Govt to work with Republic of Moldova in agriculture sector (See 'TOG News')Railways release new pan-India time table effective from Aug 15 (See 'TOG News')Govt signs agreement on rail safety with Japan (See 'TOG News')TP - Department cannot frame ad hoc adjustment u/s 92 without complying with proper method & strict mandate of Section 92C(1): ITAT (See 'TOG Latest')I-T - Failure of payer to deduct tax at source u/s 195 will not obligate payee to interest liability u/s 234B for failure to pay advance tax: ITAT (See 'TOG Latest')Customs - Imported goods kept under bond which has expired can be given benefit of advance licences subsequently issued by licensing authority: CESTAT (See 'TOG Latest')Central Excise - When goods are cleared to SEZ developers & to domestic consumers then credit availed on common input services is to be reversed @ 10% of value of goods cleared to SEZ: CESTAT (See 'TOG Latest')NDMC unveils solar-powered 'Smart City' (See 'TOG News')TP - Merchant banking company being functionally dissimilar cannot be compared to pure investment advisors for purpose of benchmarking: HC (See 'TOG Latest')I-T - Application filed by charitable trust u/s 12A merits deemed registration if Revenue has not acted upon such application within six months of its receipt: HC (See 'TOG Latest')VAT - Commercial tax Department cannot recover its dues by squeezing cash credit facility availed by assessee dealer from its bank: HCService Tax - Payments made by or received by law firm as re-imbursements towards Senior Counsel fee cannot be included in value of services rendered by it: HC (See 'TOG Latest')Ease of Living Index - country's Capital ranks abysmal 65th (See 'TOG News')MHA dehorts use of plastic flags ahead of I-day (See 'TOG News')9% improvement in cleanliness in top 100 railway stations: QCI (See 'TOG News')
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Liechtenstein - A beleaguered tax haven - Taxing time lies ahead!
By Shailendra Kumar, Founder Editor
Feb 03, 2018

AS I had promised, in my last week column, to take a critical look at the German offer of providing sensitive data on black money owned by Indians but stashed away to a tax haven in Europe. Netizens may recall the news reported by some of the News Dailies that Germany which has bought the disc containing names of mega tax evaders from one of the former employees of the LGT Bank of Liechtenstein has apparently offered India that part of the database which contains the Indian names, the addresses and the sums deposited with the Bank located in one of the few surviving tax havens in Europe. Tax evasion costs billions of dollars not only to Western governments but also to rising economies like India, annually. And tracking it down costs another billion in terms of money, time consumed and barriers of bank secrecy laws. These tax havens which have been branded as 'uncooperative' by OECD have survived for centuries as they offer a safe parking place for ill-gotten wealth and taxes evaded across the world, for their own parasitical existence.

Since this issue involves many critical dimensions of global tax evasion scenario, and also combined fight against black money by multilateral agencies and governments across many continents, I would like to split it into two parts. In the first part, I would like to touch upon the history and financial chemistry of some the tax havens which are relevant for the Indian tax authorities. And the part II would focus on the on-going battle between Germany, Britain and others on the one side, and Liechtenstein on the other side, and the implications of the black money database on the Indian political economy!

What is a tax haven? If one goes by the dictionary meaning it is an independent country with low tax rate. But it has many more attractive features like bank secrecy laws, no fiscal bilaterals with any country, no inquiry about the depositors, minimal capital gains and savings tax rate, exempted tax shelters like trusts and foundations and many more. In simple words, a tax haven offers a safe and protected shelter to not only tax evaders worldwide but also to drug, gun-running and smuggling syndicates across the world. Since the banks located in these tax havens strongly believe that the money has no colour, it allows all sorts of criminal syndicates to hire its services for safe keeping of their ill-gotten money.

So far as common Indians are concerned, all of us are familiar with Switzerland. But there are dozens of other tax havens like Monaco, Cayman Island, Cyprus, Andorra and Liechtenstein. Some of these tax havens have responded to the rising global concern about the use of ill-gotten money by terror outfits. After September 11, the USA took many initiatives and OECD came under pressure to introduce 'cooperation framework' for them. And, many of them have indeed signed such pacts and do share information provided an investigating agency has specific information about a terror group. Switzerland is one of the cooperative variety. But Liechtenstein is not. Of late tax havens like Liechtenstein have gained from growing relaxation on cross-border movements of capital, electronic transfer of payments and progressive elimination of withholding taxes.

