Monday 8 February 2010

EU against tax fraud

The work programme of the Spanish presidency of the Council of the European Union has described as unfocused and full of good intentions, but the part concerning taxes, under the ECOFIN Council, is quite concrete: Taxation: The fight against fraud (pages 5 to 7).

It is worth quoting as a background note on EU aims in tax policy, both internally and with regard to third countries:

The meeting of the G-20 held in London in April 2009 and the efforts made by the OECD in order to increase the transparency of tax systems, with particular attention being paid to tax havens, have given a renewed political momentum to the fight against tax fraud within a framework that the European Union has defined as “good governance in tax matters”. In this context, achieving international transparency raises two kinds of challenges for the European Union: internal cooperation in the relations between Member States, and increasing transparency in foreign relations.

The Spanish Presidency will thus pay special attention to the cooperation of Member States in the fight against tax fraud. These efforts will be made in the fields of both direct and indirect taxation.

In the field of direct taxation the priority will be to work on three Directive proposals linked to the fight against tax evasion and to the achievement of appropriate rules governing transparency. The Savings Taxation Directive will expand its scope, both objectively (incorporating a larger number of taxable incomes), and subjectively (incorporating certain entities and legal instruments whose effective beneficiaries are natural persons), thus contributing towards increased efficiency and fairness of taxation on savings. The Directive on Administrative Cooperation will imply the adoption by all Member States of the OECD standards for the exchange of information and, therefore, the end of bank secrecy in the European Union, and it will impose a new general framework on the exchange of information on taxation that will allow the adaptation of the current regulation to the kind of automatic information we need, so that a modern efficient tool will be available in the fight against fraud. Finally, the Directive on Mutual Assistance for Tax Recovery, will improve the tools for recovery of debts that require assistance of other Member States, if either the debtors or their assets are within these states.

If these legislatory proposals are to be effective, it is also necessary for the EU to reach anti-fraud agreements with third-countries (a political agreement with Liechtenstein will be used as a model for negotiations with Andorra, Monaco, San Marino, and Switzerland). During the Spanish Presidency, we will try to achieve the signing of agreements that comply with OECD standards on transparency and information exchange.

Finally, within the field of coordination in direct taxation, the Spanish Presidency will seek to achieve a commitment on anti-abuse clauses. This will be a joint effort by Member States on matters of direct taxation in which problems may appear as a consequence of the fundamental rights contemplated in the Treaty of the EU and of the satisfactory operation of the internal market, and which may also put an end to the infringement procedures opened by the Commission. Likewise, a report will be presented to the Council on follow-up work on the application of the Code of Conduct for Business Taxation corresponding to the period of the Spanish Presidency (Report of the Council). This code of conduct refers to the suppression of tax measures that have or may have a significant harmful influence on business activities within the Union because of the tax competition they create. During the Presidency, the subgroup working on the Code of Conduct will continue its task. This subgroup is in charge of debating anti-abuse issues, such as those related with outbound and inbound dividends.

Likewise, the Spanish Presidency will boost administrative cooperation in the fight against fraud in the field of indirect taxation. In order to do so it will strive to promote the work to make EUROFISC a decentralized network for the exchange of information on VAT fraud among Member States. The EUROFISC network is based on an early warning mechanism and a multilateral risk analysis platform. Moreover, the Presidency will work on the new proposal of a Directive on VAT electronic invoicing rules, an important element of administrative simplification and cost reduction for businesses.

Likewise, the Spanish Presidency will strengthen administrative cooperation in the field of Excises, promoting the implementation of the Excise Movement Control System (EMCS), a new computerised system for monitoring movements of excise goods by electronic means, through the interconnection of customs agencies of various Member States and operators.

Towards a more efficient taxation system

The Spanish Presidency will also ensure that fiscal coordination leads to a more efficient taxation system in various fields. A well designed taxation system can make a decisive contribution to the promotion of energy efficiency, which is indispensable if sustainable long-term growth is to be achieved. The Spanish Presidency will thus give precedence to the proposals of Directives pursuing energy efficiency objectives. It is therefore important to make progress in the modification of the Directive establishing a new framework for the taxation of energy products on the basis of environmental criteria. In this context, during the Spanish Presidency the proposal for the modification of the Directive on the taxation of energy products will be addressed.

As for the VAT, work will be encouraged with respect to the interpretation of new rules of location, together with the taxation of financial services and insurance, and the Special Scheme for Travel Agencies.

Finally, in order for public finances to have a revitalising effect on the economy, it is necessary to take into account the Community budget rules, an essential element of the Union’s daily activities. The entry into force of the Lisbon Treaty requires the modification of some budget rules.

Firstly, the Spanish Presidency will push forward the negotiation of the Financial Regulation Review proposal, which will be presented by the Commission during this semester. This regulation includes the rules on the drafting, approval, execution, and monitoring of the European Union budget, and Spain’s objective will be to take a closer look at simplification, transparency, and rigour in the execution of the budget.

Secondly, the Spanish Presidency will promote the necessary work in order to adapt to the Lisbon Treaty, as soon as possible, the rules applicable to the Union budget.

In short, the next six months will pose significant challenges to the EU in economic and financial issues. The ECOFIN therefore has a considerable task ahead of it in order to successfully exit from the unprecedented economic crisis and at the same time lay the foundations of sustainable and stable growth for the future and of a more social, more competitive, and more environmentally committed Europe.

However, for the EU to move from aims – even widely supported ones – to results in the area of taxation is still a daunting task due to unanimity rules, despite the Commission booklet Achievements in the areas of taxation and customs 2004-2009, published today (8 February 2010; 75 pages including annexed speeches, from page 20).

Ralf Grahn

P.S. The Pirate Party challenges the existing order concerning intellectual property, especially copyright, and attempts to limit the freedoms of Internet users.

In the Swedish political blogosphere the Pirate Party has become the most visible political party, and in the June 2009 European Parliament elections the PP secured two MEPs, although the second one has to wait for the question of the 18 “phantom MEPs” to be resolved before she can officially take up her duties.

Henrik Alexandersson is a prolific blogger about Pirate Party and libertarian causes, from his position as assistant to the Pirate MEP Christian Engström (who blogs in Swedish and English).

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  1. Ralf: maybe the Greek government can take note of this UE standpoint. It seems that tax-fraud has been a major cause of their financial difficulties over the years. I'm told that tax-evasion there isn't worth the effort - it has been easier to dodge paying taxes than to search for avoidance routes.

  2. French Derek,

    You seem to think along similar lines as a prestigious observer described his view to me a few years ago: The controllers, tax inspectors etc. would have to be deployed by the EU, from the outside, in order to rid Greece of corruption and poor governance.


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