The EU tax gap resulting from largely domestic tax evasion could be as high as €825bn a year, with up to €190bn also lost through corporate tax avoidance, according to a report from the Socialists and Democrats Group in the European Parliament
The figures are based on research by Richard Murphy, director of Tax Research and professor of practice in international political economy at City, University of London, who analysed data published by individual member states.
Murphy says these estimates are smaller than in 2009, which was the base year for the last EU wide tax gap estimate of this sort. The reduction in the tax gap, when allowing for inflation, is at least 11.8% over that period, suggesting that tax authorities have become more effective in tackling tax abuse since the 2008 downturn began.
However, percentage tax gaps, expressed as a proportion of expected tax revenue, vary from 7.98% in Luxembourg to 29.51% in Romania. In absolute amounts the biggest tax gaps are in Italy, France and Germany. In half of all EU member states have tax gaps that might exceed their healthcare spending, and often by considerable amounts, the analysis suggests.
The report states: ‘As a result it is suggested that there remains considerable capacity within many EU member states to collect considerably more of the tax that is legally owing than is done at present.’
The analysis highlights that only 15 EU member states have programmes to monitor and publish tax gap estimates and says there is a ‘cloak of secrecy’ over much of the data. Seven member states only prepare such estimates for VAT, while the UK is singled out as the sole member state to attempt a reasonably comprehensive tax gap estimate.
The report argues that although EU member states have taken steps to address failures by multinationals to pay taxes locally, they have not paid sufficient attention to the tax losses arising from the non-payment of domestic taxes.
It makes a number of recommendations, including requiring all EU member states to prepare their own annual shadow economy and tax gap estimates, which should cover all taxes. The EU should establish comprehensive methodologies for this, and these should include expenditure on allowances and reliefs.
The report calls for members states to have annually updated plans to tackle the identified tax risks and wants to effective central public registers of companies and trusts in all EU member states that can provide the accounting and ownership data required by tax authorities.
The European Tax Gap 2019 is here.
Report by Pat Sweet
