Observing what is happening and what is being done, then putting on my tin foiled thinking cap does reveal a pattern – or a plan.
It has been suggested that there is about 1.000 bio. EUR of undeclared funds in Europe. How accurate that figure is or how much tax revenue it could eventually yield could be debated. Suffice to say: we are talking funds in the order of magnitude of Germany’s sovereign debt.
It is definitely money worth going after partly to reduce taxes which definitely IS a consideration in Europe for everybody, not only the richest. Secondly, recapitalising the banks of Europe is going to take up a fair amount of capital – money that can’t be extracted from the present tax payers – not without destroying consumption and investment. Both are having a hard time as it is.
Finally having 1.000 bio. EUR sloshing around on the money market is more than sufficient to destabilise any economy which again is a thing not wanted at all.
There are several techniques all being used simultaneously:
Outright surrender by the taxpayer
The tax evader might turn himself in to the tax authorities and beg for clemency. That may be granted, provided – of course – an investigation into probable criminal fraud has not been started. In Denmark (actual rules differ slightly from country to country) about 800 taxpayers have received a letter, that as investigative steps have been taken, they are not eligible for clemency.
Now the forbearance, that a tax authority exhibit is actually worse than most people’s torture. The rules are that not only are you to pay the back taxes, interest on these taxes plus a fine. Eventually you end up with paying the entire amount you have kept from the taxman. Naturally there is a limit to such bleeding heart forgiveness! If you have not turned yourself in before June 30, 2013 there will of course be a discussion of a possible prison sentence – in addition.
Normally such threats don’t work as tax evaders and their banks have a very high regard for their own cleverness, so they tend to disregard such offers in contempt of civil servants.
There are exceptions: In Germany the high profiled soccer player Uli Hoeness has come forward under extensive publicity – in the nick of time, before the generous offer runs out.
In this context it should be mentioned that over the last couple of years the books of the banks of several EU countries have been opened mutually to the tax authorities of member countries. The general rule is that full bank account information is automatically sent to the tax authorities of the pertinent country. Only Austria and Luxembourg are lagging behind. These countries have only agreed to provide full information on specific request.
A similar agreement was entered into between Germany and Switzerland, but has not been ratified by the German Bundesrat (approximately senate):
– Partly as the majority of that assembly is from the opposition.
– Partly because actual tax collection falls under local state jurisdiction and not the union (that distinction is jealously guarded under the constitution).
– Partly due to dissatisfaction with the lump sum to be paid by the Swiss banks for transactions prior to 2009 (I believe it was).
The last might have some practical merit, as the Swiss banks might not actually know who holds the older account, as it was common practice that only the account number was registered in the bank together with probably a code word.
Attacking the tax shelters
The Greek debacle fortuitously provided yet another weapon to the tax authorities: Going after the banks very existence. The debt in the Greek banks was financed by the Greek state backed by sovereign bonds that was sold at ever higher interest to back the national debt of Greece until Greece to all intents and purposes, defaulted.
Now dirty money – one way or the other – has to be placed somewhere and tax evaders are greedy as well as shady. Some banks were hit badly by the bankruptcy and meager dividend. That was especially true of the banks on Cyprus where a lot of money of very uncertain provenance – not only from Russia (about 1/3 of the deposits), but from all over Europe – had to be placed somewhere. In fact Cypriote banks branch offices in Greece were actually turned over to Greece in a reasonably impaired state.
Typically of Cyprus as with so many tax shelters the bank balances bore no resemblance to GDP of the host country. There was no way Cyprus could ever back their banks, and the result was – as we know now – that the large depositors lost about 60 percent of their deposits after a unnecessarily prolonged process, where the Cypriote state showed gross incompetence in running their own affairs. The only criticism to be levied against the ECB was lack of sufficient brutality. The German Finance Minister Wolfgang Schäuble all along dismissed the awkward meandering of the Cypriote government as unproductive.
The end result produces a flare of temper from Russian Premier Vladimir Putin spewing the usual threats. That stopped about the same time as he must have learned that his old enemy Borosovsky had been totally ruined by the Cypriote collapse (he had lost money in Britain as well) – and they might have added that Borosovsky had hanged himself in the bathroom.
The lesson in this context is that flight into a tax shelter is very likely to be running from the heat into a conflagration.
First of all, depositing serious amounts of money in a country with a disproportionally large banking sector is placing trust in banks in that country that they will not run out of liquidity before you can move your money (whether they are yours is the whole issue of the debate) away.
Secondly, given the disproportionate bank balances in relation to the GDP, there is no way the country can raise the amount of cash to back a flight of deposits – no matter how corrupt the government is. This goes for the guarantee of deposit as well in case somebody accidentally goes over the assets. That does put a lot of confidence into characters as shady as yourself, as the government is likely to have a huge deficit, as your “company” isn’t really a part of the tax base.
Thirdly, the proposition by banks that the EU and Germany consider it their holy duty to defend depositors no matter their dubious nature in order to defend the common currency is erroneous in the extreme. The EU will defend the economy of the country, but not the banks. In the case of Spain funds is being doled out to give time for the restructuring of the economy – and a reassessment of the tax base, which will include hitherto untapped sources: Pensions and bank deposits. Running away to Germany will only result in depositing