EU: Tax evasion and fraud flourish under political protection

Algirdas Šemeta, Member of the EC in charge of Taxation and Customs Union, Audit and Anti-Fraud, gave a press conference to announce the creation of a new Platform for Tax Good Governance, as part of its concerted drive against tax evasion and avoidance. The Platform will monitor Member States' progress in tackling aggressive tax planning and clamping down on tax havens, in line with the Recommendations presented by the Commission in 2012. (EC Audiovisual Services).

Algirdas Šemeta, Member of the EC in charge of Taxation and Customs Union, Audit and Anti-Fraud, gave a press conference to announce the creation of a new Platform for Tax Good Governance, as part of its concerted drive against tax evasion and avoidance. The Platform will monitor Member States’ progress in tackling aggressive tax planning and clamping down on tax havens, in line with the Recommendations presented by the Commission in 2012. The Ecofin ministers however said yesterday that the Commission’s Recommendations are not mandatory for member states. (EC Audiovisual Services).

It is a disgrace for the European Union’s political elite to consciously block the internal exchange of information between the member states authorities and banks on matters related to tax evasion and fraud. This is exactly what the 27 EU minister of Finance did yesterday in the Ecofin Council in Brussels. This unbelievable political decision must have been so embarrassing for everybody familiar with the subject, that the responsible Commissioner Algirdas Šemeta, who introduced the proposal for this decisive anti-tax evasion and fraud policy measure couldn’t stand the heat and some hours later exploded.

The good Commissioner speaking later on in a Press conference about the work of the council of Finance ministers blew up like that: “Switzerland has been saying for years that it is ready to talk openly and constructively on a new accord. So I am delighted that we will now be able to do so. Nonetheless, we cannot – we must not – make our progress within the EU dependent on our progress with third countries. So it was with great disappointment that I watched agreement on the revised EU Savings Directive being blocked on this basis today”.

Tax evasion is obviously related to wealthy people and businesses. It is them who are protected by Europe’s political elite. For example it is deplorable to see all the Greek governments of the last two crisis years to skip the opportunities for anti-tax fraud cooperation offered by the Swiss authorities. Consecutive Athens governments actually hid from tax auditors for two years a list with 2,000 names of wealthy depositors in a Swiss bank. And all that while severely cutting down wages and pensions to reduce fiscal deficits which could have been covered if even half of tax evasion was caught.

Tax fraud of €1 trillion yearly

According to the EU Council President, Herman Van Rompuy, tax evasion and fraud cost annually around €1 trillion to government budgets in the 27 EU member states. The issue has stirred up international interest and the G7, G8, G20, OECD and other global key players are proposing severe measures. Unfortunately the responsible national governing political elites in Europe including Russia and elsewhere follow a protractive attitude, if not hostile to any such measures. Greece is a very characteristic case.

At the same time wage and salary earners cannot hide their income or avoid taxation, because their tax dues and social security contributions are withheld by the employers and duly transferred to the authorities. The European Sting writer Suzan A. Kane wrote on 1st May “At a time when labour is under serious pressures and threats in the entire European Union, taxation on labour wages continuous not only being the main source of government income but always increasing. Despite the fact that unemployment has reached historic records in the euro area with 12.1% in March this year”.

Šemeta however is not letting his case down. He is pushing through with more Commission proposals against tax evasion. Obviously he wants to do his job in the best possible way and let the 27 politicians in the Ecofin Council take the blame for not promoting effective measures against this plague of our modern economies. He stressed that “I will present a proposal very shortly to extend automatic exchange (of information between EU tax authorities and banks) to dividends, capital gains and royalties. This proposal, together with the revised Savings Directive, will considerably extend the scope of information shared spontaneously between our Member States. We also need political commitment to adopt more effective measures against VAT fraud”.

Seemingly the Commissioner doesn’t believe that those ground-breaking measures he is about to propose have any chance of being accepted by the Ecofin ministers. To overcome this obstacle or probably to make his case at the highest level and consequently expose it as much as possible to the press and the public opinion he added: ”And finally, we need our leaders to take full ownership of the drive against aggressive tax planning and tax havens. I expect today’s consensus on these issues to be endorsed at next week’s Summit, and pushed even further towards real and effective action. President Van Rompuy‘s participation at this morning’s breakfast was a signal that the European Council is ready to do this, and I would like to thank him for his personal commitment to these important issues”.

Let the leaders take the blame

In this way the Commissioner and the President of the European Council will put the 27 leaders of the EU, who are expected to gather in the European Council of 22 May, before their responsibilities. Will the British Prime Minister David Cameron be willing to place under regular fiscal control the many tax haven islands under British jurisdiction? Will the Greek Prime Minister Antonis Samaras be ready to let the tax authorities check the country’s economic and political elite for tax evasion? For years now only the Greek wage earners and the pensioners pay full income taxes. Will the Austrian, the Maltese, the Luxembourger and other governments be willing to relax their bank secrecy legislation vis-à-vis the tax authorities of the other EU member states? Will Silvio Berlusconi be ready to accept in full his tax obligations? Will the French President Francois Hollande check his ministers for tax evasion before taking them aboard in his government? Will the Spanish Prime Minister Mariano Rajoy reveal all his receipts form his party’s coffers?

All in all tax evasion and fraud is not flourishing in a vacuum. It prospers under political protection and the intentionally left loopholes in legislation. The real chaos of the Greek tax laws is a fine example of that. The same is true for Britain. The tax haven islands close or away from the coasts are feeding directly the prosperity of London’s financial supermarkets in the City.

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