Quite mindgargling from Ritchie

Liechtenstein has just announced the latest sums it has collected under the terms of the European Savings Tax Directive. It was a measly €7.8 million.

OK, yes, that is what the report says:

According to the Liechtenstein administration, the withholding tax levied on interest income paid to European Union (EU) taxpayers in the Principality amounted to around CHF9.6m (EUR7.8m) in 2010. This figure compares to approximately CHF14.4m (EUR11.7m) derived from the withholding tax in 2009, the administration states.

In accordance with the European Savings Tax Directive, which entered into force on July 1, 2005, and provides for the taxation of interest earned, the Principality of Liechtenstein imposed a withholding tax of 15% in the first three years on the interest income of EU investors. Since July 1, 2008, following a 5% rise, the increased withholding tax rate of 20% has applied.

OK, so we can, as Ritchie does, make some assumptions about how much capital that represents.

Working backwards this is 20% tax on €40 million interest. Assuming 2% interest, this is tax on interest income on € 2 billion capital (which may seriously overstate the case: German bonds paying over 3% p.a.).

Fair enough then, EU taxpayers have €2 billion in Liechtenstein banks.

And then!

Liechtenstein banks have  € 140 billion assets under management.

So tax was levied on 3% of assets. Generously assuming only 40% of assets were fixed income then the savings tax is less than 10% effective in Liechtenstein which is no surprise with nearly 100,000 foundations, trusts, companies and anstalts in the Principality.

Ah, no, this isn\’t right (what a surprise with a Murphmeister post, eh?). It is individuals (and possibly companies, not sure, but think not) who are EU taxpayers who are subject to the with holding tax. Foundations, trusts and companies which are incorporated in Liechtenstein are not subject to it.

For of course they are not EU taxpayers, are they?

What is clear is that the case for reform of the European Savings Tax Directive is overwhelming given this massive failure of the existing arrangement to tackle serious tax abuse.

So it\’s tax abuse if not European Union taxpayers don\’t pay European Union taxes is it?

11 thoughts on “Quite mindgargling from Ritchie”

  1. Surreptitious Evil

    So it’s tax abuse if not (sic) European Union taxpayers don’t pay European Union taxes is it?

    Indeed it is. Furthermore, the taxes must be paid at the rate Murphy declares is appropriate, not at the rates derived from the tax codes of Liechtenstein or the country of domicile. And they should be paid immediately the income is received, rather than in arrears, as is usual.

    Any failure to submit to the will of the Murphy will be punished by being moaned at in leftie rags.

  2. I think Murphy’s Rule can be expressed:

    “A taxpayer (regardless of legal personality) must pay the entire amount of tax due in their country of domicile unless that taxpayer has any links to any other country or countries in which they would be liable to a higher rate of tax on similar grounds in which case they must pay that higher rate in the other country or countries in addition to that which is technically required in the country in which they are legally domiciled.”

  3. You really don’t get it.

    Europeans are using these structures to not pay tax. It’s not hard to understand. Again, you are apologising for the system that hides criminality.

    Or are you suggesting that the structures are all beneficially owned by non Europeans?

    Tim adds: But European tax is not payable by these structures. So, to complain that European tax is not being paid by structures which do not owe European tax is a waste of time, isn’t it?

  4. Arnald says:
    ‘Or are you suggesting that the structures are all beneficially owned by non Europeans?’

    Given that this forms the basis of your ‘fairness’ argument, you do of course have some sort of proof to support your ‘suggestion’ that they are in fact owned by European taxpayers ?

  5. Worzel

    Worstall blurted “So it’s tax abuse if not European Union taxpayers don’t pay European Union taxes is it?”

    Of course I could be a ChrisM pedant and comment on the crapness of the sentence, especially since worstall has a post-post edit facility, but you’ll see my response is a direct opposite of what w is pretending to know about.

