What it says is at the end of the day simple, but vitally important, and that is that iof the European Union Savings Tax Directive is amended as the EU desires then Liechtenstein’s secrecy is cracked open. Which is very welcome indeed. Over to Mark:

“Liechtenstein is home to nearly 100,000 entities and legal arrangements which are effectively untaxed. These structure are used for succession planning, creditor protection, family support and confidentiality. Considering there are onshore taxable facilities that do these tasks equally well, one assumes the following Liechtenstein structures are chosen because tax efficiency is a prime motivator.

• Aktiengesellschaft A.G. (company limited by shares)
• Gesellschaft mit beschrenker Haftung GmbH (private limited company without shares)
• Anstalt (establishment, commercial and non-commercial without shares)
• Stiftung (foundation)
• Treuunternehmen (registered trust)
• Treuhandschaft (trust)
• Partnerships [Limited, collective, simple, occasional & silent] (Not taxed on income from assets)

How Liechtenstein structures avoid tax:

Liechtenstein foundations, establishments and trusts have to date successfully avoided international taxes as they are crafted to present an image that no party involved can have a tax liability. This is done in seven stages:
1. Separate ownership of assets from the principal contributor: The principal contributorgives away their assets to someone else to manage on behalf of named or unnamed beneficiaries.		2. Disguise the source of assets: Utilise an agent /nominee to contribute the assets on behalf of the principal contributor. The only name on public record as the provider of funds is the nominee / agent, e.g. the lawyer who founds the foundation.
3. Utilise a temporary holder/ manager of the assets: The management cannot be taxed as they are not beneficial owners of the assets, but merely look after it for named or unnamed beneficiaries.		4. Disguise control of the assets: If the principal contributor is seen to be controlling the assets after giving it away, he may be liable for tax. Therefore the principal contributor manages the assets indirectly via an undisclosed letter of wishes / bylaws, appointment of protector, etc.
5. No beneficiary is immediately entitled to any payment received: No specific beneficiaries are named. Therefore no income tax payable.		6. Alchemy on income received: Convert the character of income into a tax efficient payment at a later date, such as charity, capital gain, wage, loan, etc.
7. Present a restricted view of structure to bank: The bank holding the structure’s account is the Paying Agent responsible for applying the savings tax. However, with a restricted view presented to the bank, a beneficial owner cannot be identified. As no-one supposedly owns the assets, the bank cannot apply the savings tax.

How the EU savings tax amendments will tackle Liechtenstein tax avoidance structures:

I. Structure becomes the Paying Agent Upon Receipt: To circumvent the bank’s limited view of the structure, the savings tax directive amendment moves the Paying Agent responsibility away the bank and onto the structure itself. The logic being the structure has an unimpeded true view of all parties involved.
II. The Principal Contributor is the beneficial owner : The amendment takes into consideration that it will be highly unlikely to identify a beneficiary immediately entitled to the payment received. In this case, the principal contributor of assets will be deemed the beneficial owner. The logic being that tax liability remains yours until transferred to someone else with a tax liability. In limbo doesn’t qualify for exemption.
III. Agent / Nominee is transparent: The savings tax directive looks through the nominee settlor / shareholder. A lawyer used to establish a foundation is merely an agent founder acting on behalf of the principal founder. The beneficial owner is deemed to be the individual who initially contributes the assets, directly or indirectly. According to the EU directive on money laundering and anti-terrorist financing, a nominee is a trust and company providing service and sand is therefore a candidate for Paying Agent Upon Receipt responsibilities.
IV. Paying Agent Upon Distribution if no contributor identifiable: In the event that a principal contributor is not identifiable, e.g. for a deceased settlor, then the structure becomes a Paying Agent Upon Distribution and must apply the savings tax to any individual who become entitled to the payment within 10 years
V. No more dummy charities: Trusts or foundations set up for charitable purposes will only be exempt from Paying Agent Upon Receipt responsibilities if they serve:-  exclusively for charitable purposes, and for the public benefit. Mixed purpose or private charity foundations will thus be in scope.
VI. Bank accounts in Singapore / Dubai / Bahamas, etc also in scope: A knee-jerk reaction to move the structure’s bank account to beyond the savings tax territory will not avoid the savings tax provisions. The Paying Agent Upon Receipt must apply the savings taxirrespective of where the assets are held. This is similar to am economic operator securing interest from anywhere in the world.
VII. Run but you can’t hide: A fiduciary structure fleeing to outside the savings tax territory, e.g. to a Singapore trust, will not help the trust and company providers based within the savings tax jurisdiction.  If the new structure is still effectively managed from within the savings tax territory, e.g. trustee, council or director is based in Liechtenstein, then the management will be a Paying Agent Upon Receipt, and consequently the structure will be in scope.

