A squealing tax mouse

21 February 2008 By William Echikson

Germany s offensive against its pocketsize neighbour represents the latest example of increased pressure on tiny tax havens. Tax evasion will never vanish. But smart financial centres understand that reputation matters and that they can thrive by respecting international rules.

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Liechtenstein defied pressure from Germany on Thursday to end bank secrecy which Berlin says encourages its citizens to evade taxes. "When other states are increasingly interfering in the private sphere of their citizens, yes, even to such a point that they spend millions to buy stolen data, citizens feel a big need for strong privacy," Liechtenstein's Crown Prince Alois told parliament.

European Union officials said on Thursday that they would press Liechtenstein and other tax havens to step up their fight against fraud.

Angela Merkel, German chancellor accused the principality's banks of encouraging lawbreaking in Germany after a meeting in Berlin on Wednesday with Liechtenstein's prime minister Otmar Hasler.

German prosecutors, who paid money for information to an informant from a Liechtenstein bank, have launched an investigation into as many as 1,000 people who are suspected of using special trusts to hide funds. Deutsche Post CEO Klaus Zumwinkel resigned last week after being charged with evading taxes.

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