Tax Haven Liechtenstein Set to Enter EU Open-Border Group | Europe| News and current affairs from around the continent | DW | 28.02.2008
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Tax Haven Liechtenstein Set to Enter EU Open-Border Group

Liechtenstein's Prime Minister Hasler said his country's entry into Europe's open-borders agreement would be a basis for more integration. EU leaders want it to lead to more cooperation fighting tax evasion as well.

Liechtenstein border sign

A border sign like this may soon be the only way tourists know they're entering the tiny state

Liechtenstein Prime Minister Otmar Hasler on Thursday, Feb. 28, welcomed an accord opening the way for his nation to enter Europe's open borders area, telling AFP news agency it would be "an important step for integration and cooperation on fiscal matters."

The first-step accord to allow Liechtenstein in the 24-nation Schengen bloc came despite a tax fraud row with Germany, which had threatened to block the move. The tiny Alpine principality has been accused of encouraging tax fraud with its lax fiscal code.

Packages of euro bills

Liechtenstein is among three OSCE-recognized tax havens

An EU official told AFP that "the subject passed without any debate" at a meeting of European Union interior and justice ministers in Brussels.

The European Justice and Security Commissioner Franco Frattini said the tax evasion investigations involving Liechtenstein should not prevent the country from entering the visa-free travel zone.

"[It] is very important to get Liechtenstein in the Schengen area, it is simply not possible to have an enclave in the center of Europe," Frattini said before the signing ceremony.

Awaiting ratification

The exact date of Liechtenstein's entry into the Schengen area has not yet been set, but it has been closely tied to the adhesion of its bigger neighbor Switzerland, which is due to join by November.

The protocol allowing Liechtenstein to implement Schengen rules still needs to be ratified by all 27 EU nations, which could present an opportunity for one of them to use Schengen to gain leverage over it.

Municipal sign for Schengen, which is in Luxemburg

Problems could arise from a borderless tax haven

Germany spearheaded the crackdown on tax havens amid suspicions that hundreds of rich Germans evaded taxes by parking money in Liechtenstein banks. Despite this, however, Germany has opted against vetoing the principality's entry into the Schengen agreement.

Asked if Germany would hold off on approving Liechtenstein's accession to the European border-free area, Interior Minister Wolfgang Schaeuble told reporters, "in principle we are willing to ratify it, but there have been talks [on combating fraud], and they have to show some effect."

In addition to Germany, investigators in the United States, Britain, Australia, Italy, France, Sweden, Canada, New Zealand, Greece and Spain are among the countries now hunting for nationals hiding their money in Liechtenstein.

Currently on the blacklist

Hasler said his country is now seeking a "reasonable" tax fraud deal with the EU.

"With respect to the current tax policy questions that are broadly and controversially debated in Europe, we want to play our part in finding a reasonable agreement," Hasler told Reuters news service. "Our aim is to achieve a successful conclusion of the comprehensive tax fraud agreement that is currently under negotiation."

Vaduz castle in Liechtenstein

The Alpine country said would agree to a "reasonable" deal with the EU on tax matters

Liechtenstein is one of three countries on the Organization for Economic Cooperation and Development's black list of uncooperative tax havens, alongside Andorra and Monaco.

German Chancellor Angela Merkel told Hasler last week to take rapid action to combat fraud and make the principality's finance sector more transparent.

Germany threatens measures

After meeting with other EU finance ministers in Brussels on Thursday, German Finance Minister Peer Steinbrueck warned Liechtenstein would face strong measures if there were no changes on the European level.

"We will use pressure and influence on an EU level," Steinbrueck told the Ruhr Nachrichten newspaper.

EU finance ministers plan to talk again on March 5 to discuss the topic. If progress isn't made in Europe as a whole, "then we will take measures within Germany," Steinbrueck said.

Measures could include instituting disclosure requirements, or perhaps taxation at the source of every money transfer from Germany to Liechtenstein, he added.

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