COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the Communication from the Commission to the European Parliament and the Council - An Action Plan to strengthen the fight against tax fraud and tax evasion the Commission Recommendation regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters the Commission Recommendation on aggressive tax planning
Date: 2012-12-06
Institutions: European Commission
Subjects: exchange of information, intergovernmental cooperation (EU), tax avoidance, tax evasion, tax inspection, third country

EUROPEAN 
COMMISSION 

Brussels, 6.12.2012  
SWD(2012) 404 final 

COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying  

the Communication from the Commission to the European Parliament and the Council -
An Action Plan to strengthen the fight against tax fraud and tax evasion 

the Commission Recommendation regarding measures intended to encourage third 
countries to apply minimum standards of good governance in tax matters 

the Commission Recommendation on aggressive tax planning 

{COM(2012) 722 final} 
{SWD(2012) 403 final} 

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COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying  

the Communication from the Commission to the European Parliament and the Council -  
An Action Plan to strengthen the fight against tax fraud and tax evasion 

the Commission Recommendation regarding measures intended to encourage third 
countries to apply minimum standards of good governance in tax matters 

the Commission Recommendation on aggressive tax planning 

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TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

Introduction .................................................................................................................. 4 

Procedural issues and consultations of interested parties ............................................ 4 

Problem definition........................................................................................................ 5 

Objectives..................................................................................................................... 7 

Policy options............................................................................................................... 8 

Analysis of impacts of the policy options .................................................................... 9 

Comparison of main options ........................................................................................ 9 

The preferred options ................................................................................................. 10 

Monitoring and evaluation ......................................................................................... 10 

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1. 

INTRODUCTION 

The  common  purpose  of  national  tax  systems  of  EU  Member  States  (MS)  is  to  be 
effective and fair, i.e. to raise sufficient revenues in a fair manner in accordance with 
the democratic choices of each State. However, these objectives are threatened by a 
combination  of  tax  fraud,  evasion  and  aggressive  tax  planning  often  involving  tax 
havens.  

The amount of lost tax is difficult to estimate, but according to a study concerning 
the  USA  the  revenue  cost  of  profit  shifting  towards  "tax  havens"  by  US 
multinationals could be up to $60 billion, while individual tax evasion could cost up 
to $50 billion yearly1. Estimates are not available for the EU, but on the basis of the 
similar  amount  of  FDI  stocks  in  "tax  havens"  in  both  USA  and  the  EU  the  tax 
revenue losses can be estimated to be of similar magnitude.  

The  Impact  Assessment  analyses  in  a  manner  commensurate  with  each  of  the 
problems at stake the actions that could be considered to address those problems. The 
intention  is  to  assist  the  Commission  in  selecting  and  deciding  on  the  best  policy 
options. 

Terms used in this document can be found in a comprehensive glossary in annex 
14 to the impact assessment report (see COM(2012)3512 unless otherwise stated) 

Tax fraud is a form of deliberate evasion of tax which is generally punishable under 
criminal law.  

Tax evasion generally comprises illegal arrangements where liability to tax is hidden 
or ignored, i.e. the taxpayer pays less tax than he is legally obligated to pay by hiding 
income or information from the tax authorities. 

Tax  havens,  also  sometimes  referred  to  as  'non-cooperative  jurisdictions'  (NCJ) 
are  commonly  understood  to  be  jurisdictions  which  are  able  to  finance  their  public 
services with no or nominal income taxes and offer themselves as places to be used 
by non-residents to escape taxation in their country of residence. Tax avoidance is a 
term difficult to define but which is generally used to describe the arrangement of a 
taxpayer's  affairs  that  is  intended  to  reduce  his  tax  liability  and  that  although  the 
arrangement could be strictly legal is usually in contradiction with the intent of the 
law it purports to follow. (OECD Glossary Tax Terms) 

2. 

PROCEDURAL ISSUES AND CONSULTATIONS OF INTERESTED PARTIES  

The  Impact  Assessment  was  reviewed  by  the  Impact  Assessment  Board.  An 
extensive programme of consultation and research was carried out during 2012. This 
included a formal public consultation on Double Non-Taxation and an extensive data 
collection and analysis exercise by PWC on defensive tax measures in a sample of 

1 
2 

J; G. Gravelle (2009): Tax Havens: Tax Avoidance and Evasion. CSR Report for congress. 
COM(2012) 351 final 

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MS  in  relation  to  tax  havens  and  aggressive  tax  planning.  Only  limited  quantified 
data was available. For example the quantified benefits of some specific measures in 
Denmark,  France  Germany  and  the  Netherlands  ranged  from  13  million  euro  to 
1,500 million euro per year. In summary some MS are able to raise tax revenues by 
taking specific protective measures, although the precise types of measures differ. 

