Tackling tax fraud and evasion in the EU – frequently asked questions
European Commission - MEMO/12/492 27/06/2012
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Brussels, 27 June 2012
Tackling tax fraud and evasion in the EU – frequently asked questions
Why has the Commission put forward a Communication on concrete ways to tackle tax evasion and fraud in EU?
In the current economic climate, Member States need every euro that they are due for fiscal consolidation and to rebuild their economies. Member States have, in some cases, almost reached the limit in the expenditure they can cut and taxes they can raise, while honest tax-payers must carry the burden of austerity. Meanwhile, substantial amounts of euros are lost from public finances due to tax evasion and avoidance, with the shadow economy estimated to be around one fifth of GDP on average (€2 trillion).
More clearly needs to be done to protect Member States' revenues and improve their tax collection capacities. In the March 2012 EU Council conclusions, Member States asked the Commission "to rapidly develop concrete ways to improve the fight against tax fraud and tax evasion, including in relation to third countries and to report by June 2012". The European Parliament also echoed the call for urgent action in this area in a resolution in April 2012.
Therefore, the Commission has undertaken a review of the measures currently in place, to see how they can be improved and intensified. It has also developed ideas of new initiatives that could help in the fight against fraud and evasion. The aim is to create a stronger, more coordinated approach to tackling tax evasion, aggressive financial and tax jurisdictions, and unfair tax competition.
Why is EU coordination in this area so important?
A strong unified stance is essential in tackling tax evasion and fraud when part of a Single Market, given the fact that cross-border differences are usually exploited in these activities. An EU approach ensures:
What is the scale of tax evasion and fraud in the EU?
Given the very nature of tax evasion and fraud, it is very difficult to put a precise figure on them. Nonetheless, the size of the shadow economy is estimated to be nearly one fifth of GDP on average across Member States, representing nearly €2 trillion in total.. Some studies estimate the level of tax evasion and avoidance in Europe to be around €1 trillion, and recent reports also suggest that tens of billions of euros are off-shore, unreported and untaxed.
Does the Communication address the problem of tax avoidance by companies and wealthy individuals?
Yes. The Communication specifically refers to the need for action to tackle the intentional exploitation of difference in tax systems which undermine Member States' tax rules and lead to the loss of revenues.
The Code of Conduct on Business Taxation is already an important instrument in this regard, with Member States committed to key principles and refraining from introducing measures that would allow harmful tax competition. The Commission is currently looking at how the Code can be further strengthened, and has started work to have its principles applied by key international partners.
The work that has been started to tackle double non-taxation (which allows aggressive tax planners to exploit loopholes between Member States' systems) will also be important in dealing with tax avoidance.
What measures are already in place in the EU to tackle tax evasion and fraud?
Over the past few years, the EU has pursued a very active policy on good governance in taxation at EU level, and internationally. Some examples of important measures are:
What does the Communication say needs to be done to strengthen the efficiency of current EU measures?
First and foremost, the proposal to strengthen the EU Savings Directive should be agreed by Member States. This would significantly enhance the capacity to prevent tax evasion by closing loopholes in the current legislation that are being exploited by tax evaders. Likewise, Member States should rapidly agree on the mandates which would allow the Commission to negotiate stronger savings tax agreements with Switzerland, Liechtenstein, San Marino, Monaco and Andorra. (see MEMO/12/353). Eurofisc will be extended to cover direct, as well as indirect, taxes, while the Communication also calls on Member States to make better use of the administrative cooperation measures that have been adopted in recent years.
What new measures at EU level are set out in the Communication?
The Communication sets out a series of new measures that will be introduced, or should be further explored, to improve the EU approach to fighting evasion and fraud. These fall broadly into three main categories:
Improving information exchange
Automatic exchange of information should be promoted wherever useful. In order for the information that is exchanged to be pertinent and ready for immediate use, it is important to improve the identification of taxpayers. In this context, the Commission will analyse the idea of a cross-border EU tax identification number, while Member States should give greater mutual access to relevant parts of each other's databases.
Tax compliance can be improved by providing taxpayers with better information on EU and national tax rules. The Communication mentions several tools that could facilitate this, including a single Tax Webportal with information on all taxes, for all taxpayers. There should also be measures – at national and EU level – to encourage tax compliance. The Commission will develop a taxpayers' charter, in the spirit of Corporate Social Responsibility.
Strong deterrent measures are also an important part of the fight against evasion and fraud. In this context, the Communication suggests the possibility of common minimum rules and sanctions for certain types of tax offences. In the next few weeks, the Commission will propose criminal law measures to protect the EU's financial interests against fraud.
Tackling evasion and fraud trends
Quickly identifying new trends and schemes in tax fraud and evasion is crucial to effectively stamp out this activity. In addition to extending Eurofisc and its Early Warning System to cover direct taxes (see above), the Commission will also propose a Quick Reaction Mechanism for VAT fraud. Teams of auditors focussed specifically on cross-border tax fraud are also suggested. Before the end of 2012, the Commission will come forward with a strategy to tackle aggressive tax planning in the EU. It will also examine ways to improve access to information on money flows through off-shore bank accounts.
What should be done at national level to combat tax evasion and fraud?
Within the framework of the 2012 European Semester (see IP/12/697), the Commission has recommended to the Eurozone as a whole, and to 10 Member States specifically, to improve their administrative capacity to collect taxes and tackle tax evasion. These recommendations should be reflected in national reforms. The Commission will monitor the progress in this area, and also provide technical assistance to Member States in enhancing their administrative capacity and tax compliance.
What improvements could be made in relations with non-EU countries as part of the fight against evasion and fraud?
It is important to push international partners to apply equivalent measures to the EU's high good governance standards. Member States should swiftly agree on the renegotiation mandate for savings agreements with Switzerland, Lichtenstein, San Marino, Monaco and Andorra (see above), while savings agreements with relevant dependent and associated territories should also be updated.
Shared interests and objectives should become the basis for closer trans-Atlantic cooperation and further cooperation with international organisations in eliminating tax evasion.
A common EU stance against tax havens should be reinforced. Before the end of 2012, the Commission will present a set of measures and tools for coordinated action, broadly based on the "carrot and stick" approach to tax havens and a more unified stance against uncooperative jurisdictions.
What is the timing for delivering on the ideas set out in the Communication?
The Commission will start work immediately on developing the ideas set out in the Communication. Some proposals will be presented already in the next month or so (e.g. quick reaction mechanism for VAT fraud), while work will continue in areas where it is already underway (e.g. providing technical assistance to certain Member States, pushing for agreement on the revised Savings Directive and mandates etc).
Before the end of 2012, the Commission will present an Action Plan on fighting fraud and evasion together with its initiative on tax havens and aggressive tax planning.