Let's focus on Liechtenstein more as this is the country which is in news. It is a 160 sq km landlocked country perched on a barren mountainside between Switzerland and Austria. About 80 years ago, it was known as island of penury in Europe. But it is now one of the vibrant financial centres in Europe, having put in place a policy of freedom for tax and financial privacy. Immediately after the First World War when the opulent population across the world was looking for safer vaults, it offered the same at virtually no cost. Although it has an elected parliament but it is virtually ruled by a dynasty. Since 1712, the Royal family has been ruling it from a mountain side castle known as Vaduz.

It was all kicked off by the father of the present prince Hans-Adam when he began inviting banks to this bald mountain. The Royal family itself is at the centre of main financial group known as LGT Group. LGT Bank which offers tax shelter has about 76000 loyal customers and it made about Euros 100 mn profits last fiscal. And its key publicity oneliner is ''Invest like the Prince''!

The present Prince Hans Adam took over the reigns of power from the long time ruling prince Franz Josef II in 1989. He was more power hungry and adopted a revised constitution in 2003 and vested in himself the power to dissolve Parliament and to appoint an interim Govt and also nominate five ministers. In short span of time, it has turned into a highly industrialised country with some of the globally known brand names like Hilti, a power tool-maker and Ivoclar Vivadent, the world's largest manufacturer of false teeth!

Today, this landlocked country has no obligation to share any information with any country. What adds lure to its banking secrecy is the presence of most beneficial trust law in Europe. Its trust which is known as Stiftung or Foundation, is an independent entity which holds assets with utter anonymity. There is no legal requirement for information about beneficiaries or trustees to be made public. In other words, these entities have really no knowledge about the real owners of the assets it safeguards.

Only in recent years, when OECD put pressure on the Royal Family, Liechtenstein offered a database of 163 suspicious activity reports, and about 113 of the same were forwarded for prosecution. In recent months it has been locking legal horns with Germany and Britain because these countries have bought database of one of its principal banks which contains the names of tax evaders in these countries. Germany loses huge taxes because of geographical proximity of this tax haven which lures wealthy taxpayers by providing tax shelters. Germany loses about Euros 30 bn annually because of unpaid taxes. Its tax authorities believe that about Euros four billion are stashed away to this tax haven by German social elite.

Armed with such a detailed homework, Germany paid USD 4.2 mn and bought a DVD of database containing names of tax-evaders. Taking a cue from this database the German authorities have been chasing as many as about 900 wealthy taxpayers who have moved away their wealth out of the country. About 160 taxpayers have been netted and about USD 41 mn have been recovered from them. About 90 of them have admitted making payments to the tune of Euros 28 mn. The most prominent evader so far is believed to be former Deutsche Post top executive who has allegedly evaded USD 1.5 mn.

The British Response

For the rich and famous in Britain, the traditional hot spots for sheltering wealth under various schemes have been Gibraltar, Channel Islands, Virgin Islands and Switzerland. According to one estimate, commercial property worth Pound 380 billion across Britain are guesstimated to be held by funds and investment groups located offshore in these islands. So, when this opportunity came up from Liechtenstein which has of late become a big attraction among the wealthy population in the country, the HM Revenue & Customs is also believed to have paid about one lakh Pound to one former employee of the LGT Bank. A keen investigation has already begun against hundreds of Britons and the tax authorities look forward to recovering about 200 mn Pounds. Netizens may recall that last fiscal when the HM Revenue introduced an Amnesty Scheme, it mopped up about 400 mn Pound revenue from 65000 taxpayers who had held offshore accounts. Now, this Liechtenstein database is believed to be containing about 1200 names of British nationals, and a nationwide probe under the leadership of Acting Chief Dave Harnett, is already underway.

I am sure TIOL Netizens are very curious to know what is there in 'store' for the rich and famous from India in this database. But, let's wait for the Part II to know its 'real' implications for India.

(To be continued)