Vaduz Castle - Vaduz is the capital of the principality of Liechtenstein, situated by the Rhine

The OECD said today that disclosures concerning alleged widespread tax evasion by German citizens through the Alpine tax haven of Liechtenstein, highlight a much broader challenge in today’s globalised economy: how to respond to countries and territories that seek to profit from tax dodging by residents of other jurisdictions.

“This is a fundamental issue in our increasingly interdependent world,” OECD Secretary-General Angel Gurría commented.

OECD countries and a number of co-operative financial centres have been working together for a number of years to address the problems posed by anti-competitive tax practices, both in OECD countries and offshore, by developing standards of transparency and exchange of information in tax matters that balance the interests of financial privacy with the need for countries to be able to enforce their own tax laws.

Despite these efforts, however, a few jurisdictions still fall short of best-practice standards, effectively providing a basis for illegal tax evasion on the part of some of their customers. 

In 2002, OECD published a list of un-cooperative tax havens, initially including seven countries. Several have now made commitments to work with OECD and its partners to improve transparency. But three remain on the list:  Andorra, Monaco and Liechtenstein.  

“As long as there are financial centres that refuse to co-operate in bilateral tax information exchange and that fail to meet international transparency standards, residents in other countries will continue to be tempted to continue to evade their tax obligations,” Gurría commented.

“The openness of the global economy can only be sustained if participants assume mutual responsibilities, as well as sharing benefits. Excessive bank secrecy rules and a failure to exchange information on foreign tax evaders are relics of a different time and have no role to play in the relations between democratic societies,” he stated.   

Liechtenstein's Crown Prince Alois today slammed German authorities for their handling the investigation into alleged tax evasion using funds channeled to the small Alpine principality.

``If media reports are to be believed, German authorities paid a criminal to obtain stolen data,'' Alois said at a press conference. ``We reject this action.''

The German government confirmed on Monday the Federal Intelligence Service, or BND, received an ``unsolicited'' offer by an informant and up to €5 million was paid for a DVD containing data on about 750 wealthy German nationals.

``Germany has clearly failed to understand how one behaves towards a friendly state. We are a small country and we want good relations with our neighbors, but we are also a sovereign state,'' the prince told the press conference in Vaduz.

``Germany won't solve the problems of its tax system with this attack in Liechtenstein,'' Alois said. ``Germany would be better served to use the money to improve its own tax laws rather than paying for information whose legal background is questionable.''

Klaus Tschuetscher, Liechtenstein's justice minister, also said today that the country's prosecutors have opened a probe to investigate whether a person was instigated to breach the secrecy of business data for the benefit of a foreign nation, a crime under the laws of Liechtenstein.

German Chancellor Angela Merkel said on Monday that Liechtenstein should increase transparency in the tax haven's banks and other financial institutions.

Merkel will meet with Liechtenstein's Prime Minister Otmar Hasler in Berlin on Wednesday, said she will raise the matter of how to regulate holdings in banks and foundations to build on previous measures taken by the authorities.

``There are matters that in our opinion still have to be addressed, and I will discuss those'' with Hasler, Merkel told reporters. Past steps ``give me courage we can clarify the remaining issues,'' she said. ``It's important that monies generated abroad are taxed properly in Germany.''