The crisis in financial administration is the crisis of social justice
Charter for the financial administration authorities in Europe
Table of Contents
- Analysis of present situation
- Seven-point plan for strengthening
financial administration in Europe
"In awareness of the historic importance of the need to overcome the division of the European continent and the necessity to create a firm basis for the structure of the Europe of the future" are the fine words of the Maastricht Treaty that show the way forward to the "European Union" with equal living conditions and opportunities for all the citizens of Europe. This way forward spans economic and monetary union, which should be in place on 1 January 1999 with the introduction of the common European currency, the "Euro".
1. Economic and monetary union, as the material foundation for the Europe of the future, will only give rise to hope and future prospects if the free trade of goods, services, and capital proceeds on the basis of social justice.
Two prerequisites need to be fulfilled here: A uniform framework needs to be created for the structure of a taxation system in which everybody is called upon to contribute uniformly to the tax burden in proportion to their economic ability. This would be a major step along the road to a fairer taxation system, and thus to social justice. (cf. page 5 of this Charter.) A fully functional and efficient financial administration authority must create the foundations for its implementation in taxation practice.
2. The free market economy is likewise not a ruthless market economy, or one of "Manchester capitalism". Without the term "social" it has no roots in a social state based on the rule of Law. It can only flourish if the free forces of the market operate on the bedrock of social justice.
3. European societies are still far from this goal, and further away in some countries than in others. In many countries, the gap between rich and poor is growing; while there are nearly 20 million unemployed in the EU, there are top-level earners in many branches of the private sector.
The link that joins the two poles - an economically efficient body of small and medium-sized enterprises, to which public service also belongs - is growing steadily weaker. This is putting pressure on social peace. Demonstrations in many European capitals, and particularly the march by the European trade unions against unemployment, have provided particularly impressive proof of this fact.
When the shares of companies that cut down on jobs most drastically and demolish their employees' working conditions shoot up, this cynical mechanism of the stock exchanges (so-called shareholder value) will endanger social peace to a particularly threatening extent.
If tax revenues continue to fall because more and more profits are being exported to low-taxation regions all over the world, if taxpayers with plenty of financial room to manoeuvre can exploit perfectly legal tax loop-holes and reduce their tax liability to zero, if the profiteers from economic and tax crime can make a lucrative income, these all represent alarming challenges for the social state based on the rule of Law.
4. It is with growing unease, indeed alarm, that the UFE observes how the structural crisis in European financial administration (tax and customs administration) has also led to a crisis of social justice. Because: social justice can only develop if a kernel of social justice is guaranteed, meaning uniform taxation not only in the form of tax and customs laws but also in the enforcement of the law.
A just taxation system in this sense calls on everybody to pay taxes uniformly, in accordance with their individual economic performance, creates the conditions for effectively combating tax and economic crime, enabling a lower general level of taxation. Social justice and tax justice belong together. They are the foundation stones of a stable system of financial law based on clear principles.
5. The financial administration authorities are therefore the pivotal point in the European integration process. The personnel who work in them all over Europe are aware of their role and function in creating, within a social state based on the rule of Law, a fairer society through fair taxation.
The employees in financial administration in Europe are resolved to contribute towards fairer taxation in the fight against economic and tax crime. They stand side-by-side with honest and punctual taxpayers, and are "in the same boat" with them, because honest taxpayers have to pick up the bill, in the form of a heavy, indeed a confiscatory, tax burden, for tax and economic crime.
The representatives of European financial personnel assembled in Bonn, organised in solidarity in the Union of the Finance Personnel in Europe (UFE), are expecting effective support from the politicians responsible for financial administration at the national and European level on the two following bases:
an honest and truthful analysis of the state of European financial administration authorities and, based on this
a complete and plausible plan of action for dealing with the recognised shortcomings, strengthening the efficiency of the financial administration authorities, and enabling the employees to fulfil their important tasks. In awareness of the foregoing, the Committee adopts the "Charter for the financial administration authorities in Europe" in Bonn on 9 September 1997.
