17 Mar Towards a European definition and concept of tax crime?

On the 3rd of February 2020, members of the PROTAX consortium and PROTAX advisory board members have had the pleasure to hold an informal workshop with participants from Austrian Ministries of Justice and Finance and forensic experts from different domains.

Here we report the general topics of discussion, noting how these have highlighted a number of practical problems of law in action and emphasised the role of human factors. This workshop has further confirmed the findings of the focus groups conducted in the PROTAX project.

Summary of key points of the discussion

• There is no uniform legal definition of tax crime or tax fraud in the European Union (EU). These differences of law in books make trans-national enforcement of tax crimes difficult since different jurisdictions do and cannot smoothly operate or cooperate in the prosecution of these crimes. A common approach, e.g. based on the offence of tax fraud could help to overcome these obstacles.
• Misuse of position, presenting false or incomplete documents, withholding information and acting with criminal intent could be the core elements of such a harmonised EU concept of tax fraud. Furthermore, using a common threshold for criminalisation and prosecution under criminal laws would help to exclude cases with minor financial damage.
• A common EU approach and definition of tax crime also could solve the problem of collecting reliable comparative data about the damage produced and cases prosecuted. Presently no reliable data on tax crimes (prosecutions, convictions and assets recovery) is available across the EU. While in some countries national statistics are kept, a cross-border EU comparison is a difficult to conduct because of incompatible definitions and prosecution regimes (administrative vs. criminal law, different institutional distribution of tasks and competences).
• A common EU definition and a harmonised prosecution regime could facilitate the exchange of information between law enforcement agencies involved in the prosecution of tax crimes, which is important since often these offences have a cross-border dimension, such as in VAT carousel fraud and tax evasion by multinational companies.
• While several EU initiatives address the problem of information sharing and exchange, the dominance of national silos is conducive to illegal practices, making it difficult to detect tax fraud schemes, stretching across more than one jurisdiction.

On the other hand, there are a number of obstacles that have to be considered.

• Criminal law in general and tax enforcement, in particular, are still the prerogatives of Member States. Claiming a genuine EU competence may be difficult for a number of reasons: Only approx. 2% of taxes collected at national level goes to the EU; Member States compete to provide favourable tax arrangements for multi-national corporations and behave like market actors. A common EU approach to fiscal policy and taxation and tax crimes would deprive Member States of this opportunity to attract multi-national corporations through dumping offers for favourable taxation rules.
• Adapting taxes to the fiscal needs and political strategies of national governments is seen as a key element of national sovereignty and Member States are not willing to move this to the EU level. This also entails national regulations about disclosure of financial information to third parties and foreign law enforcement agencies.

Finally, all participants agreed that two further problems stand in the way of a more effective and coherent regime to prosecute and prevent tax crimes across the EU.

• On the one hand, many solutions that could improve national welfare and facilitate revenue collection encounter political obstacles, since strong and powerful interest groups (e.g. multinational corporations and enablers such as big four accountancy and auditing firms) manage to successfully influence political decisions in this area to their advantage.
• On the other, enforcement and prosecution are first and foremost a problem of information processing. Complex trans-national financial transactions create data trails that are hard to follow and the existing reporting regimes and requirements (such as e.g. STR) frequently produce informational overload for the involved authorities.

The Chatham House rules apply to this workshop.

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