Fiscalis  Seminars  on  the  issues  were  held  with  MS  administrations  and  business, 
Non  Governmental  Organisations  (NGO)  and  academic  stakeholders.  The  main 
conclusions were general support for a) measures to enhance existing instruments of 
cooperation  and  the  development  of  automatic  exchange  of  information,  and  b)  an 
EU coordinated approach including clear definitions of key concepts although some 
MS  would  prefer  national  measures  and  some  attendees  stressed  the  importance  of 
not  increasing  administrative  burdens  nor  effecting  competition.  No  further 
quantitative data was received.  

The  Taxation  Policy  Group  and  Council  High-Level  Working  Party  have  also 
discussed recently evasion and fraud and there is general agreement that enhancing 
action against this is a key priority. Measures must be proportionate and not lead to 
increased cost for taxpayers.  

3. 

POLICY CONTEXT, PROBLEM DEFINITION, AND SUBSIDIARITY 

Tax evasion and avoidance have developed internationally with the globalisation of 
the economy. The current economic crisis and budgetary constraints require that any 
losses of tax revenue are prevented, that tax systems are as efficient as possible, and 
to close opportunities for abuses, so as to secure sustainable tax revenues and support 
high levels of compliance based on fair and fairly applied tax systems.  

3.1. 

Problem definition 

Tax fraud and evasion limit the capacity of Member States to carry out their policies, 
and raise issues of fairness between compliant and incompliant taxpayers. 

Three problems need to be addressed within the EU: 

– 

– 

– 

Insufficient tax collection within Member States, linked to low tax compliance 
and poor administrative capacity; 

Lack  of  effectiveness  in  cross-border  administrative  cooperation,  which  is 
limited  by  difficulties  in  identifying  taxpayers  in  automatic  exchange  of 
information, and in agreeing in Council on closing loopholes from the Savings 
directive; 

Quality of tax legislation and its fitness for purpose because of insufficient use 
of existing legal instruments. 

In  an  international  context,  the  effectiveness  of  Member  States’  tax  systems  are 
undermined in three ways: 

- because of their own unintended loopholes, and of mismatches occurring with other 
countries’  tax  systems  leading  to  double  non-taxation  in  cross-border  situations.  In 

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the EU Internal Market, double non-taxation gives a competitive advantage to some 
taxpayers, and may be detrimental for those Member States which see their tax bases 
eroded.  It  can  be  addressed  by  changes  in  national  legislation  and  double  tax 
conventions; 

-  because  of  taxpayers  exploiting  these  loopholes  and  mismatches  (aggressive  tax 
planning).Tax  planning  increasingly  involves  ever-more  sophisticated  structures 
which  develop  across  various  jurisdictions  and  effectively,  shift  taxable  profits 
towards  states  with  beneficial  tax  regimes.  The  cross-border  dimension  of  many 
structures  and  the  increased  mobility  of  capital  and  persons  in  the  Internal  Market 
makes it difficult for MS to address this alone; 

-  by  other  jurisdictions  actively  or  passively  facilitating  the  erosion  of  other 
countries’s  tax  bases.  This  scenario  can  involve  aggressive  tax  planning  schemes, 
specific tax regimes providing a low level of taxation to non-residents, or a very low 
general level of taxation together with a reluctance to cooperate with other countries’ 
tax administrations. Tax havens offer the possibility for taxpayers of other countries 
to relocate their tax bases in their low-tax jurisdictions, and to conceal this from their 
country  of  residence  (through  means  such  as  obstacles  to  the  identification  of 
beneficial ownership and bank secrecy). 

Although the precise dimensions of the revenue losses incurred are unknown they are 
generally  accepted  to  be  in  the  billions  of  Euro.  Individual  countries  do  sometimes 
estimate losses in revenue and academics have used a range of different methods to 
quantify  them.  These  sometimes  mix  evasion  and  avoidance,  combine  direct  and 
indirect taxes, include non-EU country data and use proxies such as the size of the 
'shadow  economy'  to  estimate  tax  losses.  In  addition  some  of  the  terms  –  evasion, 
avoidance  and  tax-havens  for  example  are  used  in  different  ways.  However,  one 
example illustrates that there is a problem that needs resolving as quickly as possible. 
The UK alone recently estimated tax avoidance reduced revenues by several billion 
pounds3 annually. 

The international dimension of this phenomenon makes it difficult for MS to protect 
their tax systems, since national anti-abuse measures can easily be circumvented by 
using complex tax structures and tax havens, or routing through another MS with a 
lower level of protection. 

Despite  several  efforts  at  national  level  to  try  to  influence  third  countries  to  apply 
minimum  standards  of  good  governance  in  tax  matters  (i.e.  transparency,  exchange 
of information and fair tax competition), a number of third countries remain reluctant 
to cooperate. Current leverage is therefore of limited efficiency. 

