Taking on a taxing challenge Tax crimes cost governments large sums of money every year and undermine public faith in the system, so countering them is a major priority across Europe. Researchers in the PROTAX project have worked together with stakeholders to develop effective toolkits for the investigation and prosecution of tax crimes, as Professor Umut Turksen explains. The American writer Benjamin Franklin once said that death and taxes were the only two certainties in life, and while we can’t avoid the former at some point, many individuals and companies put a lot of effort into avoiding the latter. While there are legal routes to reducing tax bills, tax evasion and related avoidance conduct are illegal and continue to cost governments across Europe large sums of money every year, a topic at the heart of the EU-backed PROTAX project. “Nobody wants to pay more tax than they have to, but when the law prohibits an activity, how can we then enforce that more effectively? How can we change behaviour?” says Professor Umut Turksen, the project’s Principal Investigator. An additional focus in the project’s research is on the operational aspects of how law enforcement agencies work, the powers they hold, and how they can share information and cooperate at EU level effectively. “We work with financial intelligence units, the judicial authorities and tax authorities, as well as economic crime units within police forces. They are effectively our stakeholders,” continues Professor Turksen.
PROTAX project Researchers have worked together with these stakeholders to build a deeper picture of tax crimes in different countries, looking at several case studies, holding workshops and assessing the different approaches that are taken to investigating them and enforcing the law. Tax crimes are often highly complex, so Professor Turksen says it’s important to consider the context in which they occur. “PROTAX has found that enablers – tax professionals such as bankers, tax advisors, asset managers and accountants – often have competing legal and ethical obligations placed upon them in the course of their work,” he explains. “On the one hand, enablers have obligations to maximise their client’s financial interests. On the other hand, however, they are duty-bound to inform financial authorities of wrongdoing and participate in strategic policymaking to reduce tax crime. This contributes to the complexity of tax crime and demonstrates the need to address
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• Situation calling for action. Risks relating to terrorists and criminals seeking to pursue destructive and malicious ends against the pillars of the single market and the opportunities for prosperity.
PROTAX - a research platform seeking to rise to the call of countering the risks associated with tax crimes.
• The research and innovation intervention.
• Horizon 2020 featuring investment in research and innovation as essential for Europe’s Europe 2020 strategy for smart, sustainable future.
and inclusive growth and jobs - presenting tools to counter the risks.
Tax crimes and other financial crimes presenting critical threats to EU’s economies.
Toolkits This research is part of the wider objective of dealing with tax crime more effectively and a number of toolkits have been developed in the project, which identify best practice and international standards. One example is a policy toolkit for EU Member States on how to improve policy and law on countering tax crimes, while Professor Turksen and his colleagues have also developed further toolkits. A second, very practical toolkit is designed for tax enforcement agencies. “We’ve created something called a tax fraud investigation framework. The first part of that toolkit is about the EU legal framework, and then the second part is tailored more to the national legal system,” he outlines. Another important outcome of the project centres on
• Need for targeted intervention.
in collecting tax for example, or an otherwise viable business has made a deal to defer taxes because they are in temporary financial difficulties, so it’s difficult to get a clear picture. “Simply looking at the tax gap is not going to tell you how serious the problem is, and tax crime is very difficult to measure. So this is one of the major challenges we face,” outlines Professor Turksen. As part of the project, Professor Turksen and his colleagues have analysed publicly available data from several countries across Europe, looking at not only the definitions of tax crimes but also statistics on prosecution and conviction of tax crimes in several jurisdictions. However, Professor Turksen says there is currently no firm basis to then compare data that have been gathered in different countries. “Each country collects and collates information differently. Something may not be recorded as a tax crime in one country while it is in another,” he explains. This points to a need to improve how tax crimes are recorded, while researchers are also considering the enforcement
EU Research
PROTAX New Methods to PRevent, Investigate and Mitigate COrruption and TAX Crimes in the EU Project Objectives
PROTAX seeks to unravel the nature and legal frameworks of tax crimes and money laundering, and investigation and prosecution tools - focusing on producing toolkits and additional guidance to improve and harmonise EU-wide action against tax crimes and cooperation and information sharing between all actors involved in different European jurisdictions.
