Liechtenstein signs up to EU travel zone amid concerns over its tax shelter policies

28th February 2008, Comments 0 comments

Liechtenstein signed up to the EU's passport-free travel zone Thursday amid growing criticism among EU governments that the tiny principality is doing little to help catch tax evaders.

28 February 2008

BRUSSELS, Belgium - Liechtenstein signed up to the EU's passport-free travel zone Thursday amid growing criticism among EU governments that the tiny principality is doing little to help catch tax evaders.

The scandal surrounding Liechtenstein's tax haven status should not derail attempts to have the non-EU country join the bloc's 24-nation passport-free travel zone, known as the Schengen area, EU's Justice and Home Affairs Commissioner Franco Frattini told reporters.

It "is very important to get Liechtenstein inside the Schengen area," he said. "It is simply not possible to have an enclave in the center of Europe."

German officials have said approval of Liechtenstein's membership in the zone could be held up by the parliament there if the mini-state did not move to agree to new anti-fraud measures with the EU.

"We expect the commitment Liechtenstein has made be fulfilled," said German Interior Minister Wolfgang Schaeuble.

Unless there are parliamentary obstacles, the Alpine nation should join the borderless travel zone in November along with Switzerland,

The pact would also help in boosting cooperation on tax matters, said Otmar Hasler, Liechtenstein's prime minister, who signed the agreement in the margins of EU justice and interior ministers talks. He added that separate negotiations to get an anti-fraud agreement with the EU "have made very good progress."

Hasler said the signature was also meant to send "a clear signal of ... mutual trust."

He said, however, that while his country had to live up to certain duties, the EU also had to respect the rights and legal traditions of Liechtenstein and treat it as an equal.

"In Europe, we have different ideas of what constitutes tax fraud and tax deviation, therefore this term will have to be defined during negotiations," Hasler said. "Tax fraud will, if we follow these negotiations, go beyond the Liechtenstein definition."

As part of joining the passport-free travel zone, Liechtenstein will also have to plug into the zone's computerized information system that collects data on people that need visas to enter the zone and on asylum seekers.

EU officials have been eager to have both Switzerland and Liechtenstein, which is nestled between its Swiss neighbor and EU member Austria, join the borderless travel zone to boost the overall security of the area.

The two Alpine nations already share a common currency and customs control measures.

The agreement Liechtenstein signed Thursday will also commit it to cooperate with EU countries on criminal investigations, which could be helpful in hunting down tax evaders.

France, Germany, Britain and other EU nations have all started probes into whether their taxpayers were using bank accounts in Liechtenstein that could have been used to evade taxes.

The investigations started after Germany's intelligence services paid an informant for a list of account holders. German authorities say their probe has so far recovered US$41.2 million and netted 163 people.

Liechtenstein officials have defended the practice of allowing foreigners to open trusts there anonymously by registering them through a local attorney or trustee, and say reforms currently being prepared are unrelated to the German scandal.

Europe's fourth-smallest sovereign state got rich on its status as an offshore tax haven, with strict rules on banking secrecy. The Paris-based Organization for Economic Cooperation and Development has put Liechtenstein on a blacklist of uncooperative tax havens.

[Copyright ap 2008]

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