3.2.  Who is affected 

EU MS are affected because of the budgetary impact and the need to adopt corrective 
measures (of administrative, regulatory or external policy nature). 

Taxpayers  are  affected  since  the  policies  in  the  area  concerned  are  important  for 
guaranteeing  fairness  between  them.  They  are  also  affected  by  corrective  measures 

3 

Lifting the Lid on Tax Avoidance Schemes – July 2012 – http://www.hmrc.gov.uk/ 

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from  Member  States.  For  example  the  latest  guidance  notes  for  applying  a  single 
piece of UK anti-avoidance legislation run to 115 pages. If all MS followed, a group 
of companies could be faced with considerable additional complexity. Moreover, the 
PWC study of fourteen MS found 165 different anti-abuse measures.  

However  there  is  no  indication  that  Small  and  Medium  Sized  Enterprises  (SME) 
would be more seriously affected than large enterprises, since activity with a cross-
border dimension is more likely to involve the latter category. Citizens, as welfare-
state beneficiaries, are indirectly affected by the shrinking budget for public services 
and social benefits. 

Third countries are also affected, either as tax havens unduly attracting MS revenues, 
or as partner countries which flows may be affected by MS’ anti-abuse rules. Where 
measures  are  targeted  at  specific  countries  (black  or  grey  lists)  there  is  little  or  no 
overall consistency amongst the EU MS. 

3.3. 

Likely evolution of the problem (baseline scenario) 

If  no  action  is  taken  then  MS  will  continue  to  have  problems  raising  revenue  and 
may have to raise taxes to secure their revenues. 

In  relation  to  fraud  and  evasion  the  three  specific  problems  where  action  has  been 
identified as decisive and urgent will remain.  

No  progress  will  materialise  either  in  regard  to  third  countries  not  complying  with 
minimum  standards  of  good  governance  in  tax  matters,  in  particular  tax  havens,  as 
well  as  in  regard  to  aggressive  tax  planning.  It  is  likely  that  EU  MS  will  react 
individually, within the limited effectiveness of such measures. In addition, there is 
little indication currently that MS would launch spontaneously initiatives at bilateral 
or multilateral levels to overcome jointly the problems. Other international initiatives 
(OECD) are unlikely to address the specific EU concerns. 

3.4. 

Subsidiarity 

MS  encounter  difficulties  in  protecting  alone  their  tax  systems  efficiently  because 
scattered  national  countermeasures  are  of  limited  effectiveness  when  it  comes  to 
cover  the  complexity  of  tax  international  avoidance  schemes.  Moreover,  Member 
States  could  be  lead  to  invidually  reinforce  such  measures  in  a  manner  that  would 
undermine regular business investment and create additional tax obstacles. 

Thus,  these  national  actions  (or  lack  of  action)  have  a  direct  impact  on  the 
functioning of the internal market as it can distort competition among EU businesses, 
and  on  the  ability  of  Member  States  to  meet  the  commitments  of  the  Stability  and 
Growth Pact4.  

Therefore, action at Union level is better fitted to achieve the objectives. 

4 

http://ec.europa.eu/economy_finance/economic_governance/sgp/index_en.htm 

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4. 

OBJECTIVES  

The general objective is to come, through a Union approach commensurate with the 
need to ensure the functioning of the internal market, to a better protection of MS tax 
systems  against  abuses  and  loopholes  and,  in  particular,  agains  cross-border 
international  tax  fraud  and  avoidance.  Such  practices  are  detrimental  to  MS  tax 
revenues.  

This general objective translates into the following specific objectives: 

• 

In regard to cross-border fraud and evasion in direct and indirect taxation:  

• 

(Objective  1)  Enhance 
tax 
tax  co-operation, 
enforcement and tax collection for cross-border operations between MS 
tax authorities 

tax  administration, 

• 

In  regard  to  jurisdictions  not  complying  with  minimum  standards  of  good 
governance, in particular tax havens, and to aggressive tax planning: 

• 

• 

• 

(Objective 2) Closing loopholes and potential for abuse of MS direct tax 
systems  (national  legislation  and  DTCs)  –  this  would  contribute  to 
addressing the issues of double non-taxation and aggressive tax planning 

(Objective  3)  Improving  the  efficiency  of  measures  taken  at  national 
level  to  counter  international  tax  avoidance  –  this  would  contribute  to 
addressing the issue of aggressive tax planning 

(Objective  4)  Improving  in  an  EU  context  the  leverage  that  MS  have 
towards  third  countries  in  tax  matters  –  this  would  address  the  issue  of 
jurisdictions  not  complying  with  minimum  standards  of  good 
governance.  

The  operational  objective  is  to  secure  and  increase  revenues  for  MS.  Given  the 
differences  of  MS  tax  systems  and  economic  structures,  the  monitoring  of  this 
objective will need to be considered with each MS individually. 

