The Crown Prince of Liechtenstein accused Germany yesterday of undermining the tax haven’s sovereignty and of acting illegally by paying an informer for financial details that have led to the biggest tax fraud inquiry in German history.

The German Government has admitted paying an informer €5 million (£3.8 million) for a DVD containing financial details of about 1,000 rich Germans suspected of having evaded tax by making undisclosed investments totalling €4 billion in Liechtenstein. The DVD deal was brokered by the Bundesnachrichtendienst (BND), the foreign intelligence service.

Crown Prince Alois said: “Germany has clearly failed to understand how one behaves towards a friendly state. We are a small country and we want good relations with our neighbours, but we are also a sovereign state.

Germany will not solve its problems with its taxpayers by attacking Liechtenstein. Germany has the worst tax system in the world. We are going to see what we can do to protect our citizens and also our investors, who trust us, against such methods of investigation.”

The Prince attacked Germany for paying “a convicted lawbreaker” for the data. Such behaviour would be “totally inconceivable from a legal point of view” in Liechtenstein and countless other European states, the prince said. “In our country, fiscal interests don’t override the rule of law,” the prince added.

The informer was named as Heinrich Kieber, a former LGT Group employee, by The Wall Street Journal. He may now be in Australia. It reported that he had offered customer records to tax officials on several continents in recent months.

Liechtenstein, wedged between Switzerland and Austria, is considering legal action against Germany and has begun its own investigation. Klaus Tschütscher, Liechtenstein’s Justice Minister, said: “We are currently discussing various legal measures with relation to the banking data illegally obtained in Liechtenstein.”

Peter Struck, the parliamentary group leader of Germany’s Social Democrat Party, defended payment to an informer. He said: “The money is well invested. If we get €400 million of tax back, it’s really paid off.”

Investigators have been searching dozens of offices and homes across Germany this week, including in the Munich offices of Dresdner Bank, as well as the private banks Metzler and Hauck & Aufhäuser in Frankfurt, to find evidence in the financial records of clients with assets in Liechtenstein. UBS said that one of its offices in Munich had been investigated.

The nationwide tax investigation came to light last Thursday with a search of the Cologne home of Klaus Zumwinkel, who resigned as chief executive of Deutsche Post on Friday.

The tax dispute is expected to top the agenda of a meeting between Angela Merkel, the German Chancellor, and Otmar Hasler, Liechtenstein’s Prime Minister, in Berlin today.

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