WHAT ARE THE KEY CHALLENGES IN INVESTIGATING TAX CRIME? A VIEW FROM AUSTRIA

In this article, PROTAX partner, the Austrian Federal Ministry of Constitutional Affairs, Reforms, Deregulation and Justice, reflects on the challenges and obstacles met in investigating tax crimes and offers possible solutions.

Key Challenges

Efficient and target-oriented detection is, therefore, an important aspect in the fight against tax crimes since companies make the decision to evade taxes based on a rational cost-benefit analysis. However, problems related to resources, planning and coordination obstruct efficient investigations. The financial authorities currently use existing opportunities too rarely. For example, the lack of willingness to cooperate in exchanging information between EU member states is a key challenge in the detection of tax crimes, particularly in the area of cross-border tax offences.

Looking at the Austrian context, the split jurisdiction in criminal tax proceedings poses a particular problem for the detection of tax crimes.

Administrative tax authorities are initially responsible; the criminal court only has jurisdiction if it is an intentional financial crime with a damage exceeding a certain amount. In some areas, different procedural principles apply in administrative proceedings as opposed to criminal proceedings. Furthermore, there are no incentives for tax auditors involved in administrative criminal tax proceedings to identify facts that are relevant for criminal proceedings.

Practical limitations

There is a resource problem that, as in many other areas, manifests itself in a shortage of staff alongside the lacking of technical resources.

For example, collected data cannot be evaluated efficiently. In many cases, existing results from analyses are not processed further, which leads to insufficient risk-based case selection.

The lack of intergovernmental information agreements complicates the detection of tax crimes further, especially cross-border VAT crimes. However, existing agreements often do not guarantee an efficient exchange of information. In practice, for example, it can happen that a contracting party’s obligation to provide information is rendered null and void because it does not regard the facts as a criminal offence that entitles it to information, or that the obligation to provide information is indirectly circumvented by bureaucratic hurdles.

Moreover, in criminal court proceedings, criminal judges often lack the necessary expertise in tax law. Administrative authorities first conduct the preliminary proceedings. In some areas, however, administrative proceedings follow legal principles that are different from criminal court proceedings (e.g. a refusal by the accused to participate in administrative proceedings can have negative consequences for the latter, in contrast to criminal court proceedings, where there is no obligation to cooperate), which makes it difficult to use the investigation in criminal proceedings.

Possible solutions

Possible solutions for a more effective fight against tax crime are:

  • Data evaluation software that provides proposals for risk-based case selection and systematic risk capture by evaluating data collection processes can provide support to law enforcement agencies in selecting cases for investigation.
  • A functioning exchange of information at international level is equally important. Tax authorities can only be effective if they have the necessary information.
  • Especially in the area of VAT offences, regulation at the EU level is urgently needed.
  • Another efficient option is to involve the tax criminals themselves. A profitable path back to legality for tax evaders (e.g. by means of a diversion in the criminal proceedings against tax evaders or by taking into account a confession and the full compensation for damages) leads to cooperation and disclosure of information. The information obtained in this way can then be used for systematic risk assessments.
  • Unexpected and retroactive legislation also promotes the willingness of tax criminals to report their own offences.

Austrian PROTAX focus group

The Austrian focus group met in Vienna on 7 March 2019. Tax experts, law enforcement authorities, representatives of the judiciary and relevant industry representatives from the audit and consulting fields attended the informative discussion hosted by the Federal Ministry of Constitutional Affairs, Reforms, Deregulation and Justice. The meeting was focused on the mentioned problems in the fight against tax crime and it has been an excellent opportunity to think collectively about countering tax crimes across Europe.

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