Germany's most populous state again has bought two CDs with data on suspected tax evaders. That has reignited debate about methods for cracking down on German tax evaders with Swiss bank accounts.
One CD with information about 1,000 suspected tax evaders is said to have cost 3.5 million euros ($4.3 million). Thomas Eigenthaler, chairman of the German Tax Workers Union, said he thoroughly approves of the move.
"The 3.5 million euros was very well invested," he said. "I expect a lot of corrected returns to come from people who fear they could be implicated by the CDs."
Judging by past experience, Eigenthaler is right. In 2010, several German states acquired illegally produced CDs with customer data from Switzerland, Luxembourg and Lichtenstein. After that, the number of voluntary disclosures by tax evaders soared to about 25,000. Previous years saw only 2,000 people come forward to the tax authorities.
The 2010 disclosures led to about 2 billion euros in extra revenue for German state coffers, according to the German Tax Workers Union. The state of North-Rhine Westphalia alone raked in 300 million extra euros.
Hanno Kube, finance and tax law professor at the University of Mainz, said the purchase of the tax CDs is "hardly legally defensible."
"In the very short term, [money for the CDs] is supposedly well invested," he told DW. "But in the long term, you pay the legal price. I see very considerable doubts when the state steadily involves itself in activities that in the end have a criminal background."
Kube concluded that Germany should abide by its own rules and refrain from such questionable practices.
Eigenthaler strongly disagrees. He told DW he has "no moral or legal concerns" about the methods in question. North-Rhine Westphalia's finance ministry is clearly of the same mind. The ministry has pointed out that a German-Swiss tax agreement has not completely ruled out the purchase of CDs with suspected tax evaders' data.
German-Swiss deal lacks full support
The 2010 purchase of CDs with tax data had consequences outside of Germany. Governments of countries where the accounts were held were furious.
To smooth things over, Berlin made a deal with the Swiss government about how to deal with funds German tax evaders have hidden in Swiss accounts. The agreement lets Germany levy a 21 to 41 percent retroactive tax on hidden money. In exchange, tax dodgers are not to be further prosecuted.
The agreement further calls for both Germany and Switzerland to impose a 26.4 percent tax on Germans' Swiss bank accounts in the future. The idea is to eliminate the incentive for Germans to move funds outside the country.
Swiss Finance Minister Eveline Widmer-Schlumpf and her German counterpart Wolfgang Schäuble sign the tax agreement
The deal was scheduled to come into force next year. However, opposition Social Democrats (SPD) in Germany's upper house of parliament, the Bundesrat, are withholding approval of the agreement. They claim it is too lenient.
North-Rhine Westphalia's finance minister, a Social Democrat, said the deal had loopholes "the size of a barn door." He thus favors continuing to buy data on suspected tax evaders. The wording of the relevant passage in the German-Swiss deal arguably leave the possibility open.
The document states, "The government of the Federal Republic of Germany asserts that […] the German tax authorities will not actively make an effort to acquire customer data stolen from Swiss banks."
Kube said the wording leaves plenty of room for interpretation.
It is "a remarkable formulation. The boundaries are definitely fluid," he added.
According to him, the German-Swiss deal creates incentive for Swiss bankers to sell their data. If a Swiss banker knows German authorities will pay a hefty sum for illegally copied data about his German customers, that banker will be tempted to make the sale. Kube said it is questionable whether such a situation would amount to "active efforts" on the German side.
The issue seems likely to come before Germany's constitutional court once again. In November 2010, it said CDs with suspected tax evaders' data could be used in criminal prosecutions, but it did not rule on the legality of buying those CDs in the first place.
Author: Rachel Gessar / srs
Editor: Andrea Rönsberg