Project Funding
The project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 787098.
Project Partners
Nobody wants to pay more tax than they have to, but when the law prohibits an activity, how can we then enforce that more effectively? How can we change behaviour?
PROTAX in support of societal security in the EU.
the environment in which tax crime occurs, not only to consider whether the correct laws are in place.” The project’s agenda also includes research into sometimes neglected issues, such as what Professor Turksen calls operational learning. “If a particular officer is involved in a tax evasion case, how did they then use that experience and the knowledge that they gained? If they were unsuccessful, did they record it? Why were they unsuccessful, can they learn from it? If they were successful, what contributed to that success, what were the important factors?” he outlines. Tax crimes are not always easy to detect in the first place; one way of assessing the extent of the problem is by looking at what is called the tax gap. “You look at how much tax should be collected in a financial year, and then you look at how much the revenue has actually collected,” explains Professor Turksen. A discrepancy may not be entirely attributable to tax crime however, as other factors may also be involved. It could be that the tax authority is simply not that efficient
of tax policy, where there is still often a perception that large companies are treated more leniently than smaller businesses and employees when they do break the rules. “In some cases, the authorities might agree not to prosecute a company if they pay a large fine. The authorities might then agree to inspect them again in future to ensure that they are in compliance,” outlines Professor Turksen. The process of prosecuting tax crimes is also often very slow, and it can be delayed and frustrated, another area of interest in the project. Researchers have looked at the point at which a tax crime becomes a criminal offence as opposed to a civil and/or administrative offence, which changes the nature of a prosecution. “Different types of
evidence are required to convict someone under criminal law, so it is by nature more intense than a civil case. In some countries there may be a threshold of say 40,000 Euros before they criminalise it,” says Professor Turksen. An individual or company engaging in tax crimes may then choose to locate themselves in a country where they are less likely to face prosecution, or where the threshold is much higher, which they can do with relative ease within the EU. “The freedoms available to EU citizens enable ease of financial transactions, as well as the free movement of people,” continues Professor Turksen. “This is also a strength as there are many commonalities and established frameworks for information-sharing.”
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risk assessment, and identifying vulnerabilities in terms of a country’s approach to dealing with tax crimes. “Each country is different. A country might have a gap in its legal system, or in training personnel, or in protecting whistle-blowers and journalists,” says Professor Turksen. The feedback on these toolkits so far has been extremely positive, and Professor Turksen believes they will bring tangible benefits to tax authorities. This research has already encouraged some countries to adopt a more rigorous approach to dealing with tax crimes, while Professor Turksen hopes the project’s findings will help to improve practice over the longer term. “I’m very hopeful that our research will have a significant impact beyond the project’s funding term,” he says.
There are a total of 9 project partners. For full details please see below link: • https://protax-project.eu/partners/
Contact Details
Project Coordinator, Professor Umut Turksen Professor of Law, Centre for Financial and Corporate Integrity, Coventry University, United Kingdom T: +44 7530 832350 E: Umut.Turksen@coventry.ac.uk W: protax-project.eu • European Commission, Horizon 2020 in brief: The EU Framework Programme for Research & Innovation (European Union, 2014), p.7. Available at: https://ec.europa.eu/ programmes/horizon2020/sites/horizon2020/files/H2020_ inBrief_EN_FinalBAT.pdf (Accessed 19 October 2020). • PROTAX, ‘Law in Action: unpicking the contradictions that facilitate tax crime’ (18 March). Available at: https://protaxproject.eu/law-in-action-unpicking-the-contradictions-thatfacilitate-tax-crime/ (Accessed 19 October 2020).
Professor Umut Turksen
Umut Turksen is a Professor in the Faculty Research Centre for Financial and Corporate Integrity at Coventry University in the UK. He is interested in the practical application of the law in innovation, societal security and development. He has published several articles and books on energy, financial crime and international trade and economic law.
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