Reducing tax evasion and fraud: the importance of cooperation


It is often said that cooperation is key to addressing big, intractable problems. The European Union recently highlighted this with amendments to the Administrative Tax Cooperation Directive. These amendments are designed to improve cooperation between tax authorities on administrative tax and reduce tax evasion and tax fraud.[1]

Increasing information exchange

The Directive's main focus, particularly these amendments, is information exchange. This can either happen on request, spontaneously or automatically. Automatic information exchange is seen as the most effective way to counter fraud.[2]

The Directive originally contained provisions on automatic information exchange in five areas. These were income from employment, director's fees, life insurance products not covered by other directives, pensions, and property ownership. However, these five areas have been expanded over time to include additional financial information. The most recent amendments cover income generated by sellers using digital platforms.

This is seen as essential given the complexity of these platforms. Individual tax authorities have struggled to obtain sufficient information to judge income earned, especially on platforms hosted in other jurisdictions. The crucial new piece of the puzzle is that the platform operators must disclose information about sellers using the media. This is provided to their host member state, which is then obliged to pass the information on to each seller’s home member state.

Platform operators are responsible for gathering information about users and verifying whether the information is correct. They must collect enough data for tax authorities to identify the seller and their business. This may therefore have significant implications for these platform operators.

Defining digital platforms

The digital platforms covered by the legislation are carefully defined. The Directive applies to any platform operators that experience any commercial activity in the EU. This includes those based in a member state and others not formally managed within the area but with sellers or buyers who are residents. Each operator will be required to register in a member state of its choice and then report through that member state’s tax authority. This is designed to keep a level playing field and not impose additional requirements on EU-based businesses.

The activity covered by the Directive is known as ‘reportable activity.[3] It includes rental of commercial or residential property, including parking spaces, personal services, which may be either time- or task-based work, carried out either online or offline, sale of goods, and the rental of any form of transport. The amendments also cover income from royalties. They, therefore, protect all documents of revenue generated via digital platforms.

Other amendments

The amendments have therefore extended the scope of automatic information exchange. However, they have also clarified some provisions for information exchange on request in this area, especially about particular groups of taxpayers. The changes include setting out the information that a ‘requesting authority’ must provide when requesting information. This is necessary for the responding authority to decide if the information is relevant. The requesting authority is now required to explain the tax purposes for which it needs the data and provide a specification for the info for either administration or law enforcement purposes. There is also a requirement for groups of taxpayers that cannot be identified individually.

The amendments cover two other areas: the regulatory framework for joint audits and the security of data exchange. The first area sets out the principles that should apply if two or more member states decide to conduct a joint audit. This is an addition to the principle that an official from one member state can participate in inquiries and audits in another member state if this is considered helpful. The second area provides administrative procedures to be used in the event of a data breach when information is being or has been shared between tax authorities.

It is also worth noting that the Commission has already begun work on another set of amendments on tax transparency and information exchange on cryptocurrencies. This will likely be published shortly and is a matter of ‘watching this space.

Implementation of the amendments

The new amendments to the Directive will come into force from January 2023. Most of the amendments will apply from 1 January, including those on tax transparency. However, the first reporting of data will be required by 31 January 2024. Digital platform operators, therefore, need to start taking action to gather the necessary information from their sellers if they do not already do so.




Tags EU Fraud

About Author

Stephane Goddé

Head of EMEA Fraud & Security Intelligence in Government & Non-Financial Services at SAS

The datacenter of the nineties is the SD-card of today. So much of life is now digital. Civilization depends on rules and guidelines, and legislators are slowly adapting to meet the needs of the digital world. Unfortunately criminals do not care for rules, and can often move faster than the law can keep up. Leaders in government and business have to find the most efficient and effective ways to innovate with new products and services while staying within legal guidelines. Responsible leaders also have to protect their domains from bad actors who are trying to circumvent rules and procedures for personal gain. As a fraud & corruption specialist and former police commissioner, I have a natural instinct for finding loopholes in procedures. My expertise is in helping leaders be proactive and adapt their response to threats they face. Together with a great team of specialists we help government, telco, and retail clients improve their fraud prevention and detection practices. We support them on management, enrichment and better use of their data to find the needle in the haystack. We guide them on how to filter the “need to have” from the bulk so they can set priorities to their most valuable assets, their teams. We believe everything you need is in your data; you just have to make it visible.

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