    Considering Liechtenstein’s history, it wouldn’t be a massive surprise if a good number of the tax dodging vehicles were EU derived. Of course the far east and US do their best to dodge tax too, it’s a growing market for the Prince, but I’d hazard a guess at a good quantity of German, Austrian and French (and Swiss) wealth squirreled there.

    Do you have proof, as w is boasting on a technicality, that they are not?

    Tax dodging apologists. Be proud you are ruining countries.

  6. “So it’s tax abuse if not European Union taxpayers don’t pay European Union taxes is it?”

    Well actually in the context of a Liechtenstein foundation it probably is tax abuse (at least by the beneficiary), if an opaque structure such as a foundation is set up to disguise the beneficiary of its income, where that beneficiary fails to disclose that income and where no-one is able to ascertain that the beneficiary exists and who he is. This is precisely why proposed changes to withholding obligations under the European Savings Directives on structures such as these may in future require tax withholding from income under a number of potential bases.

    Although this is of course not just a problem with Liechtenstein or with foundations.

  7. botzarelli
    no mate, way off.

    Declare your structure and it’s worth to the relevant authorities. Those authorities will then act on rules set out by a democratic mandate. if a jurisdiction couldn’t give a toss then so be it, but if a jurisdiction does, then abide by it. Or live elsewhere.

    It’s not some evil plot. It’s to stop criminality.

    Do you defend criminals for a hobby?

  8. “Of course I could be a ChrisM pedant and comment on the crapness of the sentence, ”

    Ah yes, of course because being comprehensible is of course the same as pedantry. I am not often in full agreement with John B, whose politics are closer to your own, but I agree with him one hundred percent when he observed that “convoluted semi-coherence is hardly uncommon in Arnald’s writing style.”

  9. The Savings Directive is not a magic wand for eliminating tax evasion. It just requires (in this case) Lichtenstein institutions to withhold tax from interest paid to EU resident individuals, trusts or certain other types of non-corporate vehicle. That’s not the result the EU actually wants – what it wants is states to opt for an information regime not a withholding regime, so that an institution paying interest cross-border discloses the payment to the recipient’s tax authority. But Lichtenstein loves banking secrecy, so opted for the withholding regime.

    When Lichtenstein announced it was about to introduce a withholding regime, everybody honest moved their money to a bank in a sensible jurisdiction operating an information regime (e.g. Luxembourg); everybody dishonest moved their money somewhere outside the Savings Directive altogether (e.g. Panama). Only stupid people would keep their money somewhere where a 20% withholding would apply. Richie is just estimating the number of stupid people.

    It is possible that Lichtenstein banks are acting unlawfully and breaching the local implementation of the Savings Directive. But this doesn’t seem very likely to me, not least because other tax authorities would pick up on it quite quickly.

    And why is the asset base of Lichtenstein banks so much greater than the amount withheld upon? Perhaps it’s locals; perhaps it’s Americans and others outside the EU (for whom the Savings Directive does not apply).

    These are interesting questions. But Richie never seems much interested in dispassionately examining the evidence and formulating a view – he just grabs facts from here and there that he thinks supports his case, and moves on without a second thought.

  10. Of course, someone could actually read the original press release (I cannot get hold of the basic data, but if you can, even better).
    There are two options – make a voluntary declaration to your home country or be subject to withholding tax. The number making voluntary declarations has gone up by nearly one-fifth to 1238, the amount of withholding tax paid has gone down by one-third.
    So Murphy is implying that all those making a voluntary declaration to their home tax authorities are evading tax on all their Liechtenstein income, and all the foundations etc are beneficially owned by EU residents. It is widely believed that one of the largest, if not *the* largest, depositor in the Liechtenstein banking system is Hans Adam II, who is not liable to income tax in any EU country.
    @ Arnald Tim is *not* defending criminality – he is pointing out that Murphy is, as usual, wrong.

  11. Arnald keeps on attacking the things he thinks Tim means though he didn’t say, and defending the things Witchie might have meant but didn’t say either.

    Not a lot of point, really.

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