Page last updated at 13:39 GMT, Monday, 25 February 2008

Q&A: Liechtenstein and tax evasion

A sign at the Liechtenstein border
Liechtenstein is regarded as a tax haven
The UK tax authority, HM Revenue and Customs (HMRC), says it has paid an informant for data on British citizens who have bank accounts in tax haven Liechtenstein.

The information could help the UK recover unpaid taxes and comes as Germany steps up its own tax evasion investigation regarding Liechtenstein accounts.

Why has HMRC obtained the data?

HMRC says the information it has bought will recoup 100m in unpaid taxes from UK citizens who have evaded taxes using bank accounts in Liechtenstein.

It said it was seeking "to protect the UK exchequer from those who seek to hide behind secrecy laws".

Is the move legal?

HMRC has the right to pay for information that helps prevent tax evasion. It has held this power since 1892 although analysts say it is not widely used.

Unconfirmed reports say HMRC paid 100,000 for the data, after initially turning it down.

The Financial Times reported that Germany's success with a tax crackdown based on information from the same informant prompted the HMRC to reconsider its decision.

What's happening in Germany?

A view of Liechtenstein
The investigation has sparked a diplomatic row

Germany's tax crackdown came to light when Klaus Zumwinkel, the high-profile chief executive of Deutsche Post, was questioned by police over suspected tax evasion.

Reports have said hundreds of other people are being investigated after Germany paid 4.2m euros (3.2m) in January 2006 for a list of wealthy Germans with money stashed in Liechtenstein.

The crackdown has sparked a diplomatic row with Liechtenstein; Liechtenstein's Prince Alois has accused Germany of placing "fiscal interests above the rule of law".

What penalties do UK tax evaders face?

Any UK resident found to have evaded tax will have to pay back the amount of tax owed plus interest. A further penalty of up to 100% of the tax due can also be imposed.

In certain circumstances, those found guilty of tax evasion can face a prison sentence of up seven years.

Richard Murphy of the Tax Justice Network, advises anyone with money in an Liechtenstein account to make a voluntary declaration to the HMRC.

"They will still face an investigation but the penalties will be much lighter," he says.

Who is the informant?

The informant is thought to be a former employee of Liechtenstein's LGT Bank.

The Wall Street Journal named him as Heinrich Kieber, a 42-year-old former archive worker who allegedly stole the data earlier this decade.

LGT has filed criminal charges alleging Mr Kieber stole digital copies of customer archive files, the journal reported.

What are some of Liechtenstein's attributes?

The Principality of Liechtenstein borders Austria and Switzerland. It has 35,000 residents and 75,000 businesses are registered there.

"It has an image of being secretive but it is major financial centre. An awful lot of extremely reputable business goes on there," said John Whiting, a tax partner at Price Waterhouse Coopers.

The Organisation for Economic Cooperation and Development lists Liechtenstein as one of only three states remaining on its blacklist of "uncooperative tax havens".

The other two are Andorra and Monaco.

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Country profile: Liechtenstein
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