BERLIN (AFP) — The German finance ministry threatened on Friday to tax all financial transfers to Liechtenstein unless the tiny Alpine principality relaxed its banking secrecy codes and helped trace tax evaders.
"We are thinking of taking additional steps on a bilateral level and taxing all transfers at the source is an option," finance ministry spokesman Thorsten Albig told reporters.
He was confirming a threat by Finance Minister Peer Steinbrueck, who told German television: "We have to put on the screws."
Steinbrueck and German Chancellor Angela Merkel have heaped pressure on Liechtenstein, considered one of Europe's most secretive tax havens along with Monaco and Andorra, to help Berlin investigate the biggest tax scandal in German history.
The unfolding affair allegedly involves up to four billion euros (5.9 billion dollars) placed in trusts in Liechtenstein by members of Germany's business and social elite.
Merkel has threatened to isolate Liechtenstein, a country of 35,000 people nestled between Switzerland and Austria, by refusing to ratify its accession to Europe's Schengen passport-free travel zone.
Government spokesman Thomas Steg said Berlin expected not only Liechtenstein but also Monaco "to mend their ways" or face consequences.
A German tax expert, Lorenz Jarass, said Friday that it "was perfectly feasible" for Germany to force investors who want to move money to Liechtenstein to declare and explain the step.
Berlin's threat came after the principality defied calls to break with its tradition of banking confidentiality and said it would not facilitate investigations against foreign clients unless they were deemed to have contravened Liechtenstein's lenient tax laws.
"We want to preserve the trust system. The trust law is an institution of Liechtenstein and has been for 80 years," Liechtenstein Prime Minister Otmar Hasler told Friday's Frankfurter Allgemeine Zeitung daily.
"Only when something constitutes fraud under our law, will Liechtenstein provide legal assistance to another state."
German concerns are focused on some 45,000 minimally-taxed trusts based in the principality believed to facilitate tax evasion among Europe's wealthy set.
Liechtenstein's Crown Prince Alois has said his government would press ahead with reforms to its trust and tax systems that have been in the pipeline for years.
But the planned amendments are expected to streamline trust regulations without lessening the confidentiality that is a cornerstone of the principality's financial services sector, which accounts for about 30 percent of its economy.
The prince has accused Berlin of launching a "teutonic" attack on a sovereign state by spying on its financial institutions and paying an informer for banking data underpinning the German probe.
Liechtenstein's LGT banking group, which is owned in part by the prince's family, has alleged that investigators are working from a list of its clients stolen by an employee in 2002.
But German press reports said on Friday that investigators were also in possession of confidential data from a second bank in the principality -- the Liechtensteinische Landesbank (LLB).
"A second front is opening up in Liechtenstein," said the daily Sueddeutsche Zeitung.
The newspaper reported investigators believe private German banks, notably Metzler, had helped clients to squirrel money away in 50 trusts in Liechtenstein.
Merkel's office confirmed Friday that Prince Albert of Monaco would visit Germany next week for talks with the chancellor likely to see her demand the same transparency as she has from Liechtenstein.
"We do not have double standards," a spokesman said.
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