Liechtenstein’s Tax War

February 20, 2008

As the ongoing global financial crisis continues to shake the world’s economies, it’s no surprise banks are under increased scrutiny. Few would have predicted, however, that the spotlight would turn to tiny Liechtenstein.

A war of words has just erupted between the small Alpine principality and Germany over German citizens placing assets in Liechtenstein’s banks in order to reduce their tax bills.

The skirmishing broke out when Berlin admitted that, as part of an investigation into some Germans’ alleged tax evasion, it had purchased data about a Liechtenstein bank’s clients from a former bank employee who allegedly stole the information and broke banking-confidentiality laws.

In other words, Germany purchased information obtained through what may have been a criminal violation of perfectly just, legitimate and — in Liechtenstein’s case — constitutionally-grounded laws. No wonder Liechtenstein’s Crown Prince Alois described German authorities as using “methods that defy the rule of law.”

Europe’s governments don’t like Liechtenstein’s low taxes or the fact that many European companies avail themselves of the principality’s low corporate tax-rates. But that hardly gives Berlin the right to allegedly act as what is commonly known as a receiver of stolen goods — a problem compounded by reports that Germany is offering the material to other countries.

Crown Prince Alois upped the ante, however, when he stated that, “Germany will not solve its problems with its taxpayers by attacking Liechtenstein. Germany has the worst tax system in the world.” Burdensome taxation is just one of the current economic problems facing “old Europe,” against which Liechtenstein stands as a living contrast. In many respects, Liechtenstein exemplifies what a successful free, integrated, prosperous, market-orientated and low-tax European society might look like.

Liechtenstein became a sovereign state in 1806 following the Holy Roman Empire’s dissolution. Until 1918, it was closely linked to the Austro-Hungarian Empire, but entered into a customs and monetary union with Switzerland following World War I. After inter-war instability and a successful effort to avoid being swallowed by National Socialist Germany, Liechtenstein began its rise to prosperity in the 1950s. The growth which made it one of the world’s richest countries had many causes, but central to Liechtenstein’s success were two factors.

The first was the decision to specialize in activities which Liechtenstein did extremely well: financial services and high-tech industries. The second was Liechtenstein’s adherence to Adam Smith’s famous observation, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”

Thus not only have Liechtensteiners profited from the fact that the state takes relatively little of their wealth, but they are not burdened with the type of opulent welfare bureaucracies that characterize “Social Europe.” Hence Liechtenstein’s government regularly runs surpluses rather than deficits. Its unemployment rate is presently 2.7 percent.

Liechtenstein has also managed to avoid some of the social problems characterizing much of Western Europe. Thirty-four percent of Liechtenstein’s population is foreign-born. But it has pointedly rejected the multiculturalist ideology presently crippling many European countries’ ability to escape the shackles of political correctness. Instead Liechtenstein unapologetically focuses on integrating all resident foreigners, including requiring them to learn German, the country’s official language.

Likewise, though a largely Catholic country, Liechtenstein has a strong tradition of religious liberty. This doesn’t involve, however, any nonsense about incorporating shari’a law into Liechtenstein’s civil law.

In short, the rest of Europe could learn much from Liechtenstein. Instead of harassing Germans weary of Germany’s oppressive taxes, the German government would be better off investing its energies in trying — yet again — to reform Germany’s — yet again — faltering economy. Liechtenstein would be a good model.

Not that Liechtenstein is likely to be intimidated by Germany’s recent actions. The country has a proud reputation for defying some formidable bullies. In 1945, a group of Russians fleeing Communist tyranny crossed Liechtenstein’s border seeking refuge from the Red Army. Despite lacking an army and in the face of overwhelming force, little Liechtenstein refused to give up the refugees. In 1993, the Nobel Prize winner Aleksandr Solzhenitsyn called this act an “outstanding lesson in courage.”

Solzhenitsyn contrasted it with the behavior of the Western powers who handed over thousands of anti-Communist Soviet citizens to Soviet forces, who swiftly dispatched them to the degradation and death of Stalin’s Gulag.

