Weekly Tax News – 1 October 2018

October 1, 2018

VAT Gap: €150 billion lost in 2016

On 21 September, the European Commission has published a press release showing that EU countries lost €147 billion in VAT in 2016. The VAT Gap shows the difference between the expected VAT revenue and the amount actually collected. Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs stated that the improvements undertaken by Member States must be recognised, but “a loss of €150 billion per year for national budgets remains unacceptable”. The VAT Gap decreased by €10,5 billion compared to 2015 but it increased in six Member States: Romania, the UK, Ireland, Estonia and France. Commissioner Moscovici highlighted also the need to adopt the VAT reform proposed by the European Commission in order to reach a substantial improvement and to move forward on the definitive VAT system before the European Parliament elections in 2019.

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TAX3 hearing on the risks in tax policy associated with Brexit

On 26 September, the TAX3 Committee of the European Parliament held a hearing on the risk of tax policy associated with Brexit. Margaret Hodge (Member of the UK Parliament) highlighted the importance of transparency in particular after the Panama papers and the following scandals. Furthermore, she pointed out the risk connected with Brexit for the UK to become a low tax rate jurisdiction, as already suggested in the course of the week by the UK Prime Minister Theresa May.

Tove Ryding (Policy and advocacy manager at EURODAD) also stressed the risk of the UK becoming a tax haven. She also explained the importance of having an appropriate global tax system for developing countries, pointing out that three times the amount invested in supporting developing countries is actually lost due to tax avoidance from the developing countries.

The second panel treated the issue of bilateral tax treaties with particular reference to the treaties between EU and developing countries. The panellists, Ms Sandra Gallina (Deputy Director General of DG TRADE, European Commission), Ms Hannah Brejnholt Tranberg (Action Aid) and Mr Eric Mensah (United Nations) commented the risk that bilateral tax treaties generate tax avoidance in developing countries and illicit financial flows from and to these countries. Mr Mensah, referring to his experience with some double tax treaties between Ghana and EU Member States, commented that “these treaties did not adequately address the issue if tax evasion and avoidance and possibly may have facilitated money laundering in some cases”. This comment was backed by Ms Tranberg who highlighted that a spillover analysis of the tax treaties should be undertaken by the European Commission in order to favour a renegotiation of the treaties, eliminating the spillover effects.

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EU blacklist criticized by the Tax Justice Network

The Tax Justice Network (TJN) has published a very critical study on the EU blacklist of non-cooperative jurisdictions in taxation matters. In its report, TJN highlights that these non-cooperative jurisdictions only represent 1% of the financial secrecy services that allow companies to facilitate unlawful financial flows within the EU. The study, that is based on the Financial Secrecy Index developed by the TJN in 2009, shows that the greatest facilitator of financial secrecy within the EU are the United States, being responsible 4,7% of these opaque financial practices. Moreover, four Member States (Netherlands, Luxembourg Germany and France) are responsible for more than 13% of such financial secrecy services.

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