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COFFERS Report Summary

Project ID: 727145
Funded under: H2020-EU.

Periodic Reporting for period 1 - COFFERS (Combating Fiscal Fraud and Empowering Regulators)

Reporting period: 2016-11-01 to 2017-10-31

Summary of the context and overall objectives of the project

Over the last six years the European Union 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.

COFFERS views the tax system as a tax eco system, in which new international tax regulations (Automatic Exchange of Information, Country by Country Reporting, Base Erosion and Profit Shifting and, Legal Entity Identifiers) can be perceived as a shock, as Darwinian Devils hitting the eco system, to which species like jurisdictions, companies and experts will have to readjust and look for new niches of survival, which eventually will need an adaptation of regulations. As the newest events around the Paradise Papers show the COFFERS project is highly relevant and takes place within a changing tax eco system environment.

The research objectives are to Track, Trace, and Transmit on tax fraud, evasion and avoidance. The tracking and tracing elements include an assessment of regulatory and administrative capacity, and then how tax fraud, avoidance, and evasion is being enabled and combatted at three levels of analysis, Jurisdictions, Corporate Forms and Expert Networks. The tracing and transmission elements of the research will be concretised by the Risk Assessment and Policy Advice package. The project’s work packages operate in three phases. The first year is dedicated to within case unit research, in which each work package focuses on developing its own data, surveys, research framework etc. During the second year, work packages will be looking at the respective level of analysis across the spatial levels, so, for example, expert networks at the national, international and European dimensions. Finally, the third year is to research across jurisdictions, corporate forms, and experts networks within the national, international, and European dimensions, thus brings all researchers together.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

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) provide an updated and upgraded measure of revenue foregone within the EU as a result to tax fraud, evasion and avoidance 2) identify the operational mechanics of, and institutional support for the identified regulatory innovations 3) gauge the capacity of these innovations to redress the tax gap to suggest means of upgrading regulatory tools.

The first year mainly focused on tracking. The new methodology of measuring tax gaps of WP1 and first measurements of WP6 are outstanding here.

- Trace how expert networks, jurisdictions and taxpayers adapt to and negotiate rapid evolutionary change.

The COFFERS project will follow how rapid system change is negotiated and actively constructed. The objective here is to focus on the trajectory of change in the system in order to provide a forward-looking, and actionable, analysis of system change. To meet this objective we will 1) provide a systemic comparative analysis of legal, regulatory and administrative content and change across Member States and significant third countries and jurisdictions 2) assess the level of coherence between formal legal and regulatory requirements and administrative capacity across jurisdictions 3) trace how corporations and natural persons react to and negotiate the renewed fiscal architecture 4) identify which are the pivotal policy players and expert networks in the EU policy process during fast and slow evolutionary phases; 5) systematically compare 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. Tracing is the second phase. Surveys to trace changes in behavior of tax experts have been designed by WP5. First results have been shown especially by WP3, who showed changes of tax competition patterns among countries.

- Transmit forward looking risk assessment and policy advice.

COFFERS offers more than a static picture of the European fiscal regime. The project offers diagnosis and prescription. As such, COFFERS aims 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 propose to: 1) identify implementation gaps as regulatory innovations unfold on the ground 2) map where in the fiscal ecosystem these gaps are most apparent and where new gaps are evident 3) suggest solutions to these deficiencies in terms of legal, regulatory instrument, ethical code, coordinative and administrative upgrading. This concerns the last phase of the project of year 3. WP6 started with an overview over risk assessment, building an ecosystem model and making a list of variables needed for the final assessment.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The expected impact from COFFERS – empowering the regulator in order to combat fiscal fraud - serves the scientific community, the policy community, and the European public. COFFERS will provide new information to all of these communities and heighten Europe’s capacity to enhance its understanding of tax fraud, avoidance, and evasion. Many dissemination activities have already been undertaken in order to make COFFERS known to stakeholders and in order to share our first findings with them as early as possible. COFFERS also visited the other tax related Horizon 2020 Project FAIRTAX in Brno in March 2017 in order to increase synergy effects of both projects.

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