Term paper on tax evasion

Stresses that tax fraud, tax evasion and aggressive tax planning result in lost resources for national and European Union budgets 32 ; acknowledges that quantification of these losses is not straightforward; notes, however, that increased transparency requirements would not only provide better data, but also would contribute to reducing opaqueness;. Notes that several assessments have attempted to quantify the magnitude of losses from tax fraud, tax evasion and aggressive tax planning; recalls that none of these provide a large enough picture on their own due to the nature of the data or the lack thereof; notes that some of the recent assessments supplement each other, based on different but complementary methodologies;.

Notes that, to date, while the Commission performs a VAT tax gap estimate for the EU, only fifteen Member States prepare their own national tax gap estimates; calls on each Member State, under the guidance of the Commission, to prepare a comprehensive tax gap estimate, not limited to VAT and including an assessment of the cost of all tax incentives;. Calls on the Council and Member States to prioritise projects, notably with the support of the Fiscalis programme, aimed at quantifying the magnitude of tax avoidance in order to better address the current tax gap; stresses that the European Parliament has adopted 34 an increase in the Fiscalis programme; urges Member States, under the coordination of the Commission, to estimate their tax gaps and publish the results annually;.

Welcomes the recent estimates of the non-observed economy NOE — often called the shadow economy — in the Survey of Tax Policies in the European Union 36 , which provides a broader indication of tax evasion; stresses that the value of the NOE measures economic activities which may not be captured in the basic data sources used for compiling national accounts;.

Calls for statistics to be collected on large transactions at free ports, customs warehouses and special economic zones, as well as disclosures made by intermediaries and whistle-blowers;. Tax fraud, tax evasion, tax avoidance and aggressive tax planning ATP. Recalls that the fight against tax evasion and fraud tackles illegal acts, whereas the fight against tax avoidance addresses situations that exploit loopholes in the law or are a priori within the limits of the law — unless deemed illegal by the tax or, ultimately, the judicial authorities — but against its spirit; calls, therefore, for simplification of the tax framework;.

Recalls that improving tax collection in EU countries is likely to reduce crime associated with tax evasion and the money laundering that follows it;. Recalls that ATP describes the setting of a tax design aimed at reducing tax liability by using the technicalities of a tax system or arbitrating between two or more tax systems that go against the spirit of the law;. Urges Member States taking part in the enhanced cooperation procedure to agree as quickly as possible on the adoption of a Financial Transaction Tax FTT , while acknowledging that a global solution would be the most appropriate;.

Corporate taxation. Recalls that opportunities for choosing a business or residence location on the basis of the regulatory framework have increased with globalisation and digitalisation;. Recalls that taxes must be paid in the jurisdictions where the actual substantive and genuine economic activity and value creation take place or, in the case of indirect taxation, where consumption takes place; highlights that this can be achieved by adopting the Common Consolidated Corporate Tax Base CCCTB in the EU with an appropriate and fair distribution, incorporating among other things all tangible assets;.

Notes that an exit tax was adopted by the EU in ATAD I, allowing Member States to tax the economic value of capital gain created on its territory even when that gain has not yet been realised at the time of exit; considers that the principle of taxing profits made in Member States before they leave the Union should be strengthened, for example through coordinated withholding taxes on interests and royalties, so as to close existing loopholes and avoid profits leaving the EU untaxed; calls on the Council to resume negotiations on the interest and royalties proposal 43 ; notes that tax treaties often reduce the withholding tax rate with a view to avoiding double taxation 44 ;.

Reaffirms that the adaptation of international tax rules needs to respond to avoidance deriving from the possible exploitation of the interplay between national tax provisions, and networks of tax treaties, resulting in an erosion of the tax base and double non-taxation while ensuring that there is no double-taxation;.

Takes note of the fact that the actions require implementation; takes note of the policy note 45 of the Inclusive Framework on BEPS, which aims to devise possible solutions to the identified challenges relating to the taxation of the digital economy;. Welcomes the adoption by the EU of ATAD I and ATAD II; notes that these directives provide fairer taxation by establishing a minimum level of protection against corporate tax avoidance throughout the EU and ensuring a fairer and more stable environment for businesses, from both demand and supply perspectives; welcomes the provisions on hybrid mismatches to prevent double non-taxation in order to eliminate existing mismatches and refrain from creating further mismatches, between Member States and with third countries;.

