Germany presses Liechtenstein for help in tax probe

Liechtenstein, along with Andorra and Monaco, features on an OECD list of "uncooperative tax havens."

German Chancellor Angela Merkel pressed the prime minister of tiny Liechtenstein on Wednesday to help in a large-scale tax-evasion investigation that centers on money allegedly stashed by Germans in the Alpine principality. Merkel called for Liechtenstein to make quick progress toward increasing the transparency of its financial system, but also said she expected Germans to pay their taxes "here, according to the law." Merkel met Prime Minister Otmar Hasler - who also is his country's finance minister - following recriminations between the two nations over the scandal. "First of all, I asked that Liechtenstein help in clearing up the cases of tax evasion that have been discovered," she said at a news conference. Merkel pressed for quick progress toward an anti-fraud agreement between the European Union and Liechtenstein, and urged the principality to cooperate with the Organization for Economic Cooperation and Development (OECD) on curbing unfair tax competition. Liechtenstein, along with Andorra and Monaco, features on an OECD list of "uncooperative tax havens." "I would say that time is pressing - because the faster this happens, the better the foundation for good neighborly relations," Merkel said. Hasler said Liechtenstein "is a modern financial center and we are also willing and ready to enter into cooperation." The tax-evasion probe last week forced the resignation of one of Germany's most prominent managers, Deutsche Post chief executive Klaus Zumwinkel. This week, tax inspectors have staged a string of raids across the country. On Wednesday, Karl Michael Betzl, Bavaria's top data protection official, agreed to give up his duties temporarily after his name came up in the investigation, said Bavarian state parliament president Alois Glueck. Betzl, who says he is innocent, was visited by investigators, Glueck said. German officials have pinpointed as a problem Liechtenstein foundations that German investigators have alleged can be used for evading taxes. Liechtenstein officials defend the practice of allowing foreigners to open trusts there anonymously by registering them through a local attorney or trustee, and say reforms currently being prepared are unrelated to the German scandal. "This is an institution that is more than 80 years old and it is not legitimate to equate the foundation law with tax evasion," Hasler said. Merkel pointed to a Liechtenstein-US agreement which, she said, provides for taxation of the foundations. "We say that what is possible with the United States... should also be possible with the European Union," she said. "I did not set an ultimatum," Merkel said, but added that non-EU Liechtenstein's upcoming entry to the bloc's passport-free Schengen zone would require parliament's approval. She said lawmakers could be expected to ask "how negotiations are progressing on other questions that interest us." Merkel brushed aside comments Tuesday from Liechtenstein's ruling Prince Alois, who argued that Germany should get its own tax system under control and criticized the fact that German intelligence paid an informant up to €5 million for names of account holders from a Liechtenstein bank. "I find that such theories... are not sustainable, not right and not helpful for our relations," she said. Still, sharp tones came from Germany too. Kurt Beck, the leader of the center-left Social Democrats - who make up half of Merkel's government - said much had been done to combat tax evasion elsewhere. "That there is such behavior in mini-states such as Liechtenstein is something that one can only equate with a modern form of robber baronry," he was quoted as saying in the German weekly Stern. If EU pressure does not help, "we must also talk about sanctions, about whether we prevent financial transfers to a country that does not help clear up criminal behavior or even supports it," he said, according to the report.