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BackThe European Commission has taken a positive step in the fight against tax evasion and currently existing possibilities of tax avoidance. A Communication and a Recommendation suggest a number of measures, which should help to reduce ca. 1,000 billion € in tax losses per year. However, the initiative has not one but two drawbacks: when it comes to fiscal policies, the Commission is only able to make recommendations; relevant action must come from the Member States themselves; and, even though tax oases in third countries shall be at least reduced, the ones existing within the European Union are not part of the debate.
In its first recommendation, the Commission proposes to the Member States to put third countries, which do not comply with certain minimum standards for responsible conduct, on a black list. According to the Commission, damaging conduct for example would be if the effective taxation of assets would be lower in the respective third country than the applicable taxation level in this country. A penalty in case of violations shall be the suspension or termination of double taxation agreements with the black sheep, says the Commission. The Commission proposal gives a slightly immature impression, if one thinks of taxpayers from the EU area who park their illegal money in tax oases and do not make use of a double taxation agreement in any case - not to mention the fact that no double taxation agreements exist with many tax oases. However, it is positive that the Commission has now recognised the problem and uses its recommendation to take a first step.
In its second recommendation, the Commission urges the Member States to close tax loopholes, which enable taxpayers to avoid paying tax in any of the EU Member States.
A third document by the Commission is dedicated to the fight against tax fraud. The European Commission also urges the Council to finally sign the proposal - already submitted in 2009 - on the agreement between the EU, the Member States and Liechtenstein against fraud and closer cooperation in tax matters. VAT fraud shall be reduced by the so-called reverse-charge procedure (the service recipient is the VAT debtor instead of the service supplier). This procedure shall be applied in respect of goods and services which are particularly vulnerable to fraud. Portals for exchanging information on taxes shall also be created.
Unfortunately, tax oases are still not mentioned, which, because of extremely low rates of corporation tax, lure large concerns from another EU country to their Member State or which engage in a downwards tax competition for example by the flat tax model. However, in view of the now published recommendations there is at least hope that the Commission learns from its mistakes and initiates a paradigm shift with regard to the tax competition with the EU.
In its second recommendation, the Commission urges the Member States to close tax loopholes, which enable taxpayers to avoid paying tax in any of the EU Member States.
A third document by the Commission is dedicated to the fight against tax fraud. The European Commission also urges the Council to finally sign the proposal - already submitted in 2009 - on the agreement between the EU, the Member States and Liechtenstein against fraud and closer cooperation in tax matters. VAT fraud shall be reduced by the so-called reverse-charge procedure (the service recipient is the VAT debtor instead of the service supplier). This procedure shall be applied in respect of goods and services which are particularly vulnerable to fraud. Portals for exchanging information on taxes shall also be created.
Unfortunately, tax oases are still not mentioned, which, because of extremely low rates of corporation tax, lure large concerns from another EU country to their Member State or which engage in a downwards tax competition for example by the flat tax model. However, in view of the now published recommendations there is at least hope that the Commission learns from its mistakes and initiates a paradigm shift with regard to the tax competition with the EU.