Liechtenstein’s present challenges don’t quite fall into the same category of defying criminal regimes like the Soviet Union. But as long as Liechtenstein refuses to bow to Social Europe’s pressures to diminish its freedoms, we’ll know that liberty in Western Europe is alive, albeit not well.

Dr. Samuel Gregg is research director at the Acton Institute and author, most recently, of The Commercial Society (2007).

Comments

Florian Euring: info@florian-euring.de

I am German and I totally agree with you. There was a moral outcry among the left about 1 Million € of Mr. Zumwinkel, but no one in the German treasury seems to be interested in the billions the former GDR Communists are still hiding in Liechtenstein. You are right to call our tax system unjust. In my opinion avoiding German taxes by bringing money to countries like Lichtenstein ha nothing to do with exploiting the poor. It is an act of self defence against a growing greed of a Government that exploits the diligent and thrifty in favour of the lazy and squandering. I don't think that Christians are obliged to have more than half of their income taken away in order to sponsor irresponsible behaving. I wish more voices like yours could be heard in our country.

DR. FRED DARNLEY: dredfarn@aol.com

And isn't it just like every Stalinist apologist to put the jackboot on the throats of the hard working and successful in order to forcibly rip their earnings from them - for whatever the purpose. No Stalinist has ever thought more apparatchiks to be a bad idea, or wrong-minded, or, more realistically, representing the very reason that the "welfare" funds never get there. Stalinists such as yourself always give those yahoos a free pass, with no more thought to or consideration for the poor than a cat has concern about the welfare of the mouse. The poor are merely pawns in the Stalinist game - a straw dog to drag out every time someone else succeeds in order to justify ruining that industrious person's life. Nowhere in the Bible, which you disingenuously quoted, does it call for jack booted thugs to trample into peoples' lives and destroy them, all for the better of the collective. That's another book - your Bible - the sad, old, tired, ridiculous Manifesto. Ollllllllllllllllllllllllllllddddddddddddd - at least come up with a novel idea reflective of the 20th century, (the 21st would be asking too much). Go Liechtenstein. Stick it to the Stalinists again.

Anti-Fascist Freedom of God-blessed Prosperity and Man-endowed Charity:

There remains the issue of national sovereignty and violation of international treaties and international trust.

Whether Chris Manes' so-called "right" to "investigate" tax cheats by violating the law of a country where the crime was committed, and that crime not being a crime within the country in which it was committed!, is "perfect" is perfectly dubious.

If the comment that "virtually every collection agency in America uses the same kind of inside sources" is meant as an argument that it is okay for other nations to do so, it is without foundation. No viable government can operate on the understanding that its citizens and government officials are not liable for crimes they commit if those crimes are acceptable elsewhere.

Heavy taxes on the successful - isn't that "anything, anything," in defense of the angry, lazy, and incompetent exploiting the financially successful? (other crimes such as drug dealing excepted)

What, in the name of Psalms, is a "fair" share in taxes!? Did God say? Is it in the Psalms? Is it the rule of "get as much as you can before they call the cops"? Is it "economic democracy" - just give everybody the same amount of money and arrest whoever has more than the rest of us? Seriously, that line of argument is silly, unworkable, anti-democratic, anti-freedom, anti-progressive, and nothing but a sickly green branch of red stupidism.

You will have the poor with you always, anyway. Some people will give charity; some won't. Forced charity is not charity, it's fascism.

We need to state and defend a new freedom: The Freedom of Prosperity.

Harrison Bergeron:

God Bless Samuel Gregg for pointing out so many truths and so well. Not only is Lichtenstein a wonderful influence in furthering tax competition but it allows its people to keep the wealth they create--thus reducing poverty.

Poverty will ONLY disappear with the creation of new wealth--not with the re-distribution or confiscation of existing wealth from those who have produced it.

To the person who attacks the Acton Institute: Proverbs 22:16 - He who oppresses the poor to increase his own wealth, or gives to the rich, will only come to want

Indeed! Those who oppress the poor tend to be those limiting their opportunities for advancement by regulating, taxing, confiscating, and making it difficult for someone to begin a business-whether a fruit stand, a bakery, a dog-walking service, a sowing shop--whatever....

