Tax administrations implement tax law. Their main task is to deal with taxpayers and collect the right amount of tax. The most significant taxes governed by national and/or EU tax law are: Value Added Tax (VAT), Corporate Income Tax and Personal Income Tax.
Taxation in the EU
Tax administration is a competence of EU countries, yet it is relevant for the EU itself. Tax administrations are key players in ensuring a level playing field in the Single Market because any failure to comply with tax obligations - especially tax fraud - has a distorting effect on competition.
Equally, the ease of paying taxes and being compliant contribute to the competitiveness of European companies, while predictability and legal certainty encourage investment.
All tax administrations are confronted with a growing complexity of tax systems, new economic models, changing relationships with taxpayers, emerging digitalisation, data and technology and, recently, the COVID-19 pandemic. Thus, tax administrations in the EU have an important role to play in the internal market and need to be performant to overcome challenges of all kinds.
Tax administration in the EU
Tax administrations of EU countries are integrated into, subordinate to the Ministry of Finance or organised as separate agencies. In almost half of the EU countries, tax and customs authorities are merged. In total, EU national tax administrations have around 450,000 employees.
They collect, on average, 60% of the total government revenue, with significant variations among Member States (29 % to 94 % - OECD data). Tax administrations are also in charge of collecting the so-called EU own resources for the EU budget via VAT.
Quality of tax administations
Several tools are available for tax administrations to evaluate their performance, such as the Tax Administration Diagnostic Assessment Tool (TADAT).
The tool is designed to provide an objective assessment of the health of key components of a country’s tax administration system. The result of such an assessment reveals the areas where a tax administration should take action to improve its performance.
EU initiatives on tax administration
Tax administrations can make use of various EU tools to design, implement and support reforms. The Commission actively supports Member States’ tax administrations in these endeavours.
The Fiscalis Programme is designed to facilitate and finance collaboration and the sharing of good practices as a way to increase efficiency and effectiveness in tax administrations.
The Tax Administration EU Summit (TADEUS) is an informal forum for leaders of EU countries’ tax administrations. Through TADEUS, the heads of EU tax administrations discuss their needs and reforms, and work on common projects to improve performance and operational cooperation.
The Technical Support Instrument (TSI) is an EU support mechanism that provides tailor-made technical expertise to EU countries’ tax administrations seeking to design and implement reforms.
The Recovery and Resilience Facility (RRF) has been key in helping EU countries mitigate the economic and social consequences of the COVID-19 crisis. It supports, among others, the digitalisation of tax administrations.
Recent EU activities
The Compliance Risk Management (CRM) Guide is a handbook for EU tax administrations, recently revised to better position compliance risk management in the digital era. The guide outlines the pillars of CRM strategies, from influencing taxpayer behaviour and optimising the use of data and technology, to the overall CRM process.
Compliance Risk Management Guide for Tax Administrations
The CRM Capability Maturity Model is a tool enabling tax administrations to assess and understand their current CRM capability maturity levels, define what level they want to achieve, identify the gaps, set objectives, and identify and prioritise actions for key improvements, all with the aim of increasing taxpayer compliance and preventing non-compliance.
Note: There is also an electronic tool designed for using the CRM CMM. It is self-guided and supports the application of the model. The electronic tool is only available to authorised people, e.g. through national contact person for risk management.
Compliance Risk Management Capability Maturity Model
The Outcome Measurement Tool in Compliance Risk Management is an instrument that delivers a ‘standard’ for outcome measurement. It enhances a given CRM strategy by helping to describe if and to what extent the tax administration, by its actions, has achieved the desired objectives.
The tool sets out the place of outcome measurement within a coherent evidence-based compliance risk management strategy, examines the strengths, weaknesses, opportunities and threats (SWOT) of outcome measurement and provides practical guidance on how to start.
The report contains numerous examples of the measurement of outcomes on various levels within a tax administration (strategic, tactical and operational).
Outcome Measurement in Tax Administration
The Strategic Guidelines on Trust Building in Tax Administrations (2020) was formulated to reinforce trust-based strategies in the different EU Tax Administrations. A high degree of trust in a national tax administration comes with a higher degree of voluntary taxpayer compliance.
Ensuring trust-enhancing organisational processes and working procedures and initiatives is key to fulfilling a tax administration’s strategic objectives. The 9 thematical guidelines offer a non-exhaustive list of recommendations for tax administrations to improve internal and external trust.
The devoted website refers to the theoretical evidence in the field of tax compliance and draws up illustrative examples of trust-oriented practices across the EU-members states’ tax authorities.
The EU AIAC Community was established to support and promote the use of Advanced International Administrative Cooperation (AIAC) through a strong network of experts.
Multilateral controls (MLC, a term covering both simultaneous controls and joint audits) and Presence in Administrative Offices and Participation in Administrative Enquiries (PAOE) help tax and customs officials deal with complex cross-border arrangements and complicated cases of tax fraud, tax evasion and tax avoidance in VAT, excise duties, and direct taxes.
Even tax recovery efforts can be supported by a PAOE. The EU AIAC Community sets out to assist the tax and customs administrations by, among other things, creating promotional materials to help spread knowledge about AIAC instruments and their benefits, both for national administrations, and taxpayers.
The video provides a general introduction to AIAC, a basic knowledge which might be further broadened by taking an e-Learning course, available only to tax and customs officials.
Further education and sharing of experience and good practices are provided by the EU AIAC Community, through its members, to the national administrations of EU Member States. The activities of the community are supported by the Commission and the Fiscalis programme.