CORRECTED - German tax dodgers running scared after data breach

Wed Feb 10, 2010 2:03pm EST

* German tax dodgers turn themselves in to authorities

* Tax authorities report sudden surge in tax compliance

(Corrects name of Zumwinkel's bank, paragraph 13)

By Erik Kirschbaum

BERLIN, Feb 10 (Reuters) - German tax authorities are reporting a surge in the number of tax dodgers who are turning themselves in after the government decided to buy stolen Swiss bank account data from a whistleblower.

Lawyers specialising in tax crimes are also noticing a brisk upturn in business as Germans, who hold an estimated 200 billion euros ($275 billion) in undeclared funds in Switzerland, are scrambling to come clean to avoid criminal prosecution.

"There's been a delightful rise in tax compliance," said Daniel Abbou, spokesman for the finance department in the city of Berlin after 74 people volunteered this week to pay back taxes on previously undeclared income.

"There are usually about 200 people per year who turn themselves in for evaded taxes. This week there have been 55. Unfortunately it's got more to do with all the publicity on the Swiss case rather than spontaneous altruism."

Despite protests from Switzerland, Germany said last week it would pay 2.5 million euros for the stolen data said to be rich in detail about tax evaders that could, according to media reports, yield at least 400 million euros in tax revenues.

Tax offices in Lower-Saxony, Hesse, North-Rhine Westphalia, Baden-Wuerttemberg, Rhineland-Palatinate and Bavaria among others have also reported a sharp upturn in tax compliance.

"We're obviously pleased that more and more people are seeing the light on tax evasion and reporting undeclared income," said Michael Scheerer, spokesman for the Hesse state finance ministry after 27 people came clean so far this week.

"It's also good news for state tax revenues," he added.

COME CLEAN TO AVOID JAIL

Under German laws, taxpayers who report undeclared income themselves and pay back tax plus interest owed before authorities launch an investigation can avoid prosecution.

"There's a lot of uncertainty out there and I'm certainly profiting from that," said Christian Remstedt, a Hamburg lawyer specialising in tax issues. "A lot of people want to know what the risks are and at what level they might face a jail term."

While in general those caught evading taxes valued at 1 million euros or more face prison terms, Remstedt warned that in certain cases the threshold could be far less than that.

"Every case is different," he said. "I tend to advise younger people to turn themselves in if their families would have a hard time making do without them for a while."

He and others said there is more uncertainty now compared to a similar case in 2008 when Germany paid for stolen data taken from Liechtenstein's top bank LGT. Former Deutsche Post chief Klaus Zumwinkel's Liechtenstein trust was uncovered in that data and he admitted to tax evasion in a spectacular case.

This time it is not known which bank the data is from and Germans have far more money invested in Switzerland.

"The risks were more manageable two years ago," Remstedt said. "This time there is so little known." (Editing by Charles Dick)

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