Tax: Germany says "I'll show you mine if you show me yours"

It's a long road to get agreement on tax information exchange, even within Europe. The 1997 EU Finance Monisters Conference in Tampere, Finland, proposed a number of measures to operate on an intra-EU basis.

Few of those measures have been put in place but there is progress of sorts.

Part of the reason is that the measures will be very unpopular in countries which do not already have restrictive tax regimes.

But Germany has been pushed into action by two things: first, and most obviously, are the "Lichtenstein Papers." The second is the uncovering of institutionalised corruption across German industry including some sectors where there is state ownership to some degree or other.

But the real driver behind tax information exchange is the EU's constant nagging away at the sovereignty of states in its own borders, in part because of the creation of the eurozone which ironically created an economic bloc with considerably less flexibility than those living and working within it enjoy.

It seems that someone forgot something very basic: if you allow free movement of labour, free movement of capital and free movement of people (not the same as labour in this context) then money will move from state to state but there remained the national barriers to information exchange.

Whilst this has already been - in most cases - handled in response to money laundering, it was not relating to tax. Remember, though, that tax evasion is, in most EU countries, a predicate crime.

The new measures, then, are not related to suspicious transactions. They are to produce information relating to the activities of ordinary taxpayers. In short, they are a fishing expedition. And other countries - which have come up against Germany's own financial privacy laws - can fish for information too.

The OECD sees the signing of the agreement as a good thing:OECD Secretary-General Angel Gurría welcomed Germany's signature of the Convention. "Given the Convention's multilateral nature," he noted, "its benefits grow as more countries join. It is a valuable instrument in addressing tax evasion schemes that often involve more than two countries or are replicated in different countries."

Of course, Germany is happy, too:"With the signing of this convention, the German tax administration improves significantly its network of international cooperation in tax matters,particularly vis-à-vis non-EU-countries, Germany's Secretary of State in theFederal Ministry of Finance, Dr. Axel Nawrath, said in a statement. "This allows for a more effective prosecution of international tax evasion and taxfraud."

But although the Convention has been signed by Azerbaijan, Belgium, Denmark, Finland, France, Iceland, Italy, the Netherlands, Norway,Poland, Sweden, the United Kingdom and the United States. Canada and Ukraine it is not yet operational: all of the above are still in the process of ratification.