Published: 22/01/2020

Nearly EUR 960 billion – this is the size of the European Union’s current budget. That astronomical sum, however, is ⅕ lower than 7-year cumulative losses due to taxes escaping across the borders of the EU Member States.

The European Union as a whole loses EUR 170 bn annually due to cross-border tax avoidance and evasion. The sum includes EUR 60 bn and EUR 46 bn shifted by large corporations and wealthy individuals respectively. Furthermore, the situation is made worse by the enormous VAT gap in EU Member States, an average of 12% of VAT revenue. A significant part of the gap results from the use of cross-border transactions by companies and criminal groups to extort VAT, which generates losses of EUR 64 billion every year.

– Assets held by wealthy individuals in tax havens account for 10% of the EU’s GDP; about 75% of the wealth is not reported to the tax authorities at all. We are losing huge amounts of money, while at the same time cutting the budget for cohesion policy which facilitated the EU’s faster growth in previous decades. All it takes is to stop the leakage of money to tax havens. Those countries benefit very few and hurt us all – says Jakub Sawulski, head of the macroeconomics team of the Polish Economic Institute.

What should the EU do to improve the situation?

There are several ways of resolving the problem of tax avoidance. The solutions proposed include blacklisting the EU Member States identified as tax havens and giving the European Commission the power to impose sanctions on countries classified as non-cooperative tax jurisdictions. Another remedy may be the establishment of an EU-wide minimum rate on corporate income, calculated using a tax base that disallows the deduction of payments most often utilised for tax avoidance, such as interest and royalties.

Poland has been leading the charge in the EU with regard to tax avoidance and combating the phenomenon. Specifically, it is vital to push for the taxation of profits where they are generated and for tax flows to be transparent across the EU. Therefore, on 22 January, during the World Economic Forum in Davos a debate will be held with the participation of the Prime Minister of the Republic of Poland Mateusz Morawiecki, the OECD Secretary-General Ángel Gurría and the Minister of Finance of the French Republic Bruno le Maire. World leaders and decision makers will discuss how to eradicate tax evasion together. This is one of the basic conditions for meeting the global challenges faced by the international community.