Europe's Vanishing Tax Havens

Some of the most famous tax havens in the world are in the heart of Europe, where a history of banking secrecy and a mismatch of tax regimes has created opportunities for large savings.

According to European Union (EU) officials, governments in the region lose around $1 trillion dollars each year because of tax shelters. But this may be about to change. As Europe struggles with recession and austerity, its cash-strapped governments have begun to target the region's tax havens, forcing many countries to open bank accounts to scrutiny.

Government pressure is not the only challenge for these once-legendary locations. The financial hubs of the East are gaining in popularity and, according to a special report by The Economist, Singapore and Hong Kong could overtake Switzerland as the world's top place for offshore banking within 15 years.

Click ahead for a list of Europe's most lucrative tax havens.

Austria is the last EU country with guaranteed banking secrecy. According to the Tax Justice Network, the country is attractive to non-residents because of an absence of inheritance tax and the ability to avoid property tax through private foundations where beneficiaries can remain anonymous.

The country does however transfer a withholding tax on interest income earned in Austrian banks to account holders' governments.

The country has come under immense pressure to share bank account information with other EU members, but its banking secrecy has been defended ferociously by Chancellor Maria Fekkter, who has called on countries such as the U.S. and U.K. to improve their own tax laws before putting pressure on Austria. For now Austria has won the battle, but with criticism from the European Commission and other European governments coming in thick and fast, it might not win the war.

Switzerland is one of the most well-established tax havens in the world, with laws prohibiting bankers from releasing details about their clients dating back to 1934. Swiss bank accounts have been a hot topic of late, with revelations that some European politicians held accounts in the country.

Greece's biggest tax evasion scandal in decades was centered around a list of Greek elites harboring their wealth in Switzerland. Spain's governing party also came under pressure after the party's former treasurer amassed as much as 22 million euros ($29 million) in Swiss bank accounts. Most recently, former French budget minister, Jerome Calzuhac, admitted he had held an undisclosed account at the Swiss bank UBS for 20 years.

With every scandal comes renewed condemnation. Last week, the alpine state came to an agreement with the U.S. to enable banks to reveal details of clients, and in April it bowed to EU demands to scrap the incentives it offers foreign multinationals. John Christensen from the Tax Justice Network, told CNBC that if Austria comes to the table, Switzerland would likely follow.

Decades of banking secrecy has helped Luxembourg establish one of the biggest financial centers in Europe, with a banking industry around 22 times the size of its economy and deposits equivalent to 10 times its gross domestic product, according to Reuters.

However in early April this year, the country agreed to lift bank secrecy rules for EU citizens from 2015. It followed lobbying by Germany and the European Commission, and was bolstered by the conditions of the bailout of Cyprus – a country that allowed its financial sectors, enlarged by foreign funds, to dwarf its economy.

But in a state-of-the-nation address, Prime Minister Jean-Claude Juncker insisted: "We are following a global movement ... we are not caving in to German pressure."

Before its bailout, the small Mediterranean island's financial sector had been booming. It had successfully attracted foreign investors – especially from Russia – with low taxes, such as a 10 percent corporate income tax. But in March, German Finance Minister Wolfgang Schaeuble described the country's banking industry as "completely over-sized" and Cyprus was forced to accept a 10 billion euro EU/IMF bailout.

The aid package was controversial. It imposed a levy on bank deposits over 100,000 euros ($130,000), and some critics claimed that Russian money launderers were being bailed out by default. According to a report by Germany's Federal Intelligence Service (BND), published in Spiegel magazine, Cyprus was a "gateway for money laundering activities in the EU." It said it was "relatively easy" to open accounts anonymously in Cyprus, and described auditing requirements as inadequate.

The principality of Monaco on the Southern coast of France is the second smallest independent state outside of the Vatican and has a reputation for being a playground for the super-rich.

The state has no income tax or business tax for both individuals who have established residence and for foreign companies who have set up businesses and offices there.

But the principality is not a tax-free shelter and is keen to change its image accordingly. It charges nearly 20 percent VAT (value-added tax), collects stamp duties, and companies face a 33 percent tax on profit unless they can show that three-quarters of it was generated within the state. On top of this, the European Commission has begun negotiations with Monaco which aim to bolster information sharing agreements.

