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The Austrian government (pictured: ÖVP Finance Minister Maria Fekter) is cracking down on another alleged safe haven for private equity.

Government wants to tax Liechtenstein foundations

The Austrian government is cracking down on another alleged safe haven for private equity.

Only last week, Austrian People’s Party (ÖVP) Finance Minister Maria Fekter met with Swiss Finance Minister Eveline Widmer-Schlumpf to finalise a tax treaty between the neighbouring countries. The agreement means that Austrians’ money in Switzerland would be charged with tax rates of 15 to 38 per cent depending on when they opened accounts there.

The ÖVP and its coalition partner, the Social Democratic Party (SPÖ), hope to rake in one billion Euros next year this way. The government is optimistic about revenues of 50 million Euros a year as of 2014 thanks to the bilateral tax treaty with Switzerland. Now Fekter revealed that a team of Austrian experts on financial and tax affairs gathered with representatives of the Principality of Liechtenstein. The former interior minister said she wanted to close taxation loopholes Austrians were currently benefiting from by stashing their assets in Liechtenstein-based foundations.

SPÖ Finance Secretary Andreas Schieder admitted that talks with Liechtenstein financial sector officials could be "more complex" than the negotiations with the Swiss government. He underlined that the discussions about a tax agreement were mostly about foundations, not bank accounts – in contrast to the debate with Switzerland’s political leaders. He said it was often less clear who owned the money hoarded in foundations while ÖVP boss Michael Spindelegger appealed on the public to give the Austrian experts some time to try and sort out an agreement. SPÖ Chancellor Werner Faymann said the discussions with Liechtenstein could take longer than the talks with Widmer-Schlumpf’s team of negotiators.

There are still some uncertainties regarding the Austrian-Swiss tax treaty. The federal parliament of Switzerland must give the deal the go-ahead. Furthermore, a referendum regarding the issue could delay or even thwart the Austrian government’s attempts to meet its own budget criteria. SPÖ and ÖVP agreed in February to improve the public budget’s volume by 26.5 billion Euros with a wide range of tax increases and cutbacks. Additional earnings from a tax treaty with Switzerland were an important part of the package. The opposition harshly attacked the coalition for considering the extra incomes as certain while tax system experts still think that revenues of one billion Euros in 2013 is a too optimistic target.

SPÖ and ÖVP struggle in polls. Both parties are therefore expected to make aware of their ability to seal the tax deal with Switzerland as promised on next year’s campaign trail. Several regional elections are due for the coming months, with a federal ballot scheduled for autumn 2013. The government parties might try to redirect the public attention from the various corruption scandals some former members could be involved in. Prosecutors’ abuse of office, bribe and embezzlement investigations against retired politicians are expected to be a key topic of the Greens’ election campaign. However, the Freedom Party (FPÖ) and the Alliance for the Future of Austria (BZÖ) might make aware of the various allegations against ex-government ministers as well – despite claims that high-ranking FPÖ and BZÖ officials were strongly engaged in making illicit arrangements as well.

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