Tax laws, including customs laws, are increasingly complicated because every conceivable aim a state may set itself is meant to be achievable through tax law. The flood of rules and regulations with which European tax administration authorities are being swamped is growing larger and larger, not only because of tax laws as such but also because of a whole sub-culture of ordinances, guidelines, decrees, and adjudication.
In addition, the influence of Community law on top of national tax law is growing ever greater, and this is making national tax laws even more complicated. The Single European Market and Economic and Monetary Union will further intensify this trend.
"Tax dumping" is taking on ever greater dimensions. Transferring profits to low-taxation regions is resulting in a major loss of tax revenue in those countries in which the economic activity actually takes place, and this is distorting competition.
Even more importantly, "tax dumping" is acting as a brake that prevents greater social justice.
This is because, as a consequence, more of the tax burden is falling on the less mobile part of the tax base, namely labour, and this in turn means ever heavier taxation for those employed.
The internal European market, which came into effect on 1 January 1993, has led to a worrying increase in tax crime, particularly the VAT tax rule known as the "country of destination" principle (under which VAT is levied from the member state on whose territory the goods or services being sold are finally "consumed").
The work that has been done smoothly at borders by customs offices has now been transferred to the local tax authorities within each country, which requires time and effort in obtaining information and exercising control for which the tax authorities are simply not equipped.
Complicated rules have had to be introduced for determining the place in which taxable turnover arises. There are currently at least 25 different rules on determining the place in which turnover is taxable, which means an enormous administrative cost both for companies and for financial administration authorities.
All in all, the "country of destination principle" leaves the door wide open for tax and economic crime, including its worst form, "riding-the-roundabout" fraud.
By splitting up the economic activity between a number of member states, none of them is in the end able to exercise total control over the business activities of any one company or to make sure that the taxes and charges it is levying are right and lawful. The "roundabout" alone is causing losses in tax revenues running into tens of billions.
The alarming fact is:
European tax administration authorities are no longer able to exercise their financial-control function. They are unable to draw on the existing sources of taxation. Everywhere - and the situation is worse in some places than others - enormous gaps in personnel cover are emerging. As a general rule, staff numbers are being reduced even though the volume of work is growing steadily.
The inadequate level of staff in customs administration authorities is resulting in substantial difficulties in combating economic crime, and even making it impossible in some cases. For instance, because of lack of personnel it is not possible to maintain the inspection quotas prescribed for the EU market organisation, and national export regulations are being violated by internal transport movements which customs administration authorities are unable to check.
Cigarette smuggling alone, for instance, according to an estimate by the European Court of Auditors, is causing Germany tax revenue losses every year of almost DM 3 billion.
As another important point, shortages of every kind in customs administration are causing security short-comings in the EU member states.
This all represents an excellent breeding-ground for the boom in economic and tax crime, which is coming ever closer to organised crime, and which the European financial administration authorities can do nothing to oppose.
The share of European national economies accounted for by this parallel economy, according to the Institute of Higher Studies in Vienna, is between 10 and 20 percent of GDP. The proportion has doubled since 1970 in EU countries, at the same time as many EU member states have been grappling with gigantic budget deficits. It is estimated that, within the EU, tax revenues are being foregone totalling at least 300 billion ECU.
Social solidarity will collapse if some people escape their tax obligations and others are burdened with taxes far beyond their economic capacity to pay. Thus honest taxpayers are picking up the bill for tax crime and the parallel economy.
It is infuriating, in social policy terms, to see on the one hand conditions of employment in public service being demolished and, on the other hand, tax and economic criminality of enormous proportions being actively promoted and the existing sources of taxation being left untouched.
