The agreement will come into force in 2010 and follows the guidelines set by the Organisation for Economic Cooperation and Development, Liechtenstein’s government said in a statement. The Alpine state’s authorities have made it clear that the pact relates only to the exchange of information on demand and that information will only be handed over when a specific tax fraud investigation is taking place – so called “fishing expeditions” are not permitted.

In December 2008, Liechtenstein signed a similar agreement with the US.

In April, the OECD issued a blacklist of non-cooperative tax havens. Even though Liechtenstein was not put on this list, it found itself on a separate “grey list”, together with Luxembourg, Switzerland, Austria, Belgium, Singapore, Chile, the Cayman Islands and Monaco. This grey list featured countries that had agreed to improve transparency standards, but had not yet signed the necessary international accords.

“This pact is an important step in the relationship with Germany and also a clear signal to other open negotiations concerning the implementation of the OECD standards that we want to bring to an end quickly,” said Klaus Tschütscher, Liechtenstein’s prime minister.

This contract creates a “process in conformity with the rule of law between Germany and Liechtenstein and therewith assures legal certainty for customers and financial intermediaries,” said Mr Tschütscher.