Banking secrecy – Significance of EU and OECD abolition plans for doctors, pharmacists and the entire SME sector

Tax evasion due to deferred tax reform: no additional revenue for the state

The fact that probably 90 percent of Germans have not paid full tax on their capital gains is due in particular to the fact that it is difficult to see why taxes should be paid on low returns despite the loss of purchasing power. Psychologists explain this “self-help” with the perception of an unfair, unmanageable tax system. After all, 70 percent of the world’s literature on the subject of taxation deals with German regulations.

Relaxation of banking secrecy: no automatic data comparison

A number of countries have agreed to provide mutual administrative assistance in the future, even in cases of suspected tax evasion. These include Liechtenstein, Andorra, Luxembourg, Austria, Switzerland and most recently Monaco. However, this “containment of European tax havens” will presumably not bring the state an additional cent in tax revenue. For this would only have been the case if there had been a consistent extension of withholding taxation: in this way it could have been ensured that in the case of foundations and trusts following the “example of the ex-post office executive Z.” the tax authorities from abroad would at least receive the final withholding tax (anonymously if necessary). This has already existed for years for natural persons within the framework of the EU withholding tax. Consistently implemented across borders in Europe, this would make any criminalisation of citizens unnecessary, preserve banking secrecy and strengthen citizens’ trust: “Anyone who wants to get to the source of the money would only have to think against the tide.”

World Financial Summit: European Union without determination?

The abolition of banking secrecy had been expected by international banks for decades: As a result, there are a large number of subsidiaries of German, Swiss and American banks and insurance companies in tax havens. The vast majority of millionaires have long since moved their money even further away, by a simple transfer. But the EU is not forcing either state or private banks to stop this “aid in tax-neutral money” (including subsidiaries). Rather, it is only the USA that has threatened to withdraw UBS Bank’s banking license in America if it does not immediately and completely cease its illegal practices.

After all, the U.S. loses tax revenue of about $100 billion annually. The princely LGT Bank sold its foundation business to Herbert Batliner, who is now 80 years old. He is considered the inventor of the Liechtenstein Family Foundation. Today, the First adisory Group (trust) he founded manages around 1,000 foundations with assets of around 20 billion Swiss francs. Among his clients were Friedrich Karl Flick and Paul Schockemöhle – both well known for tax evasion. The way the “new” model works is that there is no longer any data in the bank about who is actually behind a trust or foundation.

So the books in the bank become cleaner, and the tax-neutral money can stay where it is – without ever entailing a cent of additional tax payment to the rest of Europe: This works with and without banking secrecy, as a recent look at the books of German financial houses reveals. The large and very large fortunes could also afford professional solutions from Liechtenstein: However, there is a lack of trust in the financial centre, because, for example, stolen or “sold” data of several financial houses or the investigations of German tax authorities in the direction of the princely family have probably damaged the reputation.

Middle class damaged: Financial fraud from the Alps

Germans have fallen for advertising with the “bankruptcy privilege” in rows: Assets in life insurance policies are supposed to be insolvency-proof, the advertising promises. A glance at the law book reveals the legal error of the intermediary. In addition, in the middle class, masses of allegedly tax-free life insurance policies with bank or securities deposits were sold. The tax authorities hardly ever recognise such constructions. The reason for this is regularly that the financial houses have saved themselves the expense of researching the correct legal construction.

For this reason also some capital investors can hope for compensation, exceptionally then the evaded tax belongs to it, because there would have been regularly alternatively also legally tax-free constructs. In addition, there are the many cases of credit-financed investments via Liechtenstein banks: the resulting destruction of money has already brought many investors to the brink of over-indebtedness.

With or without banking secrecy: spreading risk

For SMEs, it is crucial to rely on more than one bank. It is not only financial centres that can be compared, but also banks: the business models range from “highly criminal” to “highly reputable” – and the equity capital of some private banks can be negative or far more than 20 percent despite state aid. Those who have their tax savings models examined in writing beforehand are on the safe side even without banking secrecy: you certainly cannot expect this from a bank, insurance company or customer advisor.

by Dr. Johannes Fiala and Hans L. Merten

by courtesy of

www.dzw.de (published in “Die Zahnarztwoche” 16/2009, page 6)

and

VITA May/June 2009, pages 25-26 under the heading: Significance of the EU and OECD abolition plans for physicians and pharmacists.