts.

"They'll set up ... a trust in Luxembourg that owns a company registered in Jersey that has a bank account in the Cayman Islands," he says. "The EU Savings directive will not catch that."

Germany is also considering its own unilateral action against tax havens, such as new regulations requiring German banks to declare wire transfers received from Liechtenstein and a surcharge on those transfers. "That's quite a penalty which would deter legitimate and illegitimate business, but Germany may feel a blunt instrument is necessary to deal with an uncooperative tax haven," says the OECD's Perez-Navarro.

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