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Combating Fiscal Fraud and Empowering Regulators

Periodic Reporting for period 2 - COFFERS (Combating Fiscal Fraud and Empowering Regulators)

Reporting period: 2017-11-01 to 2020-01-31

Over the last 10 years the EU has confronted expanded inequalities across a range of areas from gender, to generational, wealth, mobility and opportunity. One underlying factor common to these expanded inequalities is the contribution of deficiencies in fiscal systems. Income inequality can be traced to ‘effectively’ regressive tax systems that tax labor and consumption more than capital. A major reason for this is the international mobility of capital paired with financial secrecy in tax havens. Conditioned by the twin financial and fiscal crisis the EU and Member States have not been slow to react with accelerated policy innovations at the national, regional and international levels. These innovations constitute a sea change in tax policy and the EU fiscal regime. A host of novel regulatory instruments are now hitting the ground. The ‘Combating Fiscal Fraud and Empowering Regulators’ (COFFERS) project provides a novel framework to contribute to a better understanding of the current state of affairs, gauge the traction of regulatory innovation, identify the trajectory of system change and provide remedies for deficiencies in the EU fiscal regime going forward. Identifying deficiencies and opportunities for upgrading in tax law, tax policy development, tax administration and enforcement at the EU level and across Member States COFFERS builds a platform for a more inclusive and united Europe where inequalities are decreasing.

Overall, the project saw Automatic Exchange of Information as a successful policy reform. Nevertheless important loopholes have been identified: the US does not participate with AEI. Asymmetric, non-reciprocal regulations between the US and Europe and the many entrance points with different tax regulations in Europe are seen as major hindrances for AEI to function. In addition, loopholes within Europe, such as golden visas and passports are important hindrances which have to be repaired. BEPS, with Country by Country Reporting as one important issue, have proven less successful. The EU managed well to reduce tax evasion of individuals, but less so to combat aggressive tax planning of companies. An important loophole is the lack of transparent registers and reporting requirements which can be circumvented too easily. Legal Entity Identifiers are seen skeptical, because the quality standards are difficult to control. Corporate Forms that have been analyzed in detail were digital platforms such as the taxi platform Uber and freeports. The rise in freeports, in particular in countries like Switzerland, offer a new unregulated possibility to park tax evasion values. Regarding the role of tax experts, a large survey done by COFFERS revealed that tax experts act differently depending on their environment but also their personality and morale. A study of the Big Four revealed that they have changed the financial architecture worldwide.
Coffers has a “three T” Approach of Tracking, Tracing and Transmitting. The specific objectives for the project were to:

- Track the tax gap and regulatory innovation:
1) we provided an updated and upgraded measure of revenue foregone within the EU as a result to tax fraud, evasion and avoidance. Estimates within COFFERS are between 800 billion USD (Murphy for tax gaps) and 1600 billion (Unger for money laundering).
2) gauge the capacity of these innovations to redress the tax gap to suggest means of upgrading regulatory tools. We compared the administrative capacity of tax authorities in the EU Member States.

- Trace how expert networks, jurisdictions and taxpayers adapt to and negotiate rapid evolutionary change (the survey among tax experts worldwide of Killian et al. and the works on the Big Four by Murphy, Seabrooke and Staushalm)
The COFFERS project followed how rapid system change is negotiated and actively constructed. We provided a forward-looking, and actionable, analysis of system change.

To meet this objective we
1) provided a systemic comparative analysis of legal, regulatory and administrative content and change across Member States and significant third countries and jurisdictions (see the administrative survey of Tax Justice Network and the Legal Money Laundering and Tax Crime Database of Utrecht University)
2) assessed the level of coherence between formal legal and regulatory requirements and administrative capacity across jurisdictions;
3) traced how corporations and natural persons react to and negotiate the renewed fiscal architecture;
4) identified which are the pivotal policy players and expert networks in the EU policy process during fast and slow evolutionary phases;
5) systematically compared the diagnoses and solutions pivotal policy players and expert networks use to negotiate change and trace the mechanisms through which their diagnoses and solutions shape policy and taxpayer practice going forward.

- Transmit forward looking risk assessment and policy advice.
COFFERS offered more than a static picture of the European fiscal regime. The project offered diagnosis and prescription. As such, COFFERS aimed to be part of the change process in intervening in the evolutionary trajectory identified to impact the speed, direction and efficacy of system change.
To make this impact we proposed to:
1) close identified implementation gaps as regulatory innovations unfold on the ground;
2) mapped where in the fiscal ecosystem these gaps are most apparent and where new gaps are evident;
3) suggested solutions to these deficiencies in terms of legal, regulatory instrument, ethical code, coordinative and administrative upgrading.

We built a simulation model which allows to simulate the effects of policy reforms on EU Member States. We simulated the effects of Automatic Exchange of Information and Country by Country Reporting on tax compliance of tax payers and companies for all EU Member States.
The project resulted in two main outputs – an edited volume COFFERS at Oxford University Press and a special issue of the journal Regulation and Governance on Shifts in Tax Governance.

There have been 3 dissemination events:
1) conference in Vienna
2) final conference in Brussels
3) stakeholder meeting in Brussels

COFFERS serves the scientific community, the policy community, and the European public, it provided new information to all of these communities and heighten Europe’s capacity to enhance its understanding of tax fraud, avoidance and evasion.
There have been numerous impact related activities in the Member States. Tax Justice Network has launched the Corporate Tax Haven Index and the Financial Secrecy Index which brought wide attention. Unger presented COFFERS results at the European Parliament “How to Improve Money Laundering Policy” in April 2020.
The TOOLS that COFFERS developed and which can be downloaded from our homepage include the Corporate Tax Haven Index, the Bilateral Financial Secrecy Index, and a Legal Database. 5 video clips have been made with artists to explain COFFERS results.
COFFERS offers possibilities to bring public money back into the public COFFERS. Only 10% of the amount outstanding from tax avoidance, tax evasion and money laundering would be sufficient to stop world famine and close the educational gap. With Corona, public money provision will become more important than ever. This means, that COFFERS suggestions of how to improve the international tax system and reduce tax evasion and avoidance are important.