• Germany's news in English

German infrastructure tangled in dodgy US tax scheme

AFP · 19 Mar 2009, 08:06

Published: 19 Mar 2009 08:06 GMT+01:00

Facebook Twitter Google+ reddit

The tale began with intermediaries such as Deutsche Bank and the financial arm of auto maker Daimler that approached cash-strapped communities, specialist Werner Ruegemer told AFP.

"These 'arrangers' told municipal authorities that thanks to a US fiscal loophole, they could obtain cash just by signing a piece of paper," he explained.

The transactions are known as cross border leasing, or CBL.

Behind the German intermediaries were US banks operating from post boxes in locations such as the state of Delaware, known for its business-friendly tax environment.

In Berlin, indebted city officials agreed in 1997 to rent tram and subway cars to a US trust, and then sublet them back for use in the city's transit system.

More than 1,000 cars were involved in the scheme, according to press reports.

The US investor that bought or rented German infrastructure got a tax benefit for foreign investments, while the city got money but became a renter, or sub-renter of the assets.

Berlin received €69 million ($90 million dollars) from its deal.

Another key actor in the transaction were banks or insurance companies that agreed to guarantee the value of the assets until the contract expired, between 25 and 99 years later.

Ruegemer said 180 such contracts were signed in Germany for an estimated €80 million.

In 2004 however, a US court uncovered the loophole.

Since then, German municipal authorities have come to realize the full content of the contracts they signed, written with complex technical terms over hundreds of pages and signed in New York during comfortable business trips for which all expenses were paid.

A US financier for example can demand a city continue to maintain subway cars it no longer uses so the investment does not lose its value, or prevent a worksite from proceeding.

And many banks and insurance companies that guaranteed the contracts are now distressed, forcing communities to guarantee the guarantor's financial health or replace them, according to terms of the deals.

A frequent guarantor was AIG, which is in deep trouble after posting a 2008 loss of almost €100 billion.

Story continues below…

US investors have therefore demanded that municipalities find other guarantors for the assets - at present often impossible - or provide their own guarantees.

The city of Bochum, in western Germany, had to buy $125 million in US Treasury bills on credit to insure the value of the sewer it had ceded.

For its tramways and subway cars, Berlin had contracted insurance in 2004 from a consortium that included AIG and the US investment bank Lehman Brothers, which went bankrupt in September 2008.

In a worst case scenario, the German capital could face claims for $200 million on the basis of the CBL contracts. "For now, no one has asked us for a cent," said Petra Reetz, spokeswoman for the Berlin transit system BVG.

"If someone comes after us, we will not pay, we will take them to court," she vowed.

Facebook Twitter Google+ reddit

Today's headlines
These are Germany's top ten universities
The new library of Freiburg University. Photo: Jörgens.mi / Wikimedia Commons

These are the best universities in all of Germany - at least according to one ranking.

Introducing Swabians - 'the Scots of Germany'
Photo: DPA

These Southern Germans have quite a reputation in the rest of the country.

Woman sues dentist over job rejection for headscarf
Photo: DPA

A dentist in Stuttgart is being taken to court by a woman whom he rejected for a job as his assistant on the basis that she wears a Muslim headscarf.

Isis suspect charged with scouting Berlin attack sites
Photo: DPA

German federal prosecutors said Thursday they had brought charges against a 19-year-old Syrian man accused of having scouted targets in Berlin for a potential attack by the Isis terror group.

Berlin Holocaust memorial could not be built now: creator
The Memorial to the Murdered Jews of Europe, in Berlin. Photo: DPA.

The architect of the Berlin Holocaust memorial has said that, if he tried to build the monument again today, it would not be possible due to rising xenophobia and anti-Semitism in Germany and the United States.

'Liberal' Germany stopping Europe's 'slide into barbarism'
Ian Kershaw. Photo: DPA

Europe is not slipping into the same dark tunnel of hate and nationalism that it did in the 1930s - mainly thanks to Germany - one of the continent's leading historians has said.

Eurowings strike to hit 40,000 passengers
Travelers impacted by the strike on Thursday wait at Cologne Bonn airport. Photo: DPA.

The day-long strike by a Eurowings cabin crew union is expected to impact some 40,000 passengers on Thursday as hundreds of flights have been cancelled.

Deutsche Bank reports surprise quarter billion profit
Photo: DPA

Troubled German lender Deutsche Bank reported Thursday a surprise €256-million profit in the third quarter, compared with a loss of more than six billion in the same period last year.

US 'warned Merkel' against Chinese takeover of tech firm
Aixtron HQ. Photo: DPA

The German government withdrew its approval for a Chinese firm to purchase Aixtron, which makes semiconductor equipment, after the US secret services raised security concerns, a German media report said Wednesday.

Long-vanished German car brand joins electric race
Photo: DPA

Cars bearing the stamp of once-defunct manufacturer Borgward will once again roll off an assembly line in north Germany from 2018, the firm said Wednesday.

10 German clichés that foreigners get very wrong
Sponsored Article
Last chance to vote absentee in the US elections
10 ways German completely messes up your English
Germany's 10 most weird and wonderful landmarks
10 things you never knew about socialist East Germany
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
jobs available
Toytown Germany
Germany's English-speaking crowd