Those tax heavens…Throwing the baby out with the bath water

The common person does not want to hear the bitter truth – most countries need tax havens. The German authorities are on a tax witch hunt, having acquired through illegal means the documentation and bank information of many of its wealthiest citizens parking their money in Lichtenstein. They have not really stopped to consider the outcome of their actions – the mass exodus of the very rich out of their borders and into the awaiting arms of countries such as Switzerland, Canada and Dubai which provide similar lifestyles with a huge tax discount. The super wealthy inject a huge amount of money into the economy, whether it is goods and services, charitable donations and causes or increase of business activity. Even if you simply consider their daily lifestyle, whether it be shopping, dining, parties, travel, business, fellow wealthy people visiting, etc, they cover a wide range of businesses and end up becoming significant contributors.

This group is also usually immune from economic downturns, keeping businesses solvent when most customers have disappeared. The argument of exodus is not theoretical, for the last five years I have been running into many families who have decided to stay out of Germany for more than six months so as to not be taxed. These numbers will only increase, and Germany who is facing a constant development struggle may find itself missing these people soon. France has already seen a list of high profile people finally packing their bags and leaving, and London is beginning to feel the pinch after it changed its global taxation policy on long-term residents.
Countries like the United States understand the dilemma well, creating loopholes to make sure the wealthy have a way out of paying taxes that become nonsensical after a certain income bracket. The other problem is the erosion of trust for Switzerland and Lichtenstein as the world’s tax havens to general Europe’s detriment. I had already commented on this earlier, and this illegal maneuver (it runs afoul of Lichtenstein’s laws) further compounds this problem. Placing money in a region ends up boosting that region’s general banking and finance system, with the guardians and consultants of the money are more likely to invest in the familiar regional markets. Now all this money would start to move to Asia (read Singapore) and the Middle-East (read Dubai), where people are far more savvy and comfortable with investments in high yielding developing countries which robs Europe of significant investment.

We can only hope that Germany and other countries wake up to these realities, and charter a more prudent course which would benefit them as well as their most successful and prominent residents.

Add Post To: | Digg| Technorati| del.icio.us| Stumbleupon| Reddit| BlinkList| Furl| Spurl| Yahoo| Simpy|