Commissioner Semeta sees steps on fighting tax evasion in Greece, EU
By Nikos Chrysoloras
BRUSSELS - Commmissioner Algirdas Semeta has backed Greece’s efforts to reform its tax system, saying that the country could earn the equivalent of 5 percent of GDP in revenues if it clamps down on evaders. In an interview with Kathimerini, Semata said that the Commission was taking steps to tackle tax evasion and avoidance throughout the EU as it costs governments a total of 1 trillion euros.
Let me start with the latest package of recommendations that the Commission issued, regarding tax evasion and tax avoidance. Some would argue that it does not go far enough into addressing the problem and that the Commission lacks “the teeth” to force member-states into adopting stricter rules regarding tax evasion. How do you respond to this criticism? What are the next concrete, binding, steps you propose to combat tax evasion?
The plan that the Commission presented could deal a serious blow to tax evasion and avoidance in Europe. I put forward more than 30 measures to improve transparency and information exchange, close loopholes that are exploited by tax avoiders, clamp down on tax havens that harbour evaders, and create a tougher, more unified EU stance in tackling this serious problem.
Our Action Plan certainly has «teeth». But if it is to bite, Member States must commit to it and implement it. I can think of no good reason why they shouldn't do this. Several times EU leaders called for progress in addressing these problems and they asked the Commission to formulate a common way forward. Given the huge amounts of money that are being lost to tax evasion, at a time that we can ill afford it, there is a clear sense of urgency that something needs to be done. The advantage of recommendations is that they do not have to go through the legislative procedure of hard law, which can take a long time. Progress in implementing them can be quick, if the political will is there. And Member States can put peer pressure on each other to keep up the pace, which is a technique we've seen used to good effect before in the EU.
For its part, the Commission will be highly active too. There is a series of new initiatives that we will be working on - from an EU Tax Identification Number to a Taxpayers' Code. In terms of hard law, we will intend to strengthen the anti-abuse provisions in EU corporate tax law, and revise the Parent-Subsidiary Directive. And we will also be setting up a new Platform on Tax Good Governance, to monitor the implementation of our recommendations on tax havens and aggressive tax planning. We will have no qualms about making our voice heard if we feel that any Member State is dragging its feet, or that collectively there is not enough momentum given to fighting these problems.
The package urges member-states to act against tax havens. However, according to some definitions, the tax regime in some member states, like Luxembourg or Cyprus, especially towards corporations is close enough to the definition of a tax haven. Does the Commission have any reservations on the tax regime of its member states and how do you define a tax haven?
The first thing to understand is that the good governance standards we suggest applying to third countries are no higher than the minimum standards already applied by every EU Member State. Even though our criteria for determining tax havens would be tougher than current international criteria, they are no stricter than what we demand of ourselves within the EU.
These criteria would be based first on the OECD principles of transparency and information exchange. Added to this, we would look at whether the principles of our Code of Conduct on Business Taxation are respected, so as to ensure fair tax competition. I believe this would be a fair basis for assessing whether or not a country is a tax haven or not.
Within the EU, despite our high standards, I don't claim that everything is perfect. We clearly need more coordination to prevent one national regime from undermining another, and to address loopholes and mismatches which are exploited by tax evaders. That is precisely what the Action Plan I presented sets out. Moreover, I have called on Member States to use tools like the Code of Conduct with far greater ambition. This Code is meant as a tool for Member States to assess each other's tax regimes, and demand that harmful ones be removed. It can be highly effective in ensuring fair tax competition – but only if Member States use it to its full potential.
Does the Commission have an estimate on how much do tax evasion, tax avoidance, and intra-European money laundering cost to the European taxpayers each year?
Around €1 trillion is estimated to be lost every year in the EU due to tax evasion and avoidance. That is that is about 50 times the size of the Greek deficit, twice the size of the EU's permanent bailout fund (ESM) and equates to around €2000 for every citizen in Europe. In this context, you can see the urgency to put up a proper fight against this problem, and to do it as a Union. If we could recapture even a portion of the taxes that are evaded in Europe, it could really help accelerate our economic recovery.
Tax evasion is a serious problem in Greece. Does the Commission have an estimate on the extent of the revenues lost in Greece due to this problem?
The very nature of tax evasion makes it difficult to put a precise figure on it, and for Greece in particular, we see all sorts of estimates floating around. What this proves is that more transparency, greater information exchange and a well-functioning administration are a prerequisite to both identify the extent of the problem, and then effectively address it.
