Tax Evasion Uber Alles?

GERMANY IS CRACKING down on its legions of tax evaders. Recently, 300 officials in Germany raided five Merrill Lynch offices and the homes of 60 Merrill financial consultants at noon. Their target: evidence that firm employees had helped clients evade taxes. Merrill denies its staffers did this. The tax polizei also have hit German banks.

German authorities fear an epidemic of tax cheating. The tax collectors' labor union estimates that all levels of government lose well over $70 billion yearly, although the Finance Ministry says it's not that high. Certainly, the temptation for German taxpayers to fiddle as they file has grown substantially. Since Jan. 1, Bonn has been levying a 7.5% "solidarity surcharge" to finance unification costs. That brings the effective top rate for the affluent to 57%. Another stimulus to cheating: the 30% withholding tax on interest payments, begun in 1993 to ferret out underreported income.

One legal tax dodge that's used by many Germans is to move cash to havens such as neighboring Luxembourg--which offers secrecy and no interest withholding. Branches of German banks in Luxembourg get to follow the local rules and legally receive billions in deposits from home. The banks, though, tell suspicious German authorities they don't encourage the flight capital.

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