Welcomes the general anti-abuse rule for the purposes of calculating corporate tax liability included in ATAD I, allowing Member States to ignore arrangements that are not genuine and having regard to all relevant facts and circumstances aimed solely at obtaining a tax advantage; reiterates its repeated call for the adoption of a general and common, stringent anti-abuse rule, namely in existing legislation and in particular in the parent-subsidiary directive, the merger directive and the interest and royalties directive;.

Reiterates its call for a clear definition of permanent establishment and significant economic presence so that companies cannot artificially avoid having a taxable presence in a Member State in which they have economic activity;. Emphasises that the EU actions aimed at addressing BEPS and ATP have equipped tax authorities with an updated toolbox to ensure fair tax collection while maintaining the competitiveness of EU businesses; stresses that tax authorities should be responsible for making effective use of the tools without imposing an additional burden on responsible taxpayers, particularly SMEs;.

Recognises that the new flow of information to tax authorities following the adoption of ATAD I and DAC4 creates the need for adequate resources to ensure the most efficient use of such information and to effectively reduce the current tax gap; calls on all Member States to make sure that the tools used by the authorities are sufficient and adequate to use this information and to combine and cross-check information from different sources and data sets;.

Calls for these new tax indicators for the European Semester to be given the same status as the indicators relating to expenditure control; underlines the benefit of providing the European Semester with this tax dimension, as it will make it possible to tackle certain harmful tax practices that had not thus far been tackled through the ATAD Directive and other existing European regulations;. Welcomes the fact that DAC6 sets out the hallmarks of reportable cross-border arrangements that intermediaries must report to tax authorities to allow them to be assessed by the latter; welcomes the fact that these features of ATP schemes can be updated if new arrangements or practices emerge; points out that the deadline for the implementation of the directive has not yet elapsed and that the provisions will need to be monitored to ensure their efficiency;.

Calls on the CoC Group to report yearly to the Council and Parliament on the main arrangements reported in Member States to allow decision makers to keep up with the new tax schemes which are being elaborated, and to take the necessary countermeasures that might potentially be needed;. Calls on the Commission to publish a proposal that would oblige the Member States to ensure that economic operators participating in public procurement procedures comply with a minimum level of transparency regarding tax, in particular public country-by-country reporting and transparent ownership structures;.

Stresses that taxation policy in the European Union should focus both on fighting tax avoidance and ATP and on facilitating cross-border economic activity through cooperation between tax authorities and smart tax policy design;. Underlines that there is a multitude of tax-related obstacles that hamper cross-border economic activity; notes, in this regard, its resolution of 25 October on the 20 main concerns of European citizens and business with the functioning of the Single Market 50 ; urges the Commission to adopt an action plan addressing these obstacles as a matter of priority;.

Recalls that the application of the C C CTB should be accompanied by the implementation of common accounting rules and appropriate harmonisation of administrative practices;. Recalls that in order to end the practice of profit shifting and introduce the principle that tax is paid where profit is generated, the CCTB and CCCTB should be introduced simultaneously in all Member States; calls on the Commission to issue a new proposal based on Article of the TFEU, whereby the European Parliament and the Council act in accordance with the ordinary legislative procedure to issue the necessary legislation, should the Council fail to adopt a unanimous decision on the proposal to establish a CCCTB;.

Corporate digital taxation. Underlines that a lack of a common Union approach to addressing the taxation of the digital economy will lead — and indeed already has led — Member States to adopt unilateral solutions, which will lead to regulatory arbitrage and the fracturing of the single market, and might become a burden for companies operating on a cross-border basis, as well as for tax authorities;. Notes the leading role played by the Commission and some Member States in the global debate on the taxation of the digitalised economy; encourages the Member States to continue their proactive work at OECD and UN level, especially via the process introduced by the Inclusive Framework on BEPS in its Policy Note 53 ; recalls, however, that the EU should not wait for a global solution and must act immediately;.

Emphasises that the agreement on what constitutes digital permanent establishment, the only one to have been reached hitherto, is a step in the right direction, but does not resolve the issue of tax base allocation;. Calls on the Member States willing to consider the introduction of a digital tax to do so within the framework of enhanced cooperation in order to avoid further fragmentation of the single market, as is already happening with individual Member States considering the introduction of national solutions;.


Corporate tax avoidance: it's no longer enough to take half measures

Effective Taxation. Calls on the Commission to assess the phenomenon of decreasing nominal tax rates and its impact on ETRs in the EU, and to propose remedies, both within the EU and towards third countries as applicable, including strong anti-abuse rules, defensive measures, such as stronger controlled foreign company rules, and a recommendation to amend tax treaties;.

