10/05/23

EUROPE: France’s plans to fight tax fraud ‘lacks ambition’, experts say.

As published on euractiv.com, Wednesday 10 May, 2023.

A series of measures were presented by the French government on Tuesday (9 May) to fight tax fraud committed by both individuals and multinationals, though the plan lacks ambition and fails to tackle the problem at its roots, experts warn.

The measures look to increase tax fraud checks by 25% between now and 2027 on the highest earners, while the 100 largest multinationals will undergo administrative checks every other year.

“Each fraud is reprehensible, but that of the most powerful is unforgivable,” French public finance minister Gabriel Attal told Le Monde on Monday, announcing that those found guilty of malpractice will be imposed hours of community service.

For the worst offenders “who chose to ignore their obligations as French citizens”, additional measures to temporarily take away their voting rights will be taken, Attal added.

The minister vowed to recruit up to 1,500 agents dedicated to fighting tax fraud as a part of a new dedicated intelligence unit. While this is a welcome move, Solidaires Finances Publiques trade union noted that there have been 21,000 job cuts in the French financial administration since 2012, including 3,000 in fiscal departments.

Both scholarly and political communities contest the true value of state revenue lost due to tax evasion. For the EU, this figure is €1 trillion every year, according to estimates from the European Commission.

For France, specialised NGO the Tax Justice Network (TJN) found that $40 billion (€36.5 billion) go missing yearly.

“There is a lot of interesting announcements, but it lacks ambition,” far-left MP and the National Assembly’s special rapporteur on tax evasion Charlotte Leduc told EURACTIV.

While most of the focus is on tax fraud – policing those that misbehave – the plan is light on anything regarding tax evasion, the practice of which is rooted in legal loopholes in national and international legislation, making it legal, “though unacceptable”, Leduc explained.

The MP said that she cannot help but see the new plans as a communications stunt, as the government tries to ease tensions over the recently-adopted pensions reform, a hotly contested piece of legislation that brought millions to the streets.

Unlike what the government proposes, she calls for a larger and swifter use of General Anti-Avoidance Rules (GAARs), designed to strike down otherwise-legal international practices that companies engage in for the sole purpose of dodging taxes.

The tool is rarely used for fear of costly litigations, though it sits at the heart of the original 2016 Anti-Tax Avoidance Directive (ATAD), and was transposed by all member states in 2018.

To Damien Carême, a French green MEP and rapporteur for the EU Anti-Money Laundering package, the announcements also fall short of anything concrete.

“Member states shy away from going head-to-head with tax havens, and properly fight tax evasion,” he told EURACTIV, blaming France for its lack of ambition at the EU level, and in international OECD negotiations over a minimum corporate tax on multinationals.

This take shared by TJN’s Chief executive Alex Cobham who, when contacted by EURACTIV, said that France had “left itself open to a charge of hypocrisy” by “actively seeking to block global progress on tax at the United Nations”.

In 2022, a UN resolution was passed calling for the creation of a new international cooperation framework to fight tax abuse – which France has been reticent to agree to on grounds that the OECD instead was the relevant forum.

Experts were also quick to flag that nothing was said on VAT fraud, which the European Commission considers “a grave concern”.

According to EU estimates, €134 billion are missing from member state coffers due to VAT avoidance, VAT fraud and administrative miscalculations.

While the trend is improving over time, the VAT gap – the difference between VAT due and actual VAT revenues – stood at 7.4% in France in 2019.

“It’s the number one tax fraud in France, worth a yearly €25 billion, yet the government says nothing,” said Charles Prats, a judge specialised in tax evasion.

The use of detection software ought to be rolled out across all relevant administration, as per the European Commission’s demands, Prats said.

Approached by EURACTIV, the European Commission said it does not comment “on announcements or draft laws”.

Some other proposals might prove interesting, though details remain to be unveiled, especially when it comes to international cooperation, according to EU Tax Observatory’s Quentin Parrinello.

“If the government pushes for an international asset registry, this is very ambitious,” he told EURACTIV.

But the current proposal is more vague than that, and could only amount to reinforcing cooperation between fiscal administrations, which already exists under OECD auspices.

Several months ago, his Observatory already made a plea in favour of a European Asset Registry, in the context of the war in Ukraine, and tracking Russian oligarchs’ wealth: “The ultimate objective of the registry would be to record comprehensively the ownership and movement of assets”, the policy note read.

Organising a Conference of Parties (COP) on tax evasion, another proposal by Minister Attal, is also “potentially interesting” to Parrinello, though details are missing to understand the breadth and actual impact of such a gathering.

Ultimately, the priority is elsewhere, Vincent Vicard, a taxation scholar, told EURACTIV. “It is high time we talk about having an actual European tax to best prevent the growth of tax havens,” he said.

He also questioned the way the ‘EU’s list of non-cooperative jurisdictions for tax purposes’ is drafted. “By essence, EU countries are kept out,” he said, despite multinationals more often than not making the best use of EU tax havens for their optimisation schemes.

“Only then can changes be deemed significant,” he concluded.