Tax evasion is costing the European Union around 1 trillion euros ($1.25 trillion) every year, claimed a draft statement from the European Commission that was obtained by Reuters on Monday, with regulators set to introduce multiple steps designed to curb rampant tax fraud across the region.
According to the European Commission, as cited by Reuters, the 27-nation EU badly need higher tax revenues in order to service their spiralling public debts, which in turn has been causing weakened consumer and investor confidence both internally and externally.
"In the current economic climate, Member States need every euro that they are due for fiscal consolidation and to rebuild their economies," wrote the draft statements from the Commission, which are due to be released on Tuesday.
The drafts added that "member states have, in some cases, almost reached the limit in the expenditure they can cut and taxes they can raise, while honest taxpayers must carry the burden of austerity,” and that “an estimated 1 trillion euro is being lost from public finances due to tax evasion and avoidance.”
As such, the Commission is set to call for the 27-nation bloc to boost cooperation between EU countries in fighting tax fraud.
Among the steps the European Commission will propose include better exchange of information on tax evasion among countries, more pressure on tax havens outside of the EU and simplification that would make it easier to comply with tax laws.
The EU also already has a savings tax directive, which allows governments to tax those who earn in one EU country, but keep their savings in another. In line with their new initiative, the EU has also signed similar saving tax deals with prominent European havens such as Switzerland, Andorra, Monaco, Lichtenstein and San Marino, and are in discussions with Singapore, Hong Kong and Macau as well.
"Well-known and marketed financial centres with strong banking secrecy laws continue to dominate the international cross-border deposits market," the Commission draft statement said.
"Cayman Islands and Switzerland alone, with a total of USD 1,352 billion deposits by non-banks represent almost 20 percent of all worldwide deposits by non-banks," the Commission added.
In addition to tackling tax evasion, the European Commission may also seek to tax the burgeoning shadow economy in the region, whose size is estimated to be around 20 percent of the region’s GDP. If the estimates are accurate, Europe’s shadow economy could be worth around 2.425 trillion euros.