June 23 (Bloomberg) -- Germany and France warned offshore tax havens to follow through on their pledges to comply with international standards and announced a system for monitoring the transition toward greater transparency.

German Finance Minister Peer Steinbrueck and French Budget Minister Eric Woerth, speaking in Berlin, said countries that don’t comply with Organization for Economic Cooperation and Development standards risk sanctions. Measures will also be taken to tackle foundations and holding companies that make avoiding tax easier, they said.

“It’s of decisive significance that we don’t stay put,” Steinbrueck told reporters today after hosting an international conference on combating tax evasion. “Declarations alone, as important as they are, have to be followed up with action.”

German and French efforts to combat tax evasion, begun in October, were bolstered by an April summit in London of Group of 20 leaders who agreed to step up pressure on tax havens as part of their response to the global recession. G-20 leaders told the Paris-based OECD to publish a “gray list” of jurisdictions that haven’t yet implemented tax standards.

All the Berlin conference participants, who included ministers from the U.K., Switzerland, Austria and Luxembourg, agreed that countries failing to fulfill pledges to observe OECD rules should face the possibility of sanctions, Woerth said.

“The sanctions are very important, otherwise there’s no credibility,” Woerth said.

Tax Agreements Signed

More than 40 tax-information exchange agreements, or TIEAs, have been signed since the financial crisis took hold, with most in the last six months, according to the OECD. That’s about half the total number of such agreements signed since 2000.

In May, President Barack Obama proposed raising about $190 billion over the next decade by outlawing three offshore tax- avoidance techniques used by U.S. companies such as Caterpillar Inc. and Procter & Gamble Co.

Swiss Finance Minister Hans-Rudolf Merz and Steinbrueck agreed late yesterday to press ahead with talks on a plan to revise a double-taxation agreement, Merz told reporters after the conference. Swiss and German officials will meet again July 13 for further talks.

“We see no reason why there can’t be quick progress,” Merz said. “Our position as a financial center doesn’t depend on tax evasion, let alone tax fraud.” At the same time, he cautioned that any change may trigger a national referendum.

‘Full Cooperation’

Switzerland, Austria and Luxembourg, all of which have been criticized by Steinbrueck for their tax regimes, have shown “full cooperation,” Steinbrueck said.

“We are prepared to share more information faster than we have before,” Austrian Finance Minister Josef Proell told reporters.

“It’s astonishing to me the speed at which offshore financial centers have signed tax-information agreements over the last six months,” David Marchant, publisher of the investigative newsletter OffshoreAlert, said in an interview from Miami.

Funds held offshore by individuals or companies to evade taxes or escape from political instability in their home countries are “somewhere between $5 trillion and $7 trillion,” according to OECD Secretary General Angel Gurria.

Diplomatic Tension

Germany’s pursuit of tax havens has led to diplomatic tensions. In March, Steinbrueck complained of being likened to a “Nazi henchman” after a Swiss lawmaker said Steinbrueck’s calls for Switzerland to be placed on a “blacklist” of tax havens reminded him of Germans 60 years ago who wore “leather jackets, boots and an armband.” Blick, the Swiss mass-market newspaper, said Steinbrueck was one of the “most hated people in Switzerland.”

In May, Steinbrueck listed Luxembourg, Liechtenstein, Switzerland and Austria alongside “Ouagadougou,” the capital of Burkina Faso, on tax matters, and went on to accuse Switzerland and Liechtenstein of deliberately encouraging German taxpayers to commit fraud.

“I take this issue very seriously, that’s why you can’t always be diplomatic,” Steinbrueck said today. “Sometimes you have to sharpen the point.”

Merz said it is time to “put these emotions aside” because “it doesn’t get results.”

Even so, the pursuit of tax fairness still has a long way to go, according to Raymond Baker, director of Global Financial Integrity. He said signing a TIEA is insufficient compared with establishing automatic exchange of data.

“Just because you signed an agreement doesn’t remove the enormous legal encumbrances on trying to get information,” Baker said by phone from Washington. “It lays down markers for cooperation, but those can stretch into very long-winded processes.”

To contact the reporters on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net.

Last Updated: June 23, 2009 08:44 EDT