The 'who's who' of European tax havens

Will Germany, UK and Netherlands end up in the OECD "black list" of terrible "tax havens"?

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Forget about the Bahamas, Panama, Cayman Islands, or Fiji. If you want to avoid paying taxes and have no problem with dicey business practices, Europe has a lot to offer.

Europe is far from innocent in the international offshore tax evasion industry, as the Tax Justice Network (TJN) recently demonstrated. Many European countries, with their stable infrastructure and professional personnel, provide fertile ground for businesses or individuals to evade taxes.

Andorra

There are more than a few gaps that need to be filled in Europe, according to Markus Meinzer of the TJN. He helped paint a picture of who's who among European tax havens.

The independent mini-state of Andorra in the Pyrenees, which is not a part of the European Union, offers a secretive place for those in neighboring countries to stash their money. Particularly attractive is the personal service offered by banking advisers there. It's also easy for Spaniards and French to simply drive there to deposit cash. Afterwards, one can always tank up and buy cigarettes there - tax-free, of course.

Austria

As a country sharing borders with Germany, Hungary, Slovakia, Slovenia, Italy, the Czech Republic and Switzerland, Austria draws foreign capital by promising secrecy to account holders. It caters especially to Europe's German-speaking population, Meinzer said. But he also said that he knows of Argentines who, for example, combine investing in Austrian bonds with the advantages of bank secrecy. Due precisely to the lack of financial transparency and its geographic location, Austria has also attracted wealth from Arab world dictators for decades.

Channel Islands

The British Channel Islands Jersey, Guernsey and Sark are home to hundreds of financial institutions and insurance companies drawn to their simple and low taxes. While Jersey probably "hides the most dirty business," according to Meinzer, Guernsey is the most innovative.

With its so-called self-protected companies, an apparent single company is organized into cells with protective legal walls between them. And on Sark, according to British newspaper The Guardian, there are 24 companies registered for each of the approximately 600 inhabitants.

Cyprus

Cyprus is the perfect example of what can go wrong with depending on such dubious business models. It was particularly oriented toward former Soviet countries, and acted as a hub for them. Transactions over letterbox companies brought money into Cyprus, then back to countries like Russia - thus avoiding Russian tax authorities. But since the Cyprus bailout , in part by the EU, the Mediterranean island will have to come up with a new business model.

England

England, with London, represents one of the largest hubs for tax evasion and capital flight. Meinzer described London as "the mother of all tax havens" since the zone, which does not answer to the crown, has developed a network that continues to bring money back to the capital of the former empire. Money flows from there to British Channel Islands, such as Guernsey, Jersey or to the Isle of Man, then overseas to British territories in the Caribbean, such as the Cayman or Virgin Islands - or in Europe, to Gibraltar. London, is the seat of many dubious "letterbox companies," which only exist on the Internet.

Germany

Frankfurt is a great place for foreign investors to earn tax-free interest

Germany protects the data of foreign investors, who also don't have to pay taxes on interest.

Only Germans, or foreigners resident in Germany, have to actually shell out a flat rate withholding tax on interest income, Meinzer said.

Information on such yields also rarely flows out of Germany, he added: "Foreign investors with German accounts are protected with a certain degree of anonymity."

That's why Germany ranks ninth in the world for financial secrecy, according to TJN.

Gibraltar

At the southern tip of the Iberian Peninsula, Gibraltar has specialized in allowing such letterbox companies, called "trusts." The structure of such trusts means there is no real owner of the company. They are often used to add a layer of secrecy to letterbox companies, Meinzer said, which is particularly good for money laundering.

Meinzer cited insider information in calling it "the dirty end of the spectrum" for bringing money back into financial markets. The presence of many gambling casinos there also comes into play.

Ireland

It's called the "double Irish" in the financial world: A company founds two subsidiaries in Ireland with its business tax rate of 12.5 percent. Then, one claims to be based in a different tax haven. (Comparable taxes in the United States, for example, are around 35 percent.)

This is completely legal in Ireland, and therefore an optimal location for companies such as Google, Apple or Amazon.While the one company does business in Europe, it pays the other patent fees. Profits vanish, as costs and income equal out on the balance sheet.

Although other countries like the Netherlands offer similar models, Meinzer said the difference is that people do actually work in Ireland, which at least creates some jobs and a bit of growth in the country.

Isle of Man

Taxes are kind of an afterthought on this island between England, Scotland and Ireland. Inheritances and capital gains aren't taxed at all, while the highest level of taxation lies at 20 percent. Corporate tax is nonexistent. It's especially loved as a hidey-hole for British millionaires.

Luxemburg

Luxembourg is the second-largest financial hub in Europe, after London. Innumerable investors and around 150 different banks enjoy a lenient tax framework in Europe's stocks and bonds center. Luxembourg's status as an EU member makes it particularly attractive for European companies and the international market, Meinzer explained. "If I want to get around German laws, for example, I could go through Luxembourg," Meinzer said, adding that 40 German banks do business there.

