Tax black holes

Fraud and tax evasion in the European Union are estimated to cost around 1000 billion Euro per year *. This sum is higher than the emerging EU budget for the next seven years!

If this money was to go back to the national budgets under the EU law, the cumulative debt of all the EU countries would have been paid off in less than nine years. The ordinary tax paying EU citizen is losing approx 2000 Euros per year to the gray zone of tax evasion.

Are there ways to change this?

There are, but …

Changing the situation requires greater coordination of tax systems and close cooperation between Member States in this matter.

On 21 May, 2013 the European Parliament presented a package of measures to fight tax evasion. The proposal is based on the automatic exchange of information between fiscal administrations that will close loopholes in the European tax system.

But, ending bank secrecy is one critical pre-condition that will allow us achieve our goal, and not all Member States would agree to that. Austria and Luxembourg, for example, insist on maintaining the bank secrecy.

While difficult, the fight against tax havens is not impossible. The EU has a direct impact on its Member States and an indirect, but also effective reach, on countries outside the Union.

How does it work?
First of all, we need to create a European public blacklist of tax havens and establish appropriate sanctions for banks that cooperate with them.

In our proposal: Fight against tax fraud, tax evasion and tax havens, several measures can have an impact:

  • Suspension or termination of existing Double Tax Conventions with jurisdictions that are on the blacklist
  • Prohibiting the access to EU public procurement of goods and services and refuse to grant state aid to companies based in blacklisted jurisdictions
  • Introducing a separate accounting and auditing of profits and losses of each holding company of a given EU legal entity situated in a blacklisted jurisdiction.
  • Prohibit EU financial institutions and financial advisors from establishing or maintaining subsidiaries and branches in blacklisted jurisdictions and to consider revoking licenses for European financial institutions and financial advisors, which maintain branches and continue operating in blacklisted jurisdictions.
  • Withdrawing the license of all European financial institutions and financial advisors, affiliated or sustained by continued activity in tax havens
  • Introducing a special levy on all transactions to or from blacklisted jurisdictions
  • Abolition of exemptions from taxation at source for individuals who are non-residents for tax purposes in blacklisted jurisdictions
  • Repudiation of the EU legal status of companies established in countries from the blacklist.
  • The application of tariff barriers to trade.

The gray area is most prominent in countries such as:
– Bulgaria, Romania, Lithuania, where 30% to 36% of the revenue from tax is lost (out of the general tax revenue)

– Latvia, Cyprus, Greece, Poland, Malta, Italy, Slovenia, Hungary, where 20% to 30% of tax revenues are lost.

The worst places concerning the gray area are Luxembourg and Austria (below 10%), and perhaps, because of that, these states are least likely to change anything within their systems…?

The examples above also point out to the fact high taxes alone are not the reason for tax heavens; for countries with the highest taxes in the EU: Denmark, Sweden, Finland, Austria, Germany, and Luxembourg, the gray area is relatively small (between 9% – 17% tax loss).

It turns out that “the opportunity is making the thief” – the ease of making tax evasion and escaping is its main driving force.

The fight against evasion of tax and financial havens should therefore be accompanied by healing our own tax systems.

Greetings from the European Parliament,

Lidia Geringer de Oedenberg

* Data based on calculations made by the Heritage Foundation and the World Bank


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