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Tax Crime - Overview

There is no consensus about a common definition of tax crimes, as each system has its own legal meaning. Broadly speaking, tax crimes can be defined as behavior committed in breach of tax laws and punished through criminal sanctions in a legal system. Depending on the legal system, tax crimes may also give rise to the liability of legal persons

The concepts of tax crime, tax evasion and tax avoidance should not be confused. As argued by the Organisation for Economic Co-operation and Development (OECD), in its Glossary of Tax Terms:

•    Tax evasion “is generally used to mean illegal arrangements where liability to tax is hidden or ignored, i.e. the taxpayer pays less tax than he is legally obligated to pay by hiding income or information from the tax authorities.”

•    Tax avoidance “is generally used to describe the arrangement of a taxpayer’s affairs that is intended to reduce his tax liability and that although the arrangement could be strictly legal it is usually in contradiction with the intent of the law it purports to follow.”

Although tax evasion and tax avoidance are difficult to measure, current data on these illegal and/or unethical practices reveals that astronomical sums of money are diverted from state coffers each year. In 2017, Tax Justice Network pointed out, for example, that “current data and research suggest global, annual tax losses of $500 billion or more. This represents over 20% of corporate tax revenues.”

Generally, tax evasion is punished as a tax crime. However, there are cases where the level of tax evasion is so low that governments prefer not to criminalise tax evasion but only provide for administrative sanctions. Tax avoidance is generally not punished with criminal sanctions, although there is a significant debate on the need for criminalisation because of its effects on the economy and society. Aggressive tax planning leads to base erosion and profit shifting with harmful competition between jurisdictions and consequent impacts on tax development, especially in developing countries. It should be borne in mind that measures have been introduced to prevent and combat tax avoidance at the national and international levels (e.g., OECD BEPS project).

Legal frameworks to counter tax crimes perpetrated by natural or legal persons – as showed by the OECD – are variable. Policymakers, tax administrations, whistleblowers, enforcement authorities, external and internal auditors, compliance officers, judges and other public and private authorities play a crucial role in tackling tax evasion. Each actor is a key pawn in the chess game against fraudsters. The lack of enforcement against tax evasion committed by citizens and companies is one of the central issues. New solutions, both legal and non-legal, such as technology, need to be identified.

Although it is widely thought that tax crimes are victimless offences, evading taxes means cheating oneself and others. Tax crimes are economic offences that impact public financial interests and reduce revenues for states, consequently having fewer resources to spend on public services for citizens, including public safety, public health education, and infrastructure.

The Corporate Crime Observatory aims to, among other things:
•    monitor tax crimes committed in the context of business by focusing on case law developments on a global scale; 
•    monitor developments about international, regional and national legal frameworks to counter tax crimes;
•    observe developments in the field of aggressive tax planning, tax havens, tax avoidance and, above all, the debate on the criminalisation of such practices;
•    assess whether states are effectively implementing substantive and procedural rules to combat tax crimes, in light of internationally developed principles (e.g., OECD Ten Global Principles);
•    stimulate debate on the protection of fundamental rights in investigations and on the protection of whistleblowers, leakers and journalists in such investigations;
•    advance the analysis of the interconnections between tax crimes and other offences, including corruption and money laundering, and identify solutions developed in legal systems around the world;
•    assess the role of professionals in controlling tax crime and facilitating tax avoidance and evasion practices.

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The Corporate Crime Observatory has established a partnership with the project VIRTEU,(Vat fraud: Interdisciplinary Research on Tax crimes in the European Union) which is a high-profile legal research project that includes both comparative and interdisciplinary studies, funded by the European Union under the HERCULE III program (Grant Agreement no: 878619). The research project, coordinated by the Principal Investigator Dr. Costantino Grasso, aims at exploring the interconnections between tax crimes and corruption so to unravel the intimate relationships that exist between fraudulent and corrupt practices in the area of taxation. Under the terms of the partnership, the Corporate Crime Observatory will serve as the repository of the most relevant research outcomes enhancing their visibility and dissemination.   

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