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Tax haven crackdown

May 8, 2009

The German Bundestag is examining a new legal initiative to curb rampant tax evasion with Finance Minister Peer Steinbrueck accusing neighboring countries of aiding and abetting in fraud.

Flags of Germany and Liechtenstien with bank note
Principality of Liechtenstein - a stronghold for German tax dodgersImage: DW

A key element of the draft bill is a provision that forces German taxpayers and companies to disclose financial transfers to countries blacklisted as alleged tax havens by the Organisation for Economic Cooperation and Development (OECD).

Individuals violating the new law are set to face stiff penalties and companies will have existing tax benefits sharply cut.

German Finance Minister Peer Steinbrueck introduced the measures to parliament on Thursday saying that the government treasury would lose about 100 billion euros ($133 billion) in annual revenues due to tax evasion and that globally the damage is estimated at around 12 trillion euros.

"There is a need for tighter tax laws," he said, "to be able to reduce taxes across the board, and to finance urgently needed investments in the country’s future."

"Many Germans feel like fools by paying taxes regularly. The state has to guarantee justice within the tax system," Steinbrueck added.

War of Words with Neighbors

German Finance Minister Peer Steinbrück
German Finance Minister Peer Steinbrueck declared war on tax havens at a conference on tax evasion in Paris, Oct. 21, 2008.Image: AP

The German finance minister has waged a fierce public campaign to stamp out tax evasion, accusing neighboring countries Liechtenstein, Switzerland and Luxembourg of aiding and abetting German tax dodgers.

At a meeting of European Union finance ministers on Tuesday, Steinbrueck said he would push for transparency on bank secrecy there and criticised that these countries had not attended a conference on tax havens in Paris last October.

"They were invited but they didn’t come," he said. "I will obviously invite them to the follow-up conference in Berlin in June: Luxembourg, Liechtenstein, Switzerland ... Ouagadougou."

Steinbrueck‘s reference to the capital of Burkina Faso was apparently meant to be a joke, but it has sparked outrage in those countries and angry diplomatic exchanges.

Luxembourg’s Prime Minister Jean-Claude Juncker told German public TV broadcaster ZDF that he would not accept the way in which Steinbrueck had talked about his country while the parliament there condemned "without reservation the misuse of language..."

Steinbrueck is no stranger to courting controversy: He triggered a fierce spat with Germany’s neighbors last month by saying that other countries should use "the whip" on the Swiss and by generally comparing tax havens to "Indians, running scared from the cavalry".

New Law Not Needed

The German parliament in session
The German Bundestag Lower House of Parliament is set to approve crackdown on tax evasionImage: AP

Germany’s opposition parties criticised the finance minister’s remarks saying that he should have started negotiations with these countries rather than attacking them.

In the wake of the global financial crisis, the G20 goup of nations agreed on global rules on sharing tax information with a commitment from countries to cooperate in cases of suspected fraud.

Faced with the threat of being added to a blacklist of offenders, Luxembourg, Switzerland, Austria, Monaco and others signed up to the set of tax standards drawn up by the OECD.

Uh/rm, ap/rtre/ape/dpa