Tax governance: how the EU supports third countries

Andrea Raimondi,Daniel Buda,Sorin Cristian Niţă,Maria Pistalu

doi:10.2478/picbe-2021-0092

Abstract

Abstract This paper aims to provide an analysis of the legislative framework that regulates the inclusion of clauses on good governance in tax matters, in the agreements concluded between the European Union, with its Member States, and third countries. We provide a representation of the regulatory pathway from a set of standards on tax good governance according to the principles of transparency, exchange of information and fair tax competition towards a common EU external strategy for effective taxation. Agreements that the European Union has either in place or negotiating with countries and regions around the world are an excellent tool in fighting unfair trade practices and promoting international standards on good governance in the tax area, and set the basis for a fair competition in the economy of developing countries: a strong tax administration and institutions responsible for fighting illicit financial flows in developing countries can contribute to erase poverty and inequalities while promoting good governance and state-building.

Highlights

According to the Organisation for Economic Co-operation and Development (OECD), at the end of 2008 the world’s tax havens attracted between five and seven trillion dollars (USD) in assets, “ the degree of secrecy surrounding these accounts makes it difficult to determine exactly just how much is located in these individual jurisdictions.” (European Commission, 2009)
The purpose of this paper is to provide a general representation of the measures which regulate tax governance criteria in bilateral and EU agreements with third countries; for this reason, we will not deepen the aspects included in the Anti-Tax Avoidance Directive, but rather consider the new provisions on the implementation of measures against tax treaty abuse and an external strategy for effective taxation promoted through the Directive (European Council, 2018)
Analysing the most recent agreements concluded by the EU with third countries, we found out that the Framework Agreement with South Korea and Partnership Agreements with Japan and Canada include tax governance provisions based on the 2008 criteria on transparency, exchange of information and fair tax competition, along with provisions on avoidance of harmful tax practices

Summary

Introduction

According to the Organisation for Economic Co-operation and Development (OECD), at the end of 2008 the world’s tax havens attracted between five and seven trillion dollars (USD) in assets, “ the degree of secrecy surrounding these accounts makes it difficult to determine exactly just how much is located in these individual jurisdictions.” (European Commission, 2009). Promoting fairness and transparency in tax systems ensures stability of financial markets and strengthens the cooperation between the European Union and third countries. The need to promote good governance through international rules on transparency in financial matters, and administrative cooperation in the tax area, including trade agreements (European Commission, 2009). Good governance in tax matters is an important pre-condition for preserving the integrity of the financial market and sets out actions against non-cooperative countries that refuse to apply provisions on transparency, exchange of information and fair tax competition. Though sanctions were deployed to protect the EU financial system, there are still certain third countries that are not cooperating and instead continue to make use of practices leading to the proliferation of tax havens; for instance, the use of special regimes in order to attract businesses. Though sanctions were deployed to protect the EU financial system, there are still certain third countries that are not cooperating and instead continue to make use of practices leading to the proliferation of tax havens; for instance, the use of special regimes in order to attract businesses. (Herkenrath, 2014; Hoinaru, 2017; Hoinaru et al 2020)

Objectives

Conclusion