In summary, the EU savings tax amendment should end opportunities for tax avoidance using Liechtenstein structures for EU residents, as described in this  guideline on Paying Agents Upon Receipt.”

Now you know why I am so keen on reform.

And why every honest taxpayer in Europe should share that enthusiasm.

The German government may be about to step up its pursuit of tax evaders amid reports that a new CD containing stolen bank data has been offered for sale to state authorities.

Schleswig-Holstein, the most northerly of Germany’s 16 states, is in talks with an unidentified source to buy the CD containing details of “hundreds” of people with money hidden in a bank in Liechtenstein, the Sueddeutsche Zeitung reported today, without saying where it got the information. The data relates to accounts worth 500 million euros ($641 million) at Liechtensteinische Landesbank, the Munich-based newspaper said.

Read more…

The Toronto Star

At the root of the public fascination with the fate of Michael Bryant is a question that lies at the heart of democracy: Do the rich and powerful get special treatment?

Preventing the public from answering “yes” to that question will be a challenge for authorities, with the spotlight glaring down on every aspect of the prosecution of the former provincial attorney general for his deadly encounter with a cyclist.

Continue reading at TheStar.com…

Deutsche Bank AG, Commerzbank AG and Sal. Oppenheim Jr. & Cie. defended international activities after Die Zeit reported German lenders are “deeply involved” in business with tax havens.

The newspaper reported that German banks, through units in Liechtenstein and Switzerland, have business relationships with more than 1,600 foundations and trusts in tax havens, citing internal documents from the Finance Ministry.

Continue reading at Bloomberg.com…

Liechtenstein’s Crown Prince Alois said his country will push ahead with moves to bolster adherence to global tax rules at the risk of losing bank clients.

The principality of 35,000, on the Organization for Economic Cooperation and Development “gray list” of tax havens that haven’t yet implemented OECD standards, will seek to be removed from the list by signing 12 tax-information exchange agreements in the coming months, the prince said in an interview on Aug. 21.

Continue reading at Bloomberg.com…

The prince took aim particularly at Germany, which has been pressuring Liechtenstein to clamp down on confidential banking practices that it claims allow wealthy Germans to evade taxes.

“We and Switzerland saved many people, especially Jews, with banking secrecy,” Hans-Adam II told the Liechtensteiner Volksblatt. “Germany should clean up its own act, and think about its past.”

The prince noted how some Jews were able to buy their safety during the Holocaust by using money they had safely deposited in Switzerland or Liechtenstein. Secrecy rules also helped people persecuted by communist governments and “continues to save life … in Third-World countries run by bloodthirsty dictators,” he said.

This is a reckless argument. Aside from the fact that it’s almost never a good idea to invoke the Holocaust in support of your argument, banking secrecy was actually NOT created to protect Jews and other minorities from the Nazis. As Bruno Gurtner, Chair of the Global Board for Tax Justice Network, notes in his March letter to the Financial Times:

This is a big myth. The argument about [banking secrecy] being set up to protect Jewish money first appeared in the November 1966 Bulletin of the Schweizerische Kreditanstalt (today Credit Suisse). The main reason bank secrecy was strengthened in 1934 was a scandal two years earlier, when the Basler Handelsbank was caught in flagrante facilitating tax evasion by members of French high society, among them two bishops, several generals, and the owners of Le Figaro and Le Matin newspapers. Before that, there was professional secrecy (such as exists between doctors and their patients), and violation was a civil offence, not a criminal one as it is today. Swiss bank secrecy has always been an effective way to attract foreign money. (Bold emphasis is my own, italic emphasis is Gurtner’s)

Don’t believe Mr. Gurtner?  Many other news sources support this fact.  Take this Reuters article as an example:

But [Switzerland's] code of secrecy — which local myth inaccurately claims was introduced to protect fleeing Jews — is as controversial as it is protective.

