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EUROPE: Tax Evasion Rampant Despite Treaties With Tax Havens

Julio Godoy

BERLIN, Feb 23 2010 (IPS) - New cases of tax evasion in several European countries are showing the limits of the informal agreements reached between the Organisation for Economic Cooperation and Development (OECD) and tax havens such as Switzerland, Luxembourg and Liechtenstein.

The cases surfaced in January when anonymous former clerks at Swiss private banks offered the German ministry of finance copies of CDs containing data on German citizens who maintain secret bank accounts in Switzerland, and who use them to evade taxes.

Early February the German government announced that it would buy the CDs, for some two million euros (2.7 million US dollars). The data contained in the CDs would allow the German fiscal authorities to legally pursue the evaders and collect more than 400 million euros (543 million dollars) in additional taxes.

The government’s decision to buy the CDs and use the data to launch inquiries into the tax evaders’ financial dealings have triggered a wave of corrected tax declarations in recent weeks.

Allegedly, more than 3,000 German citizens have, since the beginning of February, presented new tax declarations, hoping to avoid judicial inquiries and possible prison sentences.

Similar cases have been reported in France and even in Switzerland.

According to surveys by the Swiss press, at least 300 tax evaders have filed new corrected declarations in February. In France, fiscal authorities have bought several CDs containing data on secret bank accounts held by French citizens in Swiss banks, and launched prosecutions.

In the German case, the government’s decision to buy the CDs also led to diplomatic quarrels with Swiss authorities. Swiss high-ranking government officials accused the German government of complicity with thieves who have stolen the data from private banks.

At a press conference on Feb. 21, the Swiss minister of justice Eveline Widmer Schlumpf even accused Germany of “fencing.” Widmer Schlumpf added that her government will not cooperate with Germany in its fight against tax evasion as long as “it uses data stolen [in Switzerland] to substantiate its claims.”

These affairs confirm that tax evasion continues to take place on a large scale in Europe, despite the agreements reached in 2009 by the OECD and European tax havens.

According to estimates by the U.S. senate, tax evasion represents global revenue losses of up to 100 billion dollars a year for states. “In many European countries the sums run into billions of euros,” says a recent OECD paper on the issue, released Feb. 18.

One year ago, in the wake of the global financial crisis that illustrated the troublesome consequences of financial deregulation, the OECD agreed with fiscal authorities in countries such as Switzerland, Liechtenstein and Luxembourg to improve tax transparency and push forward a more effective exchange of information in matters related to international capital movements and tax evasion.

According to the OECD, “Since the April 2009 … almost 300 tax agreements have been signed to meet [the group’s] standards on tax transparency and effective exchange of information. All OECD and G20 countries are committed to these standards.”

Switzerland is member of the OECD.

At the time of the agreement, the OECD secretary general Angel Gurría said, “What we are witnessing [in the fight against tax evasion] is nothing short of a revolution. By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow.”

With the OECD agreement with European tax havens, “we have equipped ourselves with the institutional means to continue the campaign,” Gurría added. “With the crisis, global public opinion’s expectations are high, their tolerance of non-compliance is zero and we must deliver”.

The OECD also elaborated two lists of tax havens. One includes all OECD countries and territories under European or U.S. jurisdiction, which had signed the agreement with the organisation.

The other register, officially labelled black list, records all other non- European countries which offer very low or no tax at all to foreign capitals, and which did not put in practice the norms and standards set up by the OECD.

Despite the evidence that such agreements and grey lists have at best only symbolic value, on Feb. 22 the French government released yet another black list of tax havens, with 18 countries or territories in the developing world. The list includes six islands in the Caribbean and Oceania, as well as four Central American countries, Brunei, the Philippines, and Kenya.

All capital transfers between France and these 18 territories is being imposed with a 50 percent tax.

But, as the French tax expert Dominique Richard noted in a comment for the newspaper ‘Sud Ouest,’ “none of the big European tax havens, used by international capital, from Luxembourg to Monaco, appears in the French black list. All these big accomplices of tax evasion and money laundering have cheaply regained their virginity [before the OECD] by signing symbolic agreements.”

French unions point out that the tax justice and transparency the French government demands internationally does not operate within the country. “The tax rate for small French enterprises reaches 28 percent upon their net operating surpluses. But the 40 largest French enterprises pay only eight percent,” the Sud fiscal union (the union’s office at the ministry of finances) said in a communiqué.

In Germany, the wave of new corrected tax declarations is moving parliamentarians to considering abolishing the impunity offered to tax evaders who voluntarily correct their own tax declarations.

The German penal code sanctions tax evasion with prison sentences of up to 10 years. But if tax evaders by their own will correct their revenue declarations, the law foresees no sanction other than the payment of the evaded taxes and the corresponding interests.

On Feb 22, Leo Dautzenberg, in charge of fiscal policy at the ruling Christian Democratic Union party, said at a press conference: “The present wave of corrected tax declarations proves that tax evaders act out of fear. The parliament should correct the impunity for such crimes.”

Dieter Ondracek, chairperson of the fiscal union, also complained that German penal law grants impunity to tax evaders, unparalleled in other law enforcement areas. “The tax evaders’ sudden honesty is simply the consequence of the fear, and of the promise of impunity,” Ondracek told IPS.

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