Feb. 20 (Bloomberg) -- Prince Max of Liechtenstein, the brother of the principality’s ruler, became the latest target in a German tax-evasion probe as authorities said he failed to pay taxes on investment gains while living in Germany.

Lawyers for the prince, who is also the chief executive officer of the princely family’s bank, LGT Group, challenged the accusation, although Prince Max said he’ll “promptly” pay back any taxes he might owe. Bernd Bieniossek, a spokesman for the prosecutor’s office in the German city of Bochum, which is carrying out the tax investigation, declined to comment.

“I have always fulfilled my tax duties in Germany to the best of my knowledge,” Prince Max said in an e-mailed statement distributed by LGT Group late yesterday. “If, contrary to my conviction, it turns out that I owe taxes to the German state, I will meet my obligations promptly.”

The targeting of a member of the ruling family of Liechtenstein, a country of 35,000 people wedged in the Alps between Switzerland and Austria, may add to tension between the two countries as Germany tracks down alleged tax cheats. Crown Prince Alois, Max’s brother, called the investigation an “attack” on Liechtenstein when the probe started last year.

Prince Max, who lived in Germany for a year from January 1999 and then from September 2001, met with German authorities in December and pledged to cooperate, the LGT statement said.

Focus on Foundation

The accusation centers on a foundation set up by the princely family for its members. The prince’s lawyers say Max drew no payments from the account while he lived in Germany, but rather secured credit that wasn’t taxable -- and that the assets belonged to the family rather than the prince, LGT said.

The German authorities say the prince owes taxes on the assets of the entire foundation because most of the payments from it went to him, according to the LGT statement.

The German probe has drawn fire from the princely family, which has taken aim at German Finance Minister Peer Steinbrueck. Prince Hans-Adam II, Max’s father, who transferred his ruling authority to Alois in 2004, told the Liechtensteiner Vaterland newspaper last week that Germany had violated international law and referred to “torture instruments a la Steinbrueck.”

The investigation began a year ago when Germany used bank data purchased from a former employee of LGT for as much as 5 million euros ($6.3 million) to open a tax-evasion probe of some 900 suspects, including former Deutsche Post AG Chief Executive Klaus Zumwinkel. Last month, Zumwinkel received a two-year suspended sentence and a 1 million-euro fine.

Information Accord

Eager to shed its image as a haven for tax cheats, Liechtenstein has since then negotiated a tax-information agreement with the U.S. and held talks on a tax-fraud arrangement with the European Union.

This week, Liechtenstein’s Prime Minister-designate Klaus Tschuetscher pledged to work with other countries to resolve tax disputes and said the principality must lose its reputation as a tax haven. Tax fraud is a crime in Liechtenstein, while tax evasion is a lesser offense, complicating efforts for legal- assistance treaties with countries that view evasion as a crime.

The Paris-based Organization for Economic Cooperation and Development has Liechtenstein on its list of uncooperative tax havens, along with Andorra and Monaco.

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net.

Last Updated: February 20, 2009 05:41 EST