With its low tax rates, Malta, like Cyprus, has long drawn foreign capital. Although corporate taxes are around 35 percent, companies can get most of that refunded.

It's a favorite among German companies, which earn a higher profit if based on Malta. Meinzer said that while it's clearly a tax paradise for companies, it's not clear if that's also the case for individuals.

Monaco

The Principality of Monaco continues to be home to the rich and famous, being surrounded by France. Millionaires happily set themselves up there due to the fact that they pay no income or inheritance taxes. The city-state also does not prosecute financial crimes committed abroad. Businesses, however, must pay taxes there - at rates of around 33 percent. France, though it doesn't play an active role, lends a protective hand, Meinzer said.

Netherlands

What Luxembourg is for private investors, the Netherlands is for large corporations. Business taxes are incredibly low, with many tax advantages for interest and licensing income.

With the "Dutch sandwich," a parent company has a subsidiary in the Netherlands, which it uses as a cheap tax base to develop its European business.

Switzerland

Although there are supposedly no more completely anonymous bank accounts in Switzerland (and neighboring Liechtenstein), it continues to draw large sums of money due to its strict banking secrecy. Considering the volume of money in Switzerland, it made first place on the TJN's Financial Secrecy Index.

Full text in http://www.dw.de/

Austria in one of the countires withstanding OECD challenges against bank confidentiality. Article 10 of the Austrian constitution requires money, credit and banking officials to pledge secrecy as to facts obtained during their duties.

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Austria to keep banking secrecy

VIENNA, AUSTRIA Mar 13 2009 12:27

Austria has decided not to lift its banking secrecy following talks with the Organisation for Economic Cooperation and Development (OECD) in Paris, Finance Minister Josef Proell said on Friday.

"Our laws are in line with OECD guidelines," Proell told a news conference in Vienna after returning from Paris on Thursday where he had held talks with the OECD on Austria's banking secrecy laws.

"The OECD criteria [on banking secrecy] must be global criteria and they must provide the framework for the European Union and the G20," Proell said.

Austria, along with countries such as Andorra, Liechtenstein, Luxembourg and Switzerland, are all coming under increasing international pressure over their banking secrecy regimes ahead of a Group of 20 summit in London on April 2.

On Thursday, Andorra and Liechtenstein, which are on the OECD's list of "uncooperative tax havens", as well as Belgium, all announced they would ease strict banking secrecy rules and cooperate with foreign tax authorities.

The three countries announced separately that they would swap information with foreign governments to combat tax fraud and evasion, shedding light on the secret offshore accounts of non-residents.

Austria is not on the OECD blacklist but it has also come under fire because its banks are only obliged to supply client information if a court orders them to do so and targeted individuals can appeal such a move.

On Thursday, Austria central bank chief Ewald Nowotny said that Vienna was considering possible changes to banking secrecy laws, even if it was not ready to lift them completely yet.

"Realistically speaking, I believe there will be changes," Nowotny told the late night news programme of ORF public television.

The government has drawn up proposals in its talks with the OECD "but I don't believe Austria will lift banking secrecy altogether", he said.

According to a finance ministry spokesperson, Austria has no plans at present to rethink its banking secrecy laws, even though it took note of the decisions by Andorra and Liechtenstein to ease their rules.

"These are certainly moves that will move the international debate forward but they don't by themselves justify us changing our position," ministry spokesperson Harald Waiglein told AFP.

"We're in favour of equality in the face of competition and there are many countries which aren't transparent" in banking matters, he said.

Waiglein said Vienna would only alter its rules if all countries did likewise. The regime of "trusts" on the Channel Islands, but also rules in some US states such as Delaware, Montana or Nevada, should also be examined, he said.

"Unilaterally lifting banking secrecy will not contribute to transparency but will only divert financial flows and prejudice the Austrian economy," he said. -- AFP

Source: Mail & Guardian Online
Full text in: http://www.mg.co.za/article/2009-03-13-austria-to-keep-banking-secrecy

See also Austria banks and Panama foundation enhance confidentiality

Austria banks and Panama foundation enhance confidentiality

Austria - in the middle of Europe - provides a degree of banking secrecy which is granted by a Banking Law with the same rank as the Constitution. Unlike other financial centers - like Switzerland - which are more widely known as havens and therefore subject to higher scrutiny, Austria is known as a neutral country, headquarters to several United Nations offices. Bank accounts held by non-Austrians are not subject to Austrian taxes. Account owners can get the best of both worlds by opening Austrian bank accounts under the name of a Panama foundation, trust or corporation. Universal banks have also specialized investment staff to help with the purchase of foreign securities.
Austrian authorities have pledged their continuing support of secrecy, despite multilateral actions such as the OECD black lists and the EU Tax Savings Directive.

