The fight against tax fraud and tax evasion was pushed further up the European agenda this week, following a high profile meeting of the European Council of Ministers.

EU leaders have agreed that, while taxation is an issue that should be left in the hands of member states, fraud and tax evasion reach across borders and therefore can only be tackled properly if member states work together.

‘Clear deadlines for result’

Meeting in Brussels on 22nd May, the Council discussed a number of measures, including:

• The extension of the automatic exchange of information within the EU and across the globe. Within the EU, this will take the form of changes that are due to be made to the Directive on Administrative Cooperation in the Field of Taxation;
• Moves made earlier this month to work with Switzerland, Liechtenstein, Monaco, Andorra and San Marino on the tax rules they apply to savings income;
• The new VAT fraud directives – the Council has called for these to be adopted by the end of June.

“It’s high time to step up the fight against tax fraud and tax evasion,” said President of the European Council Herman Van Rompuy. “So I am pleased that today’s European Council managed to unblock a number of frozen files. There is movement, a real acceleration, with clear deadlines for result.”
 
The developments come on top of a number of other recent moves to tackle tax evasion and fraud.

The ‘tax gap’

Only this week, MEPs called on member states to halve the €1 trillion uncollected “tax gap” by 2020. They want governments to agree measures to clamp down on tax havens, close avoidance loopholes and combat aggressive tax planning.

In a series of resolutions, MEPS put forward several proposals, including:

• That member states should agree a clear EU-wide definition of “tax haven” and draw up a joint blacklist of these jurisdictions.
• No EU funding or state assistance should go to firms that breach EU tax standards, and any firm bidding for a public procurement contract should be required to disclose details of any tax-related penalties or convictions. Public authorities should also be entitled to terminate the contract if a supplier subsequently breaches tax compliance obligations.
• Member states should work together to harmonise tax bases, enforce measures to prevent firms from shifting profits to tax havens to avoid paying tax and improve the cross-checking of customs and tax data so as to reduce VAT fraud.

HMRC investigates tax evasion

There have been developments in the UK too – earlier this month, HMRC announced that it was working with the tax administrations of the United States and Australia on data which reveals extensive use of complex offshore structures to conceal assets.

To date HMRC has identified over 100 people who have benefitted from these structures and a number of these are now being investigated for offshore tax evasion. It has also identified more than 200 UK professional advisors who helped to set up these arrangements and who will also be scrutinised.

British Overseas Territories

The Treasury also recently announced that more Overseas Territories and Crown Dependencies had agreed to sign up to the Government’s new approach on global tax transparency.

Countries involved in the strategy will provide a greater degree of information about bank accounts held in their jurisdictions.

Anguilla, Bermuda, the British Virgin Islands, Montserrat, the Turks and Caicos Islands and Gibraltar have all committed to pilot a bilateral exchange of information with the UK, and a multi-lateral exchange with France, Germany, Spain, Italy and the UK.

“This represents a significant step forward in tackling illicit finance and sets the global standard in the fight against tax evasion,” the Chancellor, George Osborne, said at the time.

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