These objectives are consistent with other policies. They build on the existing policy 
of good governance in the tax area, and on the request from the European Council in 
March  2012  to  enhance  the  fight  against  tax  fraud  and  evasion.  In  a  wider  context 
they  are  consistent  with  efforts  made  against  money-laundering  and  terrorist 
financing  both  at  the  EU  level  and  by  the  financial  action  task  force  (FATF),  and 
with the Annual Growth Survey 2012 and its recommendations to Member States to 
braoden tax bases and improve tax collection. 

5. 

POLICY OPTIONS  

The  following  table  summarises  the  policy  options  identified  to  achieve  the 
objectives. 

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Baseline scenario 

No EU change 

(Objective 1) Enhance tax co-operation, tax administration, tax enforcement and tax collection for cross-border 
operations between MS tax authorities 

- Option A1:  Presenting an action plan including prioritising specific measures  

 (Objective 2) To close loopholes and potential for abuse of MS direct tax systems (national legilsation and double tax 
conventions) 

- Option B1:  Address loopholes in national legislation through discussions in the Code of conduct Group for business 

taxation. As the Code is of Conduct group is discussing these issues this option is considered to be in place 
already 

- Option B2:  Recommendation to prevent double non-taxation in double tax conventions. 

 (Objective 3) To improve the efficiency of measures taken at national level to counter international tax avoidance 

- Option C1:  Recommendation of EU compliant and effective general anti abuse rule (GAAR) as a standard  

 (Objective 4) To improve in an EU context the leverage that MS might have in convincing third countries to 
implement good governance in tax matters 

- Option D1:  Elaborate an EU definition of third countries not complying with minimum standards of good governance in 

tax matters, on the basis of principles recognised in this area 

- Option D2:  Toolbox of measures to be applied according to whether or not the third countries concerned comply with the 

mimimum standards defined. 

6. 

ANALYSIS OF IMPACTS OF THE POLICY OPTIONS  

The following table summarises the analysis of the impacts (ascending scale from --- 
to +++). 

Expected impact 

A1 

B2 

C1 

D1 

D2 

Baseline 
scenario 

Likely to 
continue or 
deteriorate 

Effectiveness in 
achieving policy 
objective 

Fundamental rights/ 
Four freedoms 

Economic impact 

Social impact 

Impact on 
taxpayers/tax 
administrations 

Impact on EU budget 

Impact on other 
parties 

--- 

-- 

--- 

-- 

--- 

= 

= 

++ 

- 

++ 

+++ 

++/+++ 

-- 

= 

+++ 

++ 

+++ 

+++ 

+/++ 

+ 

+++ 

= 

+++ 

= 

= 

+++ 

++ 

++ 

= 

- 

= 

+++ 

++ 

+++ 

= 

- 

+ 

++ 

= 

++ 

= 

= 

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7. 

COMPARISON OF MAIN OPTIONS 

The  following  table  summarises  the  comparative  assessment  of  the  options 
(ascending scale from --- to +++). 

Baseline 
scenario (no 
EU action) 

Comparison of policy options 

A1 

B1 

B2 

C1 

D1 

D2 

Not 
assessed  

Incentive for MS to 
strengthen their rules 

Effectiveness 

Proportionality 

Efficiency 

Flexibility 

Conclusion 

= 

--- 

= 

= 

= 

+++ 

+++ 

+++ 

+++ 

+++ 

n/a 

+++ 

+++ 

+++ 

+++ 

n/a 

+++ 

+++ 

+++ 

+++ 

n/a 

++ 

+++ 

+++ 

+++ 

n/a 

+++ 

+++ 

++ 

+++ 

Preferred 
option 

Preferred 
option 

Preferred 
option 

Preferred 
option 

Preferred 
option 

8. 

THE PREFERRED OPTIONS 

In  view  of  its  effectiveness  proportionality  and  flexibility,  the  preferred  option  for 
meeting  objective  1,  i.e.  enhance  tax  co-operation,  tax  administration,  tax 
enforcement  and  tax  collection  for  cross-border  operations  between  Member  States 
tax authorities, is the issuance of a prioritised action plan of measures. Choosing the 
no-change option would carry high risks.  

The preferred options for dealing with third countries not complying with minimum 
standards of good governance in tax matters, as well as with aggressive tax planning, 
flow from the tables above, as a combination of Policy Options B2, C1, D1, and D2. 
This  is  a  more  detailed  series  of  measures  where  rapid  progress  in  the  short  term 
could be achieved.  

9. 

MONITORING AND EVALUATION 

In  the  absence  of  a  reliable  quantitative  baseline  for  monitoring  and  evaluating 
progress  regular  reports  should  be  prepared  by 
the 
implementation of the Action Plan and the above recommended actions. 

the  Commission  on 

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