Tax evasion seems to have gone out of hand in Europe. Or perhaps some member governments of the European Union are finding it impossible to live with the unscrupulous practice while complying with the ever-tightening regulations governing the international financial markets. Whatever the case, it seems the time has come for the Europeans to fold up tax havens.

The World Bank estimates annual cross-border flows from criminal activities, corruption and tax evasion at $1,000bn-$1,600 billion, of which half is said to come from developing and transitional economies which receive all told about $100 billion or so in annual aid from the OECD countries.So the menace appears to be much more devastating in financial terms for the developing countries than for the developed.

But developed countries also seem to have started feeling the pinch. And indeed, the latest round of pressure on these havens began to escalate when some three weeks back the German tax authorities used data stolen from LGT, the royal family owned bank of Liechtenstein to start an investigation into tax evasion in Germany.

The customer data sold by an employee of the LGT to the German authorities covered accounts totalling up to Swiss francs 5.5 billion at the time of the theft in 2002. Based on the bank’s disclosure that the data involved 1,400 clients, of whom 600 were German an average portfolio of illegal $3.76 million is said to be held at the LGT.

Germany, it seems has made up its mind to also moblise support in Europe to crack down on tax havens and financial secrecy. Berlin recently said it was considering measures such as levies on wire transfers to the principality or an obligation for German banks to declare such transfers. Other countries including the US, Finland and Sweden have opened, or are said to be considering opening, investigations.

Berlin has three countries ( Monaco, Liechtenstein and Andorra) classified as ‘un-cooperative’ by the OECD in its sights. The OECD calls them ‘un-cooperative’ because they refuse to disclose the bank data of suspected tax evaders to foreign law-enforcement authorities

International pressure on Liechtenstein to relax its strict bank secrecy rules grew after the US said it was investigating more than 100 taxpayers suspected of using accounts in the Alpine principality to avoid tax.

Australia, France and Sweden also revealed they were investigating residents with money in Liechtenstein banks. Italy said it was studying a list of account holders and considering investigations.

The British HM Revenue & Customs investigating Liechtenstein account holders said it expected to recover about £100 million in unpaid taxes.

The OECD is seeking close cooperation among member countries in its efforts to curb the practice of offshore tax evasion which admittedly is distorting the economies in many developed as well as developing countries and lessening their ability to ensure equitable distribution of the fruits of development.

Significant restrictions on access to bank information for tax purposes remain in three OECD countries (Austria, Luxembourg and Switzerland) and in a number of offshore financial centres (e.g. Cyprus, Liechtenstein, Panama and Singapore). Moreover, a number of offshore financial centres that committed to implement standards on transparency and the effective exchange of information standards developed by the OECD’s Global Forum on Taxation have failed to do so.

Those campaigning against the tax havens do seem impressed by the two newly published OECD reports highlight both what has been achieved so far and what still remains to be done. Improving Access to Bank Information for Tax Purposes—the 2007 Progress report describes developments in OECD countries and six others (Argentina, Chile, China, India, the Russian Federation and South Africa) with respect to access for tax authorities to bank information. Tax Cooperation: Towards a Level Playing Field—2007 Assessment by Global Forum on Taxation compares the legal frameworks for international tax co-operation of 82 OECD and non-OECD economies. It is the second in a series of reports by the OECD’s Global Forum on Taxation, which was formed as part of the OECD’s efforts to curb harmful tax practices.

There is a growing feeling among the policy makers here that no one country or even a small group of countries can address the issue of harmful tax practices on their own. This is considered a global menace which requires a global response. Lack of transparency and a failure to co-operate internationally create conditions that can be exploited by dishonest taxpayers to evade their tax obligations. Revenue losses due to tax evasion prevent governments from lowering tax burdens for honest taxpayers.

Nearly 100 more exchange of information arrangements are now in place, compared with one year ago, including tax information exchange agreements between the United States and Guernsey, the Isle of Man and Jersey which entered into force in 2006.

The OECD claims that: *The scope of some existing arrangements has been extended. For example, Switzerland has signed a number of protocols to its bilateral tax conventions to exchange information, including bank information, in cases of tax fraud and the like. Some of these protocols also allow for exchange of information in both civil and criminal tax matters in the case of holding companies.

*Access to bank information for tax purposes has greatly improved economies such as Belgium, which in November signed its first tax treaty providing for exchange of bank information for all tax purposes.

*Increasingly, legislation requires financial and other service providers to have reliable details of the beneficial as well as the legal owners of corporate vehicles. For example, in Macao, China, new anti-money laundering legislation requires financial institutions to verify the identity of customers and their beneficial owners. In San Marino, new legislation requires that from 2008 meetings of joint stock corporations must be held in the presence of a notary public who is required to identify holders of bearer shares.”

However, the OECD approach to the problem is being viewed as too feeble to yield the desired result. Some independent experts have proposed that the focus must shift towards the infrastructure of cross-border economic crime, including accountants, lawyers and financial institutions – not just the legal mechanisms that underpin secrecy. Both of the main mechanisms – bank secrecy and secrecy of beneficial ownership of assets through offshore trusts and the like – must be tackled. There are said to be a number of legal tax practices which in their application become too easy to be exploited by the unscrupulous. These should also need to be targeted.