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14.3.2.  Effort to combat tax avoidance in the EU

    The liberalisation of capital movements as from 1 July 1990 [see section 6.7], has increased the risk of tax evasion. In fact, EU residents can nowadays freely transfer their savings to bank accounts in any Member State without the corresponding income necessarily being declared to the tax authorities of the State of residence. Since, in several Member States, there is no "withholding tax" on bank interest paid to non-residents, investments would flow towards those States, thus avoiding any taxation. Such capital movements, motivated purely by tax considerations, would be contrary to the optimum allocation of resources, which is the objective of establishing a common financial area [see section 6.6].

    The most important and urgent problems for the European Community/Union in the area of direct taxation were posed by international tax avoidance. In addition to the substantial budgetary losses for States and the fiscal injustice, international tax avoidance generates abnormal capital movements and distortions of conditions of competition. Therefore, Directive 2011/16 instituted an administrative cooperation of the competent authorities of the Member States in the field of direct taxation (income tax, company tax and capital gains tax) and certain excise duties and taxation of insurance premiums. As amended in 2014, that Directive extended the mandatory automatic exchange of information to a wider range of income in accordance with the Global Standard released by the OECD Council in July 2014 and ensured a coherent, consistent and comprehensive Union-wide approach to the automatic exchange of financial account information in the internal market [Directive 2011/16, last amended by Directive 2016/2258].

    A Council regulation lays down rules and procedures to enable the competent authorities of the Member States to cooperate and to exchange, by electronic means or otherwise, information that is necessary to ensure the correct application of legislation on excise duties [Regulation 389/2012, last amended by Regulation 2015/272]. A Commission implementing Regulation lays down detailed rules for implementing certain provisions of Directive 2011/16, notably concerning the computerised format to be used for the mandatory automatic exchange of information in the field of taxation [Regulation 2015/2378].

    In order to preserve the competitiveness of European financial markets, the European institutions entered into discussions with key third countries, such as the USA, Switzerland, Liechtenstein, Monaco, Andorra and San Marino, to promote the adoption of equivalent measures in those countries, notably effective exchange of information. Agreements have been reached with the European countries, notably Switzerland [Decisions 2004/911 and 2004/912], Liechtenstein [Decision 2004/897 and amending Protocol], Andorra [Decision 2005/356] and San Marino [Decision 2005/357 and amending Protocol].

    A Commission recommendation aims at improvements to the procedures of the Member States for granting withholding tax relief on cross-border securities income earned by investors who are resident in the Community, pursuant to conventions for the avoidance of double taxation or to provisions of domestic law.

    Since in the global economy capital has become very mobile, the states have a tendency to displace the tax burden towards less mobile bases, such as work, thus driving economic activity towards the black market and/or aggravating the effects on the costs of labour and employment. The most important aspects from the international point of view are: the concealment by some taxpayers of their taxable activities beyond the borders of their states in countries in which the level of taxation is low or the risk of discovery small; the possibilities of avoidance open to multinational companies, especially through the manipulation of transfer prices between undertakings in the same group; and the tax arrangements for holding companies, which is a problem outside the European Union's remit, as a large number of those companies are established in tax havens outside the Union.

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    Your roadmap in the maze of the European Union.

    Based on the book of Nicholas Moussis:
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