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Austria: Bank´s Duty of Confidentiality by Michael Kutschera, Thomas Schirmer and Alexander Kramer Austrian law expressly recognises and protects a bank's duty of confidentiality (sometimes referred to as 'bank secrecy') with respect to information received by or relating to its customers. This duty is primarily governed by s 38(1) to (4) (scope and exceptions) and s 101 (criminal liability) of the Banking Act (BWG) and supplemented by several provisions of a procedural nature such as the Revenues Penal Code and the Criminal Procedure Code.
Section 38(5) of the BWG, a provision of constitutional law, affords special protection to the provisions of s 38(1) to (4) of the BWG by stipulating that an amendment of these provisions requires - similar to an amendment of a provision of constitutional law - a quorum of at least 50% and a majority of two-thirds of the deputies to the National Counsel (Nationalrat, the more powerful of Austria's two Houses of Parliament).1
Since 1 January 1994, the provisions on bank secrecy were partly amended, in particular with regard to money laundering, as Austrian law and banking practice initially permitted the opening of anonymous accounts in certain cases. In order to avoid the abuse of the Austrian banking system for the purpose of money laundering, Austrian banks in 1989 agreed on the wording of a uniform declaration, according to which each bank voluntarily undertook a number of duties to prevent such abuse.2 These duties were expanded by another declaration on additional duties of diligence in 1992, the compliance with which still was voluntary. .... The bank's duty of confidentiality Section 38(1) of the BWG reads: 'The credit institutions, their shareholders, organ members, employees, as well as persons otherwise becoming active for the credit institutions, are prohibited from disclosing or exploiting secrets which were entrusted to, or to which access was made available for, them on the basis of the business relationship with clients or on the basis of s 75 (3)5 hereof exclusively (Bank Secrecy). If, in the conduct of their official activities, organs of public authorities or of the Austrian National Bank, receive information which is subject to the Bank Secrecy, they shall maintain the Bank Secrecy as an official secret from which they may be released only in one of the cases set forth in s 38 (2). The duty of confidentiality applies without limit as to time.' Full text in http://www.mondaq.com/article.asp?articleid=31351

Austrian 1920 Constitution Article 10 [Federal Legislation and Execution] (1) The Federation has powers of legislation and execution in the following matters: 5. the monetary, credit, stock exchange and banking system; the weights and measures, standards, and hallmark system Article 20 [Administration] (3) All functionaries entrusted with administrative duties of Federation, States, and Counties are, except for differing regulations by law, pledged to secrecy about all facts of which they have obtained knowledge exclusively from their official activity and whose concealment is enjoined by the public interest or that of the parties concerned. Official secrecy does not exist for functionaries appointed by a popular representative body if it expressly asks for such information. Full text in http://www.servat.unibe.ch/icl/au00000_.html

Chancellor defends Austrian banking secrecy
Chancellor Alfred Gusenbauer has defended Austrian banking secrecy before the beginning of the EU summit in Brussels on the EU's Lisbon strategy for economic growth and employment. He said that such secrecy was good for Austria as a financial location and gave the country and its people an advantage. He added that Austria was ready to cooperate with other countries on the issue of tax-evasion but that it wouldn't make sense "to sacrifice" a good arrangement like banking secrecy because of that crime, which occurred in all countries. He said that he didn't know if the summit would discuss banking secrecy, which wasn't on its agenda. March 14th, 2008 http://www.austriantimes.at/index.php?c=2&id=4143

Bank secrecy is sacred in Austria
Both SPÖ Chancellor Alfred Gusenbauer and ÖVP Vice Chancellor and Finance Minister Wilhelm Molterer have said that there is no need to change the Austrian bank-secrecy system in the wake of the revelation of widespread tax-evasion in Germany through use of personal foundations in Liechtenstein. Gusenbauer and Molterer claimed that the Austrian system conformed to relevant EU regulations. Molterer added that Austrian law on foundations and taxes differed significantly from Liechtenstein law in those areas and that bank secrecy would not apply in criminal proceedings. The FPÖ and the BZÖ are also opposed to changes in the Austrian bank-secrecy system. FPÖ finance spokesman Lutz Weinzinger declared that "bank secrecy is a core value in Austria and part of the country's business culture" but hastened to add that he was "no friend" of tax-evasion. BZÖ national councillor Veit Schalle added that foreign access to information about Austrian accounts would be an unacceptable assault on Austrian sovereignty and would massively damage the country as a financial location. The Greens are the only party that supports changes. They said that they would consider a parliamentary initiative in that regard if the German scandal spilled over into Austria. Austrian banks are also opposed to any changes in the Austrian system. Austria is on the Organisation for Cooperation and Development (OECD)'s black list for its failure to implement an EU-wide requirement for registration of capital gains. The OECD, the German finance ministry and the NGO ATTAC (Association for the Taxation of Financial Transactions for the Aid of Citizens) have all called for better clarification of tax-evasion in Austria. February 21st, 2008 http://www.austriantimes.at/index.php?c=2&id=3470