Administrative cooperation in relation to direct taxes. Calls on the Commission to assess and present proposals to close loopholes in DAC2, particularly by including hard assets and cryptocurrencies in the scope of the directive, by prescribing sanctions for non-compliance or false reporting from financial institutions, as well as by including more types of financial institution and types of accounts that are not being reported at the moment, such as pension funds;.

Reiterates its call for a broader scope in relation to the exchange of tax rulings and broader access by the Commission, and for greater harmonisation of the tax ruling practices of different national tax authorities;. Calls on the Commission to swiftly release its first assessment of DAC3 in this regard, looking in particular at the number of rulings exchanged and the number of occasions on which national tax administrations accessed information held by another Member State; asks that the assessment also consider the impact of disclosing key information related to tax rulings the number of rulings, the names of beneficiaries, the effective tax rate deriving from each ruling ; invites the Member States to publish domestic tax rulings;.

Deplores the fact that the Commissioner in charge of taxation does not recognise the need to extend the existing system for the exchange of information between national tax authorities;.

Investopedia Video: Tax Avoidance vs Tax Evasion

Reiterates, furthermore, its call to ensure simultaneous tax audits of persons of common or complementary interests including parent companies and their subsidiaries , and its call to further enhance tax cooperation between Member States through an obligation to answer group requests on tax matters; points out that the right to remain silent in dealings with tax authorities does not apply to a purely administrative investigation and that cooperation is mandatory 64 ;.

Considers that coordinated on-site inspections and joint audits should be part of the European framework of cooperation between tax administrations;.

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Emphasises that not only information exchanges and the processing of information, but also the sharing of best practices among tax authorities, contribute to more efficient tax collection; calls on Member States to give priority to the sharing of best practices among tax authorities, particularly regarding the digitalisation of tax administrations;. Calls on the Commission and Member States to harmonise procedures for a digital system of filing tax returns in order to facilitate cross-border activities and reduce red tape;. Welcomes the automatic exchange of financial account information based on the global standard which has been developed by the OECD with Andorra, Liechtenstein, Monaco, San Marino and Switzerland; calls on the Commission and the Member States to upgrade the Treaty provisions so as to match the DAC as amended;.

Stresses, furthermore, the contribution made through the Fiscalis Programme, which aims to enhance cooperation between participating countries, their tax authorities and their officials; stresses the added value brought by joint actions in this field and the role of the possible programme in developing and operating major trans-European IT systems;. Dividend stripping and coupon washing. Stresses that the complexity of tax systems can give rise to legal loopholes facilitating tax fraud schemes such as cum-ex;.

Notes that the systematic fraud centred around the cum-ex and cum-cum schemes was made possible in part because the relevant authorities in the Member States did not perform sufficient checks on applications for the reimbursement of taxes and lack a clear and complete picture of the actual ownership of shares; calls on the Member States to give access to all relevant authorities to complete and up-to-date information on ownership of shares; calls on the Commission to assess whether EU action is needed in this regard, and to present a legislative proposal should the assessment demonstrate a need for such action;.

Underlines that the revelations seem to indicate possible shortcomings in national taxation laws and in the current systems of exchange of information and cooperation between Member State authorities; urges the Member States to effectively use all communication channels, national data and data made available by the strengthened framework for exchange of information;.

Urges all Member States to thoroughly investigate and analyse dividend payment practices in their jurisdictions, to identify the loopholes in their tax laws that generate opportunities for exploitation by tax fraudsters and avoiders, to analyse any potential cross-border dimension of these practices and to put an end to all these harmful tax practices; calls on Member States to exchange best practices in this regard;. Calls on the Commission to start working immediately on a proposal for a European financial police force within the framework of Europol with its own investigatory capabilities, as well as on a European framework for cross-border tax investigations and other cross-border financial crimes;.

Transparency in relation to corporate tax. Recalls that public CBCR is one of the key measures to create greater transparency on tax information of companies; stresses that the proposal for public CBCR by certain undertakings and branches was submitted to the co-legislators just after the Panama Papers scandal on 12 April , and that Parliament adopted its position on it on 4 July 67 ; recalls that it called for an enlargement of the scope of reporting and protection of commercially sensitive information with due regard to the competitiveness of EU enterprises;.

