Tax fraud and tax evasion represent a complex challenge for European countries. Also voluntary schemes for tax optimization and tax heavens in Europe and globally are significant in this regard. The scale of the lost revenue is staggering, with possible consequences for the fight against inequalities.[[There are many different estimates and reports on the scale of tax avoidance generally, and in relation to certain companies in particular, coming from tax administrations, NGOs, academics and press. There is no conclusive figure quantifying the scale of corporate tax avoidance, although the general consensus is that it seems to be substantive. One of the highest estimates refers to the amount of € 860 billion a year for tax evasion and € 150 billion a year for tax avoidance. The link to the study is; http://europeansforfinancialreform.org/en/system/files/3842_en_richard_murphy_eu_tax_gap_en_120229.pdf.]] First, unpaid taxes limit the capacity of Member States to invest in and implement social and economic policies and services as well as social protection systems. Second, tax fraud and tax evasion also constitute a direct impediment to equal treatment and in fact exacerbate inequalities as they lead to additional and potentially excessive fiscal burdens on those who fulfil their tax obligations. The foregone revenue could help to stimulate economic growth, prevent cuts in public services and mitigate fiscal and social inequalities. Moreover, the fact that well-off or well-connected people benefit from privileged tax treatment decreases and potentially undermines the trust citizens have in the fairness of policies and democratic institutions. The specific challenge is to identify and analyse deficiencies in tax law and enforcement at EU level and across Member States in a context of economic globalisation, including the role of (off-shore) tax havens and to obtain a clearer picture on perpetrators’ attitudes.[[COM(2015) 136 Communication from the Commission to the European Parliament and the Council on tax transparency to fight tax evasion and avoidance.]]Scope:
The research to address this challenge should in particular focus on the two dimensions described below. Proposals can comprehensively address one dimension or combine them. They may include additional aspects which are relevant to addressing the specific challenge.
1) The state dimension: the role of governments; tax law and tax enforcement regimes
Research should identify deficiencies at governmental level, in tax laws and in tax collection and enforcement regimes, whereby the role of the banking and tax advisory sectors should also be considered (see below point 2). A good range of Member States’ legal regimes and tax collecting practices including statistical capacities and methodologies should be comparatively surveyed, their strengths and shortcomings analysed and evaluated. Due regard must be given to all forms of corruption as well as systemic, including voluntary, deficiencies. The research should provide a comparative cross-analysis of tax fraud and tax evasion prevalence in European countries. Attention should be paid to the analysis of money laundering techniques. Research should also identify deficiencies in tax enforcement and tax administration practices, technical setup and legal frameworks at national, regional, local, European and global levels. Due regard must be given to the international dimension of taxation. This relates, on the one hand to interconnectedness of economies and markets, and on the other hand to international initiatives and standard setting notably on undue transfer pricing, base erosion and profit shifting (BEPS) and transparency. Based on these insights, research should compare the impact of strategies to enhance tax compliance such as adjusting tax laws including rates, altering sanctions and sentencing provided by law or putting in place amnesty programmes and better information exchange between countries. Innovative and reliable methodologies to study the effects and effectiveness of different government policies are called for.
2) The perpetrators’ side: practices, motivations and attitudes across Europe
Research should inventory practices, mechanisms and strategies and attitudes of perpetrators comparatively. It should investigate the economic, social, psychological, ideological, historical and cultural drivers behind fraudulent tax practices behaviour. Variation in terms of location, income brackets, sector of activity and any other relevant variables should be explored. In addition, research should analyse fiscal non-compliance through the lens of ethics, morality and social justice. This research requires, if and where possible, a temporal dimension, assessing whether and to what extent practices and especially attitudes have been changing in particular in recent years in the wake of the financial crisis.[[Among the possible channels for crisis induced changes: modifications in current and expected levels of income and wealth, as well as possible changing norms, including because of a perceived reduction in state efficiency.]] Research should also assess whether and to what extent the prevalence of tax fraud, optimisation, evasion and avoidance might be socially and/or culturally or gender embedded. Regard should be had to amnesty programmes where applicable and their impact should be assessed. Due regard must be given to the international dimension of fraudulent tax practices behaviour. This relates, on the one hand to illicit financial flows from and to third countries, notably resource rich developing countries and on the other hand to differences in European legislation concerning tax avoidance, corruption and bribery in third countries. Special attention should be paid not only to tax fraud and evasion, but also to tax avoidance, especially regarding individuals in top income brackets and corporations. These groups have access to more sophisticated means of non-compliance or 'bending the rules' such as storing money in tax havens, moving to a different tax jurisdiction or using shell companies to hide profit, in particular through targeted tax and finance advisory services. In turn, combating tax evasion in these cases will require investigating and developing sophisticated methods of data sharing and administrative collaboration at trans-national level and a better understanding of the interplay of tax authorities, tax payers and tax consultants.
The Commission considers that proposals requesting a contribution from the EU in the order of EUR 2.5 million for each dimension would allow this specific challenge to be addressed appropriately. This does not preclude submission and selection of proposals requesting other amounts.Expected Impact:
Research will significantly enhance the knowledge base of various tax law and enforcement systems among Member States in general and identify their deficiencies in a comparative way in particular. It will make recommendations and suggest practical options which help redress and reverse tax fraud, optimisations, evasions and avoidance. Furthermore, research will considerably improve understanding of practices, motivations and attitudes of perpetrators, both individual and corporate, with the role of the intermediary financial sector better understood. Recommendations will be made on how tax compliance can be improved, and how it could to a greater extent be portrayed and seen as a virtue. Research is expected to propose readily applicable instruments and strategies to reduce tax fraud, tax optimisation, tax evasion, money laundering and to incentivise tax compliance, whereby national circumstances should be taken into account. The quantitative and qualitative data collected will contribute to increasing the efficiency of tax administrations in European countries by enabling them to better target their compliance and inspection efforts on the individual and company level as well as in sectors of economy with a higher probability of non-compliance. Research should also set out best practices for enhancing cooperation, trust and confidence between tax administrations and taxpayers.