The OECD has said that if Greece were to collect its VAT, social security contributions and corporate taxes with even an average level of efficiency, tax revenues could rise by nearly 5% of GDP. Meanwhile, the Commission and IMF found, through their technical assistance to Greece, that €53 billion still remains in uncollected taxes, of which 15-20% is potentially collectable. We have provided important advice on how this can be done, and I hope Greece will follow up on this with full vigour.
Why do you think that tax evasion is so widespread in member-states like Greece? Has the Commission proposed specific measures to Athens, in order to solve the problem? And do you provide any technical assistance to Greece in this regard?
I could point to a few major issues which contribute to the scale of tax evasion, and which must be addressed urgently by the Greek authorities.
First, the Greek tax system as a whole needs to be fundamentally reformed. In the recent Annual Growth Survey, the Commission outlined to all Member States the need for fairness and efficiency in their tax systems. What does this mean in practice? It means that rules must be simple and consistent, easy to comply with and easy to enforce. It means that mechanisms must be there to detect and punish tax evaders and fraudsters, so that everyone pays what they owe. And it means that, while revenue collection must be the primary goal of taxation, the burden must be shared equitably and it must support wider social objectives.
Second, the Greek administration simply doesn't work as it should. The tax collection system needs to be modernised, the tax collectors and inspectors must be well-trained and independent, and the rules must be clear and enforceable. Greece must do more to facilitate tax compliance, but must not only rely on compliance being voluntary. The Commission has actively contributed to the technical assistance to Greece in reforming its tax administration. Areas chosen for primary focus so far have included audits on large taxpayers and wealthy individuals, the collection of large tax debts, the establishment of an automated debt collection reminder system and the implementation of a debt collection call centre.
Finally, corruption is still widespread in Greece, feeding into the loss of public revenue. Greece was advised to draw up an anti-corruption Action Plan to tackle this problem, and in the forthcoming Memorandum of Understanding, further measures that can be taken to fight corruption will be set out. Again, the Commission stands ready to contribute to the technical assistance to Greece in fighting corruption, as we do appreciate that this problem is not an easy one to eradicate alone.
The Commission is in favour of the Financial Transactions Tax. But critics suggest that this measure will hurt the financial Centres of continental Europe, forcing companies to “seek refuge” at the City of London and elsewhere. How do you respond to this criticism?
There are strong safety nets in the FTT which the Commission originally proposed, precisely to minimize the risk of financial activity relocating. The most significant is the «residence principle» that underlies the application of the tax. This means that if either party to a transaction, or a financial institution involved in the transaction, has a link to the territory applying the FTT, then the transaction will be taxed, regardless of where it takes place. So if a Greek bank buys shares from an American bank, in Tokyo, the tax would be due in Greece.
In practice, if financial actors really wanted to avoid the tax, they would have to abandon business in the Member States applying the FTT, as well as all clients from those countries. The FTT will be at the rate of 0.1% on shares and bonds, 0.01% on derivatives, and will represent a very small part of overall transaction costs in most cases. So I find the financial sector's scare-mongering on this issue to be very exaggerated.
Which are the next steps with regard to the FTT? When do you expect the measure to start being implemented, and how will the money be used?
As you are no doubt aware, Greece and 10 other Member States asked to move ahead with a harmonised FTT under enhanced cooperation, when unanimous agreement amongst the 27 Member States wasn't possible.
There are still considerable benefits in a harmonised FTT applied by these 11 Member States, which together represent over 60% of EU GDP. It would deliver new revenues to the participating countries, and it will be up to each of them to decide how to best use this. Moreover, the FTT is an excellent contributor to fair taxation. Let's not forget that €4.6 trillion was committed to bailing out the financial sector due to the crisis, yet our analysis shows that this sector is largely under-taxed compared to others.
When the Commission received the requests to move ahead from the 11 Member States, it checked to ensure that this would be in line with all the conditions under the Treaties. We then tabled a proposal to authorise enhanced cooperation, which the European Parliament voted in favour of just [this/last] week.
How quickly we proceed now is entirely in the hands of the Council. If Member States vote to allow enhanced cooperation, the Commission can propose very quickly the details of the FTT for the 11 Member States to negotiate and agree. The design of the tax should be very similar to what we had already proposed for the 27 Member States, given that this is what was asked for. There is no good reason that the FTT could not be agreed next year – but it really depends on the political will of the Member States themselves.