CLOSING THE EUROPEAN TAX GAP / RELAUNCHING THE ECONOMY AND CREATING JOBS
An analysis of the key findings
1. The main finding of the study commissioned by the S&D Group from Tax Research UK is that €1 trillion are lost in potential tax revenue every year (EU27).
2. This loss of public revenue plays a substantial part in the deficit and debt levels we are currently facing, which in turn is negatively affecting public investment levels, growth and
3. A large part of this non-taxed liquidity is feeding into financial trading activity rather than private or public consumption and investment.
Therefore, by forcefully addressing this ‘tax gap’, the EU could at the same time:
- Contribute to the necessary stabilisation of financial markets and of the economy as a whole by significantly reducing the liquidity available for financial trading unrelated to real economic activity;
- Increase available public revenue to accelerate necessary fiscal consolidation while reducing its austerity effect (thereby also alleviating current pressure on necessary public spending on education, health or social policy); the study shows that if the tax gap were to be totally closed, EU governments could repay all public debt within 8.8 years.
- Provide the necessary resources to increase public investment geared towards the strengthening of Europe’s international competitiveness and growth potential, despite the consolidation agenda. By channelling an additional amount of about €200 billion from the reduced tax gap into public investment spending each year, the EU could lift that investment from the current 2.7% of GDP to a realistic target of 3.5% within a few years.
- This would notably provide essential funding for public investment in sustainable growth technologies.
- This whole new strategy should be framed politically within a strengthened Europe 2020 strategy, backed up by proper funding.
- The governance of this strategy at EU level (as much will be done directly by member states) would need to be managed via the existing processes involving the annual national stability and growth programmes and the national reform programmes. Available information on the extent of tax avoidance and evasion in each member state must, in this context, be significantly improved in the public interest.
The EU must take strong action at European and at national levels at the same time. To provide the necessary focus, the European Council must agree on an ambitious but realistic headline target: halving the tax gap by 2020. By moving towards this target, member states would gradually achieve new tax revenue without raising tax rates at the level of several €100 billion a year.
This target can be reached by ensuring action on five key issues:
1. Reforming the accounting rules and corporate accounting disclosure
2. Upgrading and extending the scope of the European Union Savings Directive
3. Ensuring compulsory Common Consolidated Corporate Tax Base
4. Introducing country-by-country reporting for cross-border companies
5. Strengthening regulation of company registries and registers of trust
This will have to include adequate EU-wide agreements with key non-EU countries currently providing platforms for financial institutions which facilitate tax fraud and evasion activities from within the EU, such as Switzerland. The report provides over 30 detailed proposals for policy action at EU and at member states’ levels.
KEY FACTS AND FIGURES
Using consistently credible sources the report provides an estimate of tax evasion in the European Union at approximately €860 billion a year. Estimating tax avoidance is harder, however the report estimates it could be €150 billion a year. It is therefore likely that the combination of tax evasion and tax avoidance might cost the governments of the European Union member states €1 trillion a year. In a significant number of countries tax lost as a result of the shadow economy may represent more than 20% of total government spending, and as a proportion of government revenues that sum exceeds 30% of total income in some cases. On average the tax lost as a result of shadow economies in Europe is equivalent to 105.8% of the total healthcare spending in EU countries.