- to strengthen financial administration in a united Europe
- to ensure that it is capable of functioning
- to benefit the honest and punctual taxpayer
- to protect the consumer of products in international trade
the UFE calls on responsible politicians in Europe to ensure that the European financial administration authorities are able to fulfil their important tasks in the European internal market and in economic and monetary union.
1. The structure of tax laws should be harmonised and the opportunity utilised at the same time of considerably simplifying tax law. Also, and in particular, taxes on income from capital assets should be harmonised in order to reduce the tax concessions on cross-border savings and to guarantee freedom of movement in a unified capital market. "Tax dumping", which distorts competition and limits the free movement of goods, services, and capital, needs to be countered.
2. Personnel planning should be based on the increase in the work needing to be done, and first of all on a work analysis. The main criteria should not be "spreading shortages evenly" but on the personnel requirement as the guiding principle for the approval of additional staff given by budgetary legislation.
3. Financial administration authorities need to be able to compete for personnel in the community against the private sector and the tax-consultancy professions, and this should be brought about through:
- more attractive conditions of employment
- correct assessment of the "market value" of employees in European financial administration
- better prospects for the future
- life-time employment, in order to ensure employees' inward and outward independence.
4. There should be more exchange of personnel between EU member states. Effective co-operation can only be achieved and encouraged if the employees in tax and customs administration acquire not only the necessary knowledge of Community law but also of the tax and customs law in other EU member states, and can explain the administrative organisation to others. This should apply not only in theory but also in practice, by giving employees the opportunity to undertake a tour of duty in other EU member states.
The main priority here should be the "Matthäus Tax Programme", as is already being practised in the field of indirect taxation and could be extended to cover direct taxation as well.
5. The FISCALIS programme of the EU Commission is a step in the right direction towards combating abuse in the field of Value Added Tax. It should include not only the exchange of VAT information already provided for but also seminars and multilateral monitoring exercises, a training programme for introducing the FISCALIS programme, and the necessary translation service.
The programme should be finalised as soon as possible, and the UFE should be involved in all phases of its creation and further development.
6. A European Customs Investigation Office should be set up to co-ordinate the work of the various European customs administration authorities in order to fight tax evasion and organised crime. It should ensure a uniform approach to combating customs crime and optimise the efforts of the individual customs administration authorities.
In addition to this, co-operation is required in general customs work through a separate EUROCUSTOMS European administrative authority.
7. The necessary consequences should be drawn from the EU's "Customs 2000" programme of action. The European aim, which has also been defined by the European Parliament’s Committee of Inquiry in light of irregularities in despatch procedure, has to be uniform customs administration all over Europe.
To this end, the customs administration authorities in Europe must "develop towards" one another. This applies particularly to information technology and the standard for administrative action.
This endows basic and advanced training with crucial significance. For this reason, the employees in customs administration raise the demand, in order to guarantee uniformity in administrative action, for the creation of a European Customs Academy with full responsibility for basic and advanced training. This Academy should be set up in an EU country which already has a high standard of basic training and also has teaching staff available for all areas of activity and career paths within EU customs administration, and should for example also have its own university-level teaching institution.
The UFE, as the representative organisation for employees in European customs and tax administration, should be involved immediately and to the appropriate extent in the implementation of the "Customs 2000" programme of action and its finalisation and further development, which the UFE considers to be urgently necessary.
The UFE appeals to the competent politicians in Europe:
- Ensure that tax laws (customs and all other taxes) are simplified and harmonised in their structure, and that "tax dumping" is prevented.
- Ensure that the existing sources of tax revenue can be drawn on by an efficient tax administration organisation (for customs and all other taxes).
- Ensure that tax and economic crime is combated energetically, as it is causing annual losses in tax revenue running into hundreds of billions.
- Ensure that budget deficits are reduced by drawing on tax-revenue sources and that financial room for manoeuvre is created for investments and for combating the oppressive and threatening level of unemployment.
- Ensure that in this way a fairer society is created through a fairer tax system, and that social peace can be maintained.