It sounds like a riddle, but what do Britain’s Channel Islands Jersey and Guernsey and the tiny principality of Liechtenstein have in common?
Two words: Tax havens.
All are noted destinations for those looking to park some money off-shore, away from the watchful eye of their home country’s tax man.
But that is changing.
Off-shore tax havens are coming under increasing scrutiny and pressure as the world struggles with the global economic downturn, according to a March 29 report by The Associated Press.
They have little room to fight back.
Prince Alois of Liechtenstein agreed earlier this month to start following the rules set down by the Organization for Economic Cooperation and Development in Europe aimed at curbing tax havens, the AP said.
“We’re in the middle of a power struggle, and the big countries can do what they like,” Michael Lauber, chief executive of the Liechtenstein Bankers Association, told the wire service.
The stakes are high.
One consulting group estimated that the amount of money in off-shore accounts that is either not taxed or undertaxed exceeds $7 trillion, the AP said.
The new U.S. administration is also a source of pressure. As a senator, President Barack Obama co-sponsored legislation to crack down on havens estimated to cost the United States $100 billion annually in lost revenue, the AP said.
But one international lawyer says the best weapon might not involve heavier enforcement at all.
Gerhard Roth, a managing partner at the Swiss law firm GHR, told the AP that top tax rates as high as 50 percent like in Germany means some people feel justified in moving their money elsewhere.
This article was submitted by Kathleen O’Connor, a contributing writer for Biz2Credit. Biz2Credit is a small business marketplace that provides entrepreneurs with the latest industry news and financial advice. Send all questions to firstname.lastname@example.org.