The End Is Nigh For Liechtenstein -- But the end of Tax Planning? I
doubt it. Merchants have been using clever (and hopefully legal) means
to reduce their taxes since biblical times, and probably earlier. But
this may mean the end of the somewhat dodgy methods Europeans have
used to avoid taxes. While the OECD countries (which include most Western Countries) have been pointing their fingers at impoverished
islands in the Caribbean, they have quietly tolerated totally
fraudulent activities in their own backyards.
IT MAY BE TIME TO THINK ABOUT "LEGAL" TAX PLANNING!!!! Running to some
little principality in the mountains and setting up illegal accounts
is really not very smart. There are legal ways of reducing your taxes,
protecting your assets, and obtaining better financial privacy.
see:
http://www.TaxHaven USA.com/
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And now here is the article:
Tax Havens
The End Is Nigh For Liechtenstein
Parmy Olson 03.04.08, 1:00 PM ET
Forbes
Everybody else is doing it, so why shouldn't I? That's often been the
reasoning of the super rich for stashing their money into tax haven
countries.
But the idea of living in a country and not paying the same proportion
of tax as most other citizens, even if you're doing it legally, is
getting a bad rap, and not least because of what's happening to people
who put their money into Liechtenstein.
The tiny Alpine state sandwiched between Switzerland and Austria has
become the center of a media storm lately, after German authorities
began raiding the homes of citizens whom they suspected of using
Liechtenstein to funnel money to places like Switzerland to avoid
paying taxes.
Go to Liechtenstein, and you'll find little in the way of banking
infrastructure. On any given weekday, the mountainous principality can
seem almost dead with inactivity. Its allure to the super wealthy is
the promise to be one of the world's best keepers of secrets.
So secretive is Liechtenstein that it has become one of only three
countries that do not comply with information- sharing rules handed
down by the Organization for Economic Cooperation and Development
(OECD). But that reputation for secrecy is now under pressure from an
official German investigation into the activities of 1,400 people who
kept their money in LGT Group, one of Liechtenstein' s biggest banks
and one that is also controlled by Liechtenstein' s royal family.
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The probe was launched after a mole from the bank leaked client
details to German authorities: 600 clients were German, while close to
50 were from the United States. Relations between the two countries
are, not surprisingly, very tense at the moment. (See: "The Robin Hood
Of Taxes" ).
Now, at least 11 countries, including France, Britain and the United
States, are joining Germany to combat tax evasion through
Liechtenstein. And other tax havens, including Luxembourg and
Switzerland, are also being targeted, with the British government
reportedly targeting the Mediterranean tax haven of Monaco.
Some are saying that this is a tipping point for Liechtenstein, since
so much of its business is based on a perception of secrecy. "If
people lose confidence in banking secrecy in Liechtenstein, then
Liechtenstein is dead in the water," said Richard Murphy of Tax
Research, a British-based consultancy. "I believe it's very likely
that people will start pulling their money out."
How might someone put money into Liechtenstein in the first place?
Here's one dubious way: Imagine a company executive has just received
a bribe. In order to avoid getting found out or even paying taxes on
the bribe, he could set up an ultra-secret foundation in a
Liechtenstein bank like LGT Group. The trust would be established by a
local Liechtenstein lawyer who wouldn't be required to put the
executive's name down as the trust's owner.
The next step would be for the dodgy executive to register a "private
company" in another offshore tax haven like the British Virgin Islands
or the Cayman Islands, under the ownership of his new trust in
Liechtenstein. That new company would simply then have to invoice
something like "services with regards to consultancy" to the company
that originally paid the executive his bribe, giving it a veneer of
legality.
This is a classic backhand move that allows corporate corruption to
look like legal transactions. It's perhaps hardly surprising that,
while there are 800,000 companies registered in the British Virgin
Islands, only 10,000 actually trade there.
What brought on the sudden uptake by authorities from European nations
to crack down on tax evaders so suddenly and vehemently? Murphy of Tax
Research senses a change in the zeitgeist. Middle class citizens are
becoming frustrated that the wealthy are saving millions while their
own taxes seem to get frittered away by governments, and pension
investments are gambled away by collateralized debt obligation traders.
That is feeding through to politicians. Just take London. A large
number of non-British billionaires live there because they are legally
not required to pay tax on their earnings outside of the United
Kingdom. Yet Britain's reputation as a quasi tax haven is starting to
become a political liability, hence the government's recent decision
to crack down on non-domiciled, rich foreign residents who were
benefiting from this loophole. (See: "Britain: Bye Bye, Billionaires? ")
Liechtenstein is adamant that it has not done anything wrong; its laws
on tax and disclosure are simply different from Germany's and
everywhere else's, and that is that.
But right or wrong doesn't really matter to those who want watertight
confidentiality. And with tax investigators now banging on the doors
of Switzerland and Luxembourg, it's likely that the most far-flung tax
havens--think Singapore--will come to benefit from all this.
Mr Hay is a regular contributor to Distant Shore Ezine and is available for estate planning. Contact him at alexanderhay@post.harvard.edu
