Tougher tax laws

The German cabinet on Wednesday finalized new draft legislation on tax evasion, as it attempts to close some of the loop holes that allow tax dodgers to avoid prosecution once authorities get wind of their misdemeanors.

The draft bill by Finance Minister Wolfgang Schaeuble would make it more difficult for offenders to dodge legal proceedings by preemptively admitting their guilt and paying back taxes.

Under current German law, people can avoid a trial by issuing a so-called "voluntary disclosure," detailing the taxes they have skipped and paying them with 6 percent interest - provided they do so before they are officially prosecuted. Tax evaders can still file a voluntary disclosure after being notified that their assets are under investigation, but the deadline would change under the proposed legislation, meaning that once you have been warned, it's too late to confess.

"These prosecution-avoiding voluntary disclosures will therefore no longer be effective as part of a calculated tax evasion strategy," the financial policy spokesman for the Christian Democratic Union, Leo Dautzenberg, said in an interview with the newspaper Die Welt.

Some German tax dodgers have been abusing this legal loop hole by deliberately waiting until they received their pro-forma warning, and then declaring their assets.

Full disclosure

The new draft law would also make voluntary disclosures valid only if tax dodgers comprehensively admit to all the assets they have failed to declare that have not become legally outdated.

"People submitting voluntary disclosures will only be immune to proseuction if they completely and accurately disclose information on all assets that qualify for any form of tax," a government statement says.

But of course, the tax authorities would first have to find any withheld funds or assets in order to make a case.

Germany recently registered a wave of almost 30,000 voluntary admissions after purchasing CDs containing stolen data on foreign bank accounts held by German citizens, as people realized the information might incriminate them.

"Our experiences with the flood of voluntary disclosures after the debate over the purchase of tax data highlighted the need to change our legal system and limit the ways in which tax evaders can avoid prosecution," the budgetary and financial spokesman for the Christian Social Union, Bartholomaeus Kalb, told parliament on Wednesday.

Too little, too late?

However, the proposed changes would represent only a slight tightening of Germany's already lax tax evasion laws, and critics have derided the draft law as a "mini-solution" by a center-right coalition government that doesn't want to get too tough on the subject.

"The coalition has become nervous because of the public outcry over the case of the Swiss bank data CDs," the chairman of the German union of tax workers, Dieter Ondracek, told Deutsche Welle. "That made ordinary citizens aware of the possibility of submitting a voluntary disclosure, and they were unhappy with the law."

"The politicians don't really want to address the issue, because they see revenue from these disclosures as money in the bank, without any messy litigation."

Ondracek, however, believes that it would be better to get rid of voluntary disclosures altogether, arguing the German approach to tax evasion implies that it's not really considered a crime.

"It's not just important, it's a matter of urgency," Ondracek said. "This possibility only exists for one crime - tax evasion. How can a crime be serious if you can absolve yourself of legal responsibility at the last minute just by owning up?"

"In reality, tax evasion is comparable with embezzlement or theft, except you're not stealing from one person, you're stealing from every German citizen. Remember, this is a problem that costs our government and taxpayers an absolute minimum of 10 billion euros ($13.2 billion) per year."

Wasted chance to tackle the deficit?

That 10 billion euro bottom estimate would represent just under one fifth of the money the heavily indebted German government plans to borrow in 2011. Missing taxes do not become legally out-dated for 10 years, meaning that German tax dodgers currently owe at least 100 billion euros.

"It would make more sense to try to balance the budget by doing everything we can to secure these missing taxes that people are legally obliged to pay the government," Ondracek said. "Instead, we're taking out more loans and passing on the interest to our grandchildren."

The opposition Social Democrats had also advocated abolishing the voluntary disclosure system altogether, in favor of letting the courts decide whether or not tax evaders deserved to avoid jail sentences or other legal punishments.

"The legal procedure involving voluntary disclosures has existed in Germany for 90 years now," Kalb of the Christian Social Union countered. "It has proved its worth and remains a useful mechanism. Abolishing this system, as per the [Social Democrats'] suggestion, would be unwise."

Author: Mark Hallam (dpa, Reuters)
Editor: Rob Turner, Susan Houlton