With the current tax affair in Germany, Liechtenstein is again coming under pressure by large states to modify its financial system. The Government recognizes the need for adjustments in some areas, but it draws attention to the fact that Liechtenstein is one of the best-regulated financial centers in the world. In its assessment conducted in 2007, the International Monetary Fund (IMF) gave Liechtenstein high marks in this regard.
Tax investigators in Germany swarming out to hunt down a very specific group of alleged tax evaders marked the beginning of a campaign by German tax authorities against the "Liechtenstein tax haven". The campaign was triggered by files stolen from LGT Treuhand AG in Vaduz, containing information on German citizens who had established foundations in Liechtenstein. From the outset, Liechtenstein criticized the unprecedented approach taken by the German authorities, who launched a campaign against tax evasion on the basis of unlawfully obtained data, with the goal of upending bank client secrecy, which is still honored in Liechtenstein and Switzerland.
Already before the meeting between Liechtenstein's Prime Minister Otmar Hasler and German Federal Chancellor Angela Merkel in Berlin, the media spoke of David versus Goliath. Unlike the Biblical version, however, the comparison at first only referred to the relative size of the countries, not the outcome of a potential unequal battle. In its 2007 foreign policy report, the Liechtenstein Government stated, "A small country like Liechtenstein depends much more that larger countries on the validity and application of international law, which helps it protect its interests." The Government thus regards the safeguarding of international relations through treaties and other forms of international law as particularly important for the preservation of Liechtenstein's independence. Liechtenstein's accession to the UN in 1990 and its participation in the European Economic Area (EEA) since 1995 are considered important stations in Liechtenstein's efforts to preserve its sovereignty.
As an EEA member, Liechtenstein has so far adopted 5,156 EU legal acts, so that Liechtenstein now has the same standard of regulations as EU countries in the areas of banking, investment funds, and insurance. Also with respect to market abuse, money laundering, and terrorist financing, Liechtenstein applies the same standards as the European Union. Differences in tax matters exist between the EU and Liechtenstein, and especially between Germany and Liechtenstein. Tax evasion is considered a criminal act in Germany, while in Switzerland and Liechtenstein, only tax fraud is prosecuted as a criminal offense. In the area of tax fraud, Liechtenstein has signaled its willingness to apply the same or similar criteria as Switzerland within the framework of an Anti-Fraud Agreement with the EU. According to Prime Minister Otmar Hasler, the negotiations on the envisaged Anti-Fraud Agreement with the EU are already far advanced, and they could soon be concluded, now that the Schengen/Dublin agreements have been signed.
Frank Elbe, Ambassador of the Federal Republic of Germany to Switzerland and Liechtenstein in Berne from 2003 2005, commented on the German Liechtenstein tax dispute in the Neue Zürcher Zeitung. Elbe presented the differing assessments of tax evasion in the three countries and concluded that the legal prosecution of tax evasion by German citizens in Switzerland and Liechtenstein raises problems for this reason with respect to legal and administrative assistance. However, the sovereignty of states in the way they structure their tax laws must be respected, Elbe demanded: "Sovereign states must be respected and no difference may be made between large and small countries."
Already in its 2007 foreign policy report, the Government almost clairvoyantly remarked that the criticism of the Liechtenstein financial center would continue, and political pressure on the financial service sector would grow. The Government was aware that pressure would increase even though Liechtenstein had brought its institutions up to European standards: for instance, by establishing an integrated and independent Financial Market Authority (FMA) and a Financial Intelligence Unit (FIU) as a reporting office for money laundering. The Liechtenstein FIU was appointed already in 2001 and was thus able to serve as the sponsor of the German FIU upon its acceptance to the Egmont Group, the worldwide association of national financial intelligence units with over 100 members.
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