European Commission acts to tackle CORPORATE tax fraud and evasion

The European Commission has proposed an action plan to tackle the issues of corporate tax evasion and fraud in the EU. Such evasion and fraud by major companies are believed to cost European governments up to €1trillion a year.

The action plan sets out 30 new measures to close loopholes and increase information exchange. The European Commission has also called on EU-member countries to implement the current EU code of conduct on business taxation as soon as possible.

Background

The process that produced this action plan began at their March 2012 summit, EU heads of states requested that the European Commission would develop concrete ways to improve the fight against tax fraud and tax evasion, including in relation to third countries.

The Commission produced its response on 27 June, 2012.  According to the Commission “tens of billions of euro remain offshore, often unreported and untaxed, reducing national tax revenues… the vast majority of EU taxpayers generally seek to comply with their tax obligations.  Particularly in these difficult economic times, these honest taxpayers should not suffer additional tax increases to make up for revenue losses incurred due to tax fraudsters and evaders. The focus should therefore be on tackling fraud and evasion.”

The European Commission’s action plan announced in December 2012 is a follow-up to this analysis. Its aim is to create a stronger, more coordinated approach to tackling tax evasion, aggressive financial and tax jurisdictions, and unfair tax competition.

The first of the two main recommendations requires member states to take a strong stance on tax havens, going beyond the current international measures. The EU executive urged countries to identify such havens, place them on national blacklists and take their complaint to the Commission.

The second suggests ways for member states to address aggressive tax planning and the legal technicalities and loopholes companies use to pay less tax.

The plan also argues that EU countries should adopt a common anti-abuse rule, whereby they can ignore artificial tax avoidance schemes and tax the underlying sum of money, said a statement accompanying the announcement.

[The study that estimated the EU was losing up to €1trillion a year in tax-take may be accessed here.]

Key points in this discussion

A huge problem

Tax fraud is a cost for public finances.

Up t0 €1 trillion per year are missing in EU countries budgets.

Businesses or people who commit tax fraud are unfairly advantaged over others.

Role of the EU

It is each country's responsibility to collect taxes and to fight fraud.

However:

Fraud is often organised across borders. To combat it effectively, joint action in two or more countries is needed.

Anti-fraud measures taken in one country can have negative effects for neighbouring countries or for Europe as a whole.

This is why a coordinated action by all EU countries is needed.

Acting together

National measures are important, but they can never succeed alone.

This is a cross-border problem that requires cross-border solutions.

European laws and IT systems allow EU countries to cooperate.

Exchanging best practices will improve the controls and audits.

Acting globally

Tax fraud and evasion is a global problem:

We need a common approach towards third countries not complying with EU tax standards.

The EU supports the OECD in its work against aggressive tax planning.

The EU also welcomes support from G20 and G8.

Promoting EU tax standards is standing policy in our relations with third countries and in the EU's development policy.

Conclusions of European Council can be downloaded below

EU Commission Ways to Right Tax Fraud can be downloaded below

EU Commission Action Against Tax Fraud and Evasion can be downloaded below

Closing European Tax Gap can be downloaded below