The U.K. has often come under fire for having a well-established tax havens right on its doorstep. The British Crown Dependency of Jersey is about 100 miles south of mainland Britain and has a population of 87,000 - but according to the Tax Justice Network, it is home to some 400 billion pounds of capital from business. The Channel Islands - an archipelago including Jersey in the English Channel – is one reason that Austria's chancellor described Britain as "the island of the blessed for tax evasion and money laundering."

Many of Jersey's businesses are known to be so-called brass plate operations or letterbox companies, formed to avoid tax in other countries. The islands offer 20 percent income tax, but the wealthy can often negotiate much lower tax rates or devise schemes to avoid any contributions, according to the Tax Justice Network. It also has no inheritance or capital gains tax, and allows full tax relief on mortgage and other loans.

But Jersey's heyday might be coming to an end. In February, a special report into offshore finance by The Economist claimed that an increase in regulation was scaring off both clean and dirty money. The island's financial regulator, John Harris, told the weekly newspaper that criticism from Britain's politicians and media had left Jersey "fighting for its life."

Although the Netherlands has a relatively high corporation tax rate of 25 percent, a combination of tax breaks and treaties make it a hub from which companies can stream income to zero tax havens like Bermuda and the Cayman Islands. More than 400 U.S. companies have their European headquarters in the Netherlands, according to the Financial Times, and Google, Starbucks and Amazon recently came under fire in Britain for their tax practices in the region.

The Netherlands is also a popular haven with musicians. Rock bands U2 and The Rolling Stones have both taken advantage of the fact that the Dutch do not tax royalties to boost their earnings, according to a New York Times report in 2007.

The Dutch government is trying to cut down on tax avoidance by making companies demonstrate they have a business presence in the Netherlands before they can take advantage of its treaties with other countries. They are also preparing to tax letterbox companies, after pressure from the Organisation for Economic Co-operation and Development (OECD).

Located between Great Britain and Ireland, the Isle of Man handles its taxation and fiscal affairs independently of the British government. The self-governing Crown Dependency is a low-tax economy with no capital gains tax, corporation tax, wealth tax, stamp duty or inheritance tax and a 20 percent top rate of income tax.

But it might not be such an attractive tax haven for much longer. In February this year, the island struck a deal with the British government to automatically exchange financial information about its taxpayers. Part of the deal was a disclosure facility, which gave Britons hiding money in the Isle of Man three years to come clean or face penalties of up to 200 percent of the unpaid tax.

The agreement has since been extended so the Isle of Man will also share information multilaterally with France, Germany and Italy and Spain.

The tiny principality of Lichtenstein, once fabled for its banking secrecy, has been losing its place on the tax haven top table since it got rid of secrecy laws in 2009.

It was once slammed by the OECD as an uncooperative tax haven, but pressure resulting from the 2008 financial crisis saw the country launch comprehensive information exchange agreements with Europe and America.

A disclosure agreement with Britain also allowed citizens with unpaid tax to settle their obligations while avoiding prosecution. Since then Lichtenstein has tried to rebrand itself as a "safe haven," rather than a tax haven.

Despite the effects of the euro zone crisis, Ireland's gradual economic recovery has been helped by its ability to attract multinational companies to its shores. Its low corporation tax rate of just 12.5 percent has appealed to companies including Microsoft, Facebook and Google, who use Ireland as a base to export throughout the EU while booking revenues in Dublin, according to the Financial Times.

But the country has come under increasing criticism amid allegations that multinational corporations are using increasingly complicated tax strategies to avoid even paying this amount of corporation tax. The U.S. Senate accused Apple of paying little or no tax on $74 billion of overseas income after negotiating a corporate tax rate of less than 2 percent.

In response, Irish Prime Minister Enda Kenny told the country's parliament: "Ireland does not do special deals, or side deals with companies."

While Ireland has so far defended its corporate tax rate from European pressure, criticism from the U.S. will be more difficult to ignore. The country has launched a diplomatic offensive with the aim of repairing the damage done to its reputation, but if Washington decides to close its own loopholes, it could threaten Ireland's status as a European hub for multinationals.