The notion that banking secrecy was invented to protect the Jews from the Nazis is a myth, and to perpetuate this misconception is truly vile.  While banking secrecy was not, in fact, invented to protect the Jewish people, it is a fact that many Jews were able to hide their money in secret Swiss bank accounts.  But even this argument is a double-edged sword, as Swiss banking secrecy also acted as a conduit for Nazis to conceal their money from the outside world.  Moreover, many banks that did take money from Jews who were trying to hide from the Nazis later refused to give it back after the war.  I’m sorry, Prince Hans-Adam, but the moral high-ground belongs with those who wish to end banking secrecy.

But the Prince doesn’t just insult the Jewish people by stoking the memories of the Holocaust.  He then puts on his hypocrite hat and blames Germany for the financial crisis:

“Beyond that, Germany and many other countries have an unbelievable mess with their state finances,” Hans-Adam II said, referring to a traditional argument here that poor governance and high taxes lead to tax evasion, not banking secrecy. “These must first be put in order. They have been unsuccessful until now in doing this. The financial crash basically goes back to this alarming disability.”

It is impossible to deny that financial powerhouses like Germany, France, the UK, and the US made some poor decisions and share some responsibility for the financial crisis.  However, low-regulation, secrecy jurisdictions like Liechtenstein, the Isle of Man, Switzerland, the Cayman Islands, and many others played an incredibly significant — if not the most significant – role in the financial collapse.

The statements made by the Prince of Liechtenstein are those of a panicked person who sees the illicit financial system which brought him much personal wealth begin to slip away: they are the verbiage of desperation.  We’re making real progress.

GENEVA — Liechtenstein’s reigning prince has angered German Jews by invoking the Holocaust to defend his country’s banking secrecy laws, drawing sharp reactions Monday.

The latest flare-up of fractious relations between the tiny Alpine principality and its much larger neighbor to the north stemmed from comments in a weekend interview Prince Hans-Adam II gave for Liechtenstein’s national holiday.

Continue reading at Google.com…

Last week was not kind to tax evaders. Liechtenstein agreed an information-sharing treaty with the UK that, should it serve as a model for the principality’s deals with other countries, would put it out of the tax-haven business. The OECD recognised the Cayman and British Virgin Islands as having implemented the organisation’s tax standards. The US forced more names of suspected tax evaders out of Swiss bank UBS. The war on tax piracy is making progress.

Supporters of bank secrecy have wrung their imaginations dry in coming up with ingenious defences for secret accounts. The very real fear of kidnapping in places such as Latin America is one of the few good reasons that might justify allowing the rich to hide their wealth. But for the most part opacity simply helps to evade taxes.

Continue reading at FT.com…

What’s so significant about the Liechtenstein deal?

Liechtenstein, once one of the world’s most secretive tax havens, is going further than almost any other centre in cleaning up its act. The deal is a dramatic example of a jurisdiction giving up banking secrecy in return for recognition as a legitimate financial centre. It is helping flush out tax evaders by making its banks close non- compliant accounts by 2015.

Why have Liechtenstein and other bastions of secrecy crumbled like this?

Liechtenstein found itself exposed after the theft of data by a former employee led to an evasion scandal last year. But every tax haven is feeling the heat. The big industrialised countries have threatened sanctions if tax havens do not give up banking secrecy. Tolerance for evasion is running low because of the poor state of most countries’ public finances and the election of Barrack Obama gave new momentum to the campaign against tax havens. The dispute between the US and UBS, the Swiss bank, over possible evasion by 52,000 US clients has added fuel to the flames.

Continue reading at FT.com…