German tax dodgers turn over new leaf

Uli Hoeness, President of FC Bayern Munich, was also targeted by the German tax authority Keystone

Since the beginning of the year, more and more Germans have admitted stashing assets in secret Swiss bank accounts, preferring to admit their guilt than face the full wrath of the tax authorities who have been out to catch them by hook or by crook.

The German authorities have been able to wave a big stick since purchasing a number of CDs purportedly containing sensitive Swiss bank client data. The state of North Rhine-Westphalia is a case in point.

Since 2010, it has purchased four such CDs for around €9 million (CHF11.12 million) – enough to convince nearly 9,000 people to turn themselves in, earning the state an extra €670 million in taxes. The pace even picked up during the first half of the year, with over 1,500 taxpayers taking the step, four times more than for the same period in 2012.

Other states such as Baden-Württemberg, Bavaria and Lower Saxony are also the beneficiaries of their taxpayers’ change of heart. According to an April survey of the German tax authorities by the Zeit newspaper, around 47,200 people have turned themselves in, a figure that has probably passed the 50,000 mark since then.

Many specialists say the collapse of a tax deal with Switzerland in the German senate – after it was rejected by the Social Democrats and Greens – has forced tax dodgers to come out of the woodwork.

Unlike in the first half of 2012, they can no longer hope for some kind of amnesty without betraying their identity, according the North Rhine finance ministry.

With no deal, there is also the threat that more sensitive data CDs will be purchased by the German states.

“For some, the fear of being discovered is the most important reason for someone to turn themselves in, much more so than being honest about their fiscal situation,” said the Social Democrat North Rhine Finance Minister Norbert Walter-Borjans.

Staff shortage

German finance ministries are having trouble keeping up with the extra work generated by tax dodgers turning themselves in. A lack of qualified staff has long been a sore point, with the states failing to collect taxes because they cannot carry out enough checks and investigations.

The Tax Workers’ Union has been demanding additional staff for years. A tax expert may cost €80,000 per year, but can recover €1 million in additional taxes, says the association.

Hoeness effect?

But the jury is still out as to whether the so-called “Hoeness effect” has played a role in convincing more people to come forward.

Uli Hoeness, the popular president of the powerful Bayern Munich football club, was investigated for stashing undeclared investment income in a Swiss bank account for over 13 years; he could owe the taxman up to €7 million. The case contributed to putting tax evasion on the front pages of the country’s newspapers.

Even if the number of people admitting their guilt has increased, the end is far from in sight.

“There are many people getting ready to turn themselves in,” said Thomas Eigenthaler, head of the German Tax Workers’ Union.

But even so, many people are still keeping quiet about their assets despite the data CDs and increased transparency of Swiss bankers.

“Some are worried about being exposed like Hoeness because it will make them pariahs,” Eigenthaler told swissinfo.ch. “Others because their assets aren’t clean – they could have come from lottery earnings, money laundering or human trafficking. We shouldn’t think everyone wants to repent.”

Eigenthaler also has his doubts about whether the Swiss government’s so-called clean money strategy will have any impact. He says banks have to rely on customers telling the truth about their assets, adding that it seems unlikely the same banks would want to incriminate clients for fear of scaring off others.

Emerging markets

How attractive Swiss banks will actually be for German clients now that secrecy rules are being loosened is also up for debate. Banks UBS, Credit Suisse and Julius Bär, responding to swissinfo.ch, said there had been a significant drop in demand for their products from Germans, but they didn’t provide any figures.

“In 2011, we expected cash outflows for Europe to reach between CHF12 billion and CHF30 billion,” said a UBS spokesman. “We weren’t wrong, but these outflows are compensated by fresh funds coming in.”

In the first quarter of this year, UBS saw, for example, a net CHF1.1 billion flow into its coffers from all of Europe.

Since the first stolen data CDs made their appearance and Swiss banks have asked their clients to come clean, Germans have the choice of legalising their situation with their authorities or moving their money to another tax haven. All which suggests that the biggest growth potential for Swiss bankers is outside Europe.

“We have recorded a strong increase in customer assets under management in the past few years, especially from emerging markets such as Latin America and Asia,” confirmed a Credit Suisse spokesman.

“But we are also growing the mature European market. And it is our strategy to only manage assets that have been taxed.”

(Translated from German by Scott Capper)