Gaps in the exchange of tax data in the EU may encourage tax avoidance and evasion

There is still insufficient sharing of tax information between EU member states to ensure fair and effective taxation throughout the Single Market, according to a new special report published on 26 January by the European Court of Auditors (ECA). The problems are not only with the EU’s legislative framework, but also with its implementation and monitoring. In particular, the auditors found that, often, the information exchanged is of limited quality or underused.

The ever growing number of cross-border transactions makes it difficult for member states to assess taxes due properly, and encourages tax avoidance and evasion. Revenues lost to corporate tax avoidance alone are estimated at between €50 billion and €70bn yearly in the EU, reaching some €190bn if special tax arrangements and tax collection inefficiencies are included.

Co-operation between member states is therefore essential to make sure taxes are collected in full and where they are due. “Tax fairness is crucial to the EU economy: it increases certainty for taxpayers, enhances investment and stimulates competition and innovation,” said Ildikó Gáll-Pelcz, the member of the European Court of Auditors responsible for the report. “Initiatives in recent years have given administrations unparalleled access to tax data. Yet, the information exchanged still needs to be used much more for the system to reach its full potential.”

The legislative framework the European Commission has established for the exchange of tax information is transparent and logical. But it suffers from several gaps, warn the auditors. Firstly, it remains incomplete with regard to stemming tax avoidance and evasion. Cryptocurrencies, but also other forms of income, for instance, are not subject to mandatory reporting, thus remaining largely untaxed. Secondly, the support provided to member states does not go far enough.

In particular, the Commission barely addresses the issue of poor data quality and does not assess how effective and deterrent the sanctions for non-compliance are. Finally, the Commission should provide more guidance to help member states, especially in the field of data analysis and use.

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