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Tough Times Ahead for German Tax Evaders

The case of Bayern Munich President Uli Hoeness is heating up the German election campaign and presenting a challenge to the courts, which have gone easy on wealthy tax offenders until now. The high-profile case is likely to mean harsher punishments in the future.

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Tuesday, 4/30/2013   06:36 PM

Football fans in the western German city of Dortmund consoled themselves with several revenge fantasies last Tuesday when their top player transferred to the country's most prominent team, FC Bayern Munich. The first was to wish a home game loss on the Munich team when it played FC Barcelona that evening. The second was the fervent wish that the traitorous player would play for Bayern next year, but that the team's current President Uli Hoeness would be denied the pleasure of watching. Why? Because they probably don't get cable sports channels in prison.

As we now know, the Dortmunders won't be getting their first wish, after Bayern Munich beat Barcelona 4:0 last week. But the second one could come true, and instead of requiring a revenge fantasy to make it happen, all it could take is the state's monopoly on the use of force -- even if Hoeness, now Germany's most famous tax evader, was sitting in the stands in the match against Barcelona, thanks to a suspended arrest warrant and bail posted at €5 million. Although Hoeness submitted a voluntary declaration to report his hidden assets in Switzerland, he apparently made such a mess of it that it might not save him, after all.

If that's the case, the public prosecutor's office in Munich will have to investigate him as if he had never come clean. And that could put him closer to prison than any other high-profile tax evader since Peter Graf, the father of tennis star Steffi Graf.

It's a full-blown drama, complete with all the requisite elements, starting with pride and stigma. And then there is the arrogance of a public figure, one who is now more likely than ever to face public scorn and ridicule. And, finally, pity and malice will also play a role, especially when a figure like Hoeness, with all of his big talk and noble claims, comes crashing down. It has become clear that the Hoeness case is also about to make waves in the political world, especially given his close ties to many politicians.

High-profile politicians have sought his advice and basked in the sunshine of his popularity, including Chancellor Angela Merkel, a member of the center-right Christian Democratic Union (CDU), Bavarian Governor Horst Seehofer, who heads the CDU's conservative sister party, the Christian Social Union (CSU), and opposition Social Democratic Party (SPD) chancellor candidate Peer Steinbrück. But now Hoeness' sunshine is about to turn into a shadow, one that will also be cast over Berlin. For the contenders in the upcoming federal election, the trick will be placing their respective opponents in that shadow while remaining in the sunlight.

A Campaign Issue

As the campaign for this fall's general election gets started, one of the biggest issues is the question of justice. Could it be that the opposition was right when it torpedoed the government's plan for a tax treaty with Switzerland? A treaty that would have guaranteed anonymity to tax evaders like Hoeness? And should those who submit voluntary declarations go unpunished, even when they have defrauded the German treasury of millions over the years?

The SPD has been only too pleased to address the issue, gratified that the government finally provided a target for popular anger. With scandals involving Swiss banks, tax evasion and illicit earnings, the SPD was able to paint the issues as a battle of good against evil, with the CDU, CSU and their coalition partner, the pro-business Free Democratic Party (FDP), standing accused of betraying the public.

But the government immediately staked out its own claim to the issue. After SPD Chairman Sigmar Gabriel demanded that tax evaders be permitted to avoid prosecution in minor cases by turning themselves in, the governing coalition also publicly declared its support for the idea. Now the CSU's Seehofer is also calling for limiting voluntary declarations "to certain, minor cases," adding that leniency would be completely inappropriate when "a lot of money and criminal energy are involved." Even the FDP, which generally favors lower taxes and is therefore notoriously suspected of having a weak spot for tax fugitives, wants to take a closer look at the issue of voluntary declaration.

All of this could continue to fuel the election campaign for days, perhaps even weeks, but then politicians will start latching onto other issues. The Hoeness case, on the other hand, is primarily an issue for the judiciary. If charges are filed against Hoeness, the issue of whether the courts are ready to take a tougher position on tax evasion will come to a head. Although the Federal Court of Justice (BGH) already made it clear in 2008 that it planned to deal more harshly with tax evaders, its position hasn't trickled down to courtrooms throughout the country yet.

In 2008, the judges on the BGH decided that, as a rule, a person who has evaded taxes on €1 million or more should go to prison. So far, however, there have been only exceptions to the rule. In the end, even tax evaders who allegedly failed to pay taxes on €4-5 million have somehow managed to escape with suspended sentences.

A Landmark Case?

But perhaps the change decreed by the BGH merely needed an impetus or a catalyst, a case as spectacular as that of former Deutsche Post CEO Klaus Zumwinkel several years ago. The €3 million that the Süddeutsche Zeitung reported Hoeness had paid in back taxes is clearly well over the critical €1 million threshold, even with the special allowances that those who submit voluntary declarations usually build in. In other words, his case could be the precedent that sets everything in motion.

One thing is clear: By keeping his money in Switzerland, Hoeness was long in good company. After World War II, wealthy Germans began stashing funds in Switzerland, Luxembourg and Liechtenstein, fearing inflation or currency reform, that the Russians were coming or that the SPD would come into power. It was essentially a community of anxious Germans investing their money abroad. And then there were the owners of small and mid-sized companies, who refused to accept that while they were often working 12-hour days, the government was, in their view, giving their money away to the wrong people, namely their lazier countrymen or foreigners.

Many were the pillars of society, with the "Order of Merit of the Federal Republic of Germany pinned to their jackets while their wallets were tucked inside," as the head of the German tax union (DSTG), Thomas Eigenthaler, scoffs. This explains why, at the time when Hoeness began depositing his money in Swiss bank accounts, the German legal system was extremely indulgent with the respected citizens who were secretly cashing in.

It began with the fact that the option of voluntary declaration existed in the first place -- and still exists today. It enables a tax evader to avoid prosecution by simply paying back taxes and, if the sum exceeds €50,000, an additional 5-percent fee to the treasury. "Tax evasion is the only offense where the government dispenses with its right to prosecute and would rather take the money," says union leader Eigenthaler. Jürgen Wessing, a Düsseldorf expert on the criminal code for tax offences, agrees: "It's alright as long as the money comes in."

And even when a tax evader was actually caught without having turned himself in, his chances of avoiding a prison sentence were good. Horse breeder Paul Schockemöhle, who owed 22.6 million deutsche marks in back taxes, was given an 11-month sentence, but on probation. Tennis star Boris Becker owed 3.8 million deutsche marks and was sentenced to two years on probation and a fine of €500,000. Singer Freddy Quinn, who had cheated the state out of 1.8 million deutsche marks, also received two years on probation, plus a fine.

Those who had the money to pay their back taxes and fines could buy their freedom. In 2008, a businessman from Bad Homburg, near Frankfurt, owed the government €7.5 million and still avoided a prison sentence. After he had paid €15 million and handed two years on probation, the case was closed.

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