Deplores the lack of progress and cooperation from the Council since ; urges that swift progress be made in the Council so that it enters into negotiations with Parliament;. Notes that, with regard to the limited capacity of developing countries to meet requirements through existing exchange of information procedures, transparency is particularly important, as it would ease access to information for their tax administrations;.

State aid rules.

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Recalls that the area of direct business taxation falls within the scope of State aid 71 when fiscal measures discriminate between taxpayers, contrary to fiscal measures of a general nature that apply to all undertakings without distinction;. Deplores the fact that companies can make agreements with governments to pay almost no tax in a given country despite conducting substantial activity there; points in this regard to a tax ruling between the Dutch tax revenue authority and Royal Dutch Shell plc that seems to be in violation of Dutch tax law, issued on the sole ground that the head office would be located in the Netherlands after the unification of the two former parent companies, and which results in an exemption from Dutch dividend withholding tax; points out that at the same time, recent investigations seem to show that the company pays no profit tax in the Netherlands either; reiterates its call on the Commission to investigate this case of potentially illegal State aid;.

Welcomes the fact that since , the Commission has been investigating the tax ruling practices of Member States, following up on allegations of the favourable tax treatment of certain companies, and has launched nine formal investigations since , six of which concluded that the tax ruling constituted illegal State aid 72 ; notes that one investigation was closed concluding that the double non-taxation of certain profits did not constitute State aid 73 , while the other two are ongoing 74 ;.

Deplores the fact that, nearly five years on from the LuxLeaks revelations, the Commission has opened a formal investigation 75 into only one of the over tax rulings granted by Luxembourg that were disclosed as part of the LuxLeaks investigation led by the International Consortium of Investigative Journalists ICIJ ;.

Aim for Lowest Possible Marginal Tax Rate

Is concerned by the magnitude of tax unpaid for all Member States over long periods 77 ; recalls that the aim of the recovery of unlawful aid is to restore the position to the status quo, and that calculating the exact amount of aid to be repaid is part of the implementation obligation incumbent on the national authorities; calls on the Commission to assess and establish viable countermeasures, including fines, to help Member States avoid offering selective favourable tax treatment which constitutes State aid that is non-compliant with EU rules;.

Calls for a reform of competition law to extend the scope of State aid rules in order to be able to act more vigorously against harmful fiscal State aid for multinational companies, which include tax rulings;.

Tax Avoidance Is Legal; Tax Evasion Is Criminal

Letterbox companies. Notes that there is no single definition of letterbox companies, i. Calls for Member States to request that a set of financial information be exchanged between the competent authorities ahead of the execution of cross-border conversions, mergers or divisions;. Recommends that any entity creating an offshore structure should provide the competent authorities with the legitimate reasons behind such a decision in order to guarantee that offshore accounts are not used for money laundering or tax evasion purposes;. Urges the Commission and the Member States to establish coordinated, binding, enforceable and substantial economic activity requirements as well as expenditure tests;.

Calls on the Commission to carry out, within two years, fitness checks of the interconnected legislative and policy initiatives aimed at addressing the use of letterbox companies in the context of tax fraud, tax evasion, aggressive tax planning and money laundering;. Underscores the need for harmonisation of VAT rules at EU level to the extent that it is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition 83 ;.

Calls for reliable statistics to estimate the VAT gap and stresses the need for a common approach to data collection and sharing within the EU; urges the Commission to ensure that harmonised statistics are collected and published regularly in the Member States;. Underlines that the feature of the current VAT transitional regime of applying an exemption to intracommunity supplies within the EU and exports has been abused by fraudsters, in particular in the VAT carousel fraud or missing trader intra-community fraud MTIC ;. Modernisation of the VAT framework.

Notes that the expansion of e-commerce can often pose a challenge for tax authorities, e. Notes that the Commission has recently proposed additional control tools and an enhanced role for Eurofisc, as well as mechanisms for closer cooperation between customs and tax administrations; calls on all Member States to participate more actively in the Transactional Network Analysis TNA system in the framework of Eurofisc;.

Points, however, to the need for better cooperation between the administrative, judicial and law-enforcement authorities within the EU, as highlighted by experts during the hearing held on 28 June and in a study commissioned by the TAX3 committee;. Welcomes the fact that the fraud linked to imports has been addressed by the Council 99 ; considers that the proper integration of data from customs declarations into the VIES will allow the Member States of destination to cross-check customs and VAT information in order to ensure that VAT is paid at the country of destination; calls on Member States to implement this new legislation in an effective and timely manner by 1 January ;.