Keep walking upright, Sam! Keep up the good work, Acton!

A Venezuelan friend in New York with a Norwegian name who admires everything you folks do to make the world a better, more prosperous, more faithful place.

"Centesimus Annus Forever!"

Blue Collar Muse: bluecollarmuse@gmail.com

Chris -

Last I checked, there was a process involved whereby two countries could talk about one of them helping the other catch criminals. I'm unaware that any part of that process involves one country violating the law to catch people who violated the law.

Your criticism of both the Acton Institute and Liechtenstein is poorly argued and fundamentally flawed. The basis of your argument seems to be that two wrongs make a right. How does Germany knowingly violating the laws of another country in the name of enforcing its own laws make any sense at all? My right to pursue my national interests stops where the laws of another country begin. Anything beyond that is basically a form of espionage.

Not does pointing out that other countries or types of businesses do it lend any sort of justification to your argument or the actions of the German government. That's simply a variation of my kids argument that "Everyone else is doing it, why can't I?" We know how that works out.

In short, you don't like it that Germans are getting away with evading their taxes. Neither does Germany. Perhaps you really like the idea of taxes and hate to see anyone not paying them. Use of the term "their fair share" would lead me to believe that. Your solution is to advocate for the breaking of even more laws and to marginalize those who point out the truth of the scheme that is burdensome taxation. This entire discussion had less to do with Germany's breaking the law to get information and more to do with pointing out that if Germany had tax laws that were of benefit to her citizens, she wouldn't have to become a criminal herself. People would keep their money at home!

THAT having been said, your choice of Bible verses is fascinating. The German people and companies wanting to keep more of their own money does not automatically make them into oppressors of the poor. However, the government, which redistributes wealth from citizens to themselves really IS participating in a rob the poor to give to the rich scheme. Your verses describe the German government far better than those of her citizens who object to confiscatory taxation.

Labeling these Germans as oppressors of the poor goes WAY beyond the facts in the article. Citizens, by your own argument, have a claim on others for oppressing them only IF those moving money to Liechtenstein got more from the German government than they paid in in taxes. Nowhere does the article state that those avoiding the taxes paid NO taxes. How were they not their share? More to the point, how do you know? That they objected to paying MORE than their fair share should be supported not pilloried. Finally, if they were paying taxes at all, they were likely paying more than their fair share. As here in the States, the ones who pay the least get the most benefit. Where is the call for those people receiving benefits to pay THEIR fair share? If they have no money of their own, they can contribute time and effort. They can maintain government buildings or roads or something. How is it oppressing the poor to give them far more than they earn for themselves? How is it oppressing them if one later decides to not be as generous as he has been in the past? Your logic is terribly flawed.

The mindset people on your side of the discussion bring to the table is simply fascinating. My only value to you is insofar as you can take from me to give to another. If I object to your oppressive stealing from me, I'm the bad guy. You all need to clear your minds and take a serious look at reality. Your plans, for all their appearance of benevolence, are not only unsustainable but they will, in the end, be the destruction of any nation foolish enough to implement them. That goes for the USA as well.

It remains to be seen if you are sharp enough to get it.

Blue

Chris Manes: lokicsm@aol.com

Of course once again the Acton Institute argues in bad faith -- this article failed to mention that it is illegal under German law to secretly funnel money to Lichtenstein. In short Germany was hunting down tax cheats who didn't pay their fair share of German taxes, meaning that other citizens had to pay for them

Germany authorities have the perfect right to investigate tax cheats by getting information from foreign insider sources. By the way, virtually every collection agency in America uses the same kind of inside sources to get bank information on debtors.

It is typical of the Acton Institute to support wealthy tax cheats that don't pay their fair share. Anything, anything in defense of the rich exploiting the poor.

Psalms 37:14 - The wicked draw the sword and bend their bows, to bring down the poor and needy, to slay those who walk uprightly.

Proverbs 22:16 - He who oppresses the poor to increase his own wealth, or gives to the rich, will only come to want

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