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Tax cheats

March 6, 2010

Thousands of wealthy Germans have come forward after authorities said they would buy a stolen CD with the names of up to 1500 German citizens hiding cash away in Switzerland.

CD with Swiss flag
A lot of rich people are worried they could be on the CDImage: picture-alliance / dpa

According to a report from the World Tax Service, the number of voluntary declarations in Germany doubled in the last week of February alone - from 2,000 to nearly 4,000. To date, the total number in 2010 includes 1,300 in Baden-Wuerttemberg, 1,200 in Bavaria, 500 in Hesse, 430 in Lower Saxony, 200 in Hamburg and 175 in Schleswig-Holstein.

Finance Minister Wolfgang Schaeuble
Germany's Finance Minister Schäuble has asked tax dodgers to turn themselves inImage: AP

"It is a hell of a lot more than in previous years," spokesman for the finance department of the state of Berlin, Daniel Abbou, told Deutsche Welle. "We're surprised about the sudden honesty in the taxpayer."

It seems that quite a few Germans have been shaken by the news that the government has every intention of buying the tax data, even if it has been illegally copied.

At a reported 2.5 million euros ($3.4 million), the disc containing data on German tax cheats could well be the most expensive CD in the world. Unsurprisingly it's spawned many follow-ups, with state financial authorities seemingly being offered new CDs every week.

Exactly how much the state stands to gain from the flood of voluntary declarations is far from clear - there are thousands of details to assess and collate. But with millions in capital gains, interest and fortunes suddenly being declared, the taxman's windfall is likely to be in the tens of millions.

Edgy millionaires

German tax inspector's tag
The CDs give tax inspectors a list of potential suspectsImage: AP

Tax adviser Lenhard Jesse has been doing good business in the past few weeks. Sitting in his spotless and well-appointed office on Berlin's prestigious Friedrichstrasse, Jesse tells of panicky millionaires coming in with a guilty look on their faces.

"The people who want advice are very nervous, and are under a lot of pressure because they're unsure whether they are on this CD and what happens if they are on it," Jesse says.

Once he has soothed these fretful millionaires, Jesse assesses their options and begins the arduous task of piecing together their financial history.

"First, you have to go ten years back, and determine their income - usually we're talking about capital gains, interest, dividends - whatever," Jesse says. "When you've ascertained everything, you go to the authority and declare the income. Then our client has the advantage, if you see it that way, that they can't be prosecuted."

Unknown deadlines

People who retroactively declare their income voluntarily can expect to avoid prosecution, but only if the authorities have not already opened an investigation. If the tax authorities have formed a suspicion that an individual is hiding money, and have begun to investigate, a voluntary declaration is no longer accepted.

As tax lawyer Jens Schmidt of the firm White & Case points out, this means that the CDs currently being put in circulation have put extra time pressure on people who have 'accidentally forgotten' to pay their taxes. On top of this, a recent constitutional court ruling has made sure that serious tax offenses will receive heavy punishments.

"If the sum of unpaid tax is in the six-figure area, a fine is less likely - you are more likely to get a custodial sentence," says Schmidt.

"That doesn't necessarily mean you end up in jail. You might get a suspended sentence. But if the sum is over a million euros, the court ruled that the sentence should not be suspended."

Costly honesty

German tax inspector with files
Inspectors can rule out a voluntary declaration if the tax payer is already under investigationImage: Frank Gazon

Faced with the real prospect of jail, it's not surprising that people are flocking to make self-declarations. But this is obviously also very costly. In addition to paying the years of back-taxes, the tax offenders also have to pay interest of six percent per year on what was unpaid.

"Independent of the current situation, I would always advise people to voluntarily declare," Schmidt says. "The chances of keeping money hidden from the financial authorities are getting slimmer. As a taxpayer, you should really think carefully about that."

And there is another factor that may weigh heavily on those with hidden Swiss fortunes: the political pressure is already growing to get rid of the voluntary amnesty option altogether.

Author: Ben Knight
Editor: Toma Tasovac