On the 29th of January 2021, it was held the first session of the VIRTEU Roundtable Discussion Series, focused on “exploring the interconnections between tax crimes and corruption“. VIRTEU (Vat fraud: Interdisciplinary Research on Tax crimes in the European Union – Grant Agreement no: 878619) is a high profile legal research project funded by the European Union, which aims at exploring the interconnections between tax crimes and corruption to unravel the relationships between fraud and corrupt practices in the area of taxation.
The series has been organized by VIRTEU Special Adviser Prof. Diane Ring, who is Associate Dean of Faculty, Professor of Law and Dr. Thomas F. Carney Distinguished Scholar at Boston College Law School, the project Principal Investigator, Dr. Costantino Grasso, who is Assistant Professor of Law at Coventry University and Editor-in-Chief of this Blog, and the Co-Investigator, Dr. Lorenzo Pasculli, who is Associate Head for Research at Coventry Law School.
The first session, which was chaired by Prof. Diane Ring, enjoyed the participation of two world-leading experts in the area of taxation, Prof. Rita de la Feria, who is Professor of Tax Law at the University of Leeds as well as International Research Fellow at the Oxford University Centre for Business Taxation, and Prof. Pasquale Pistone, who is Associate Professor of Tax Law at the University of Salerno as well as Academic Chairman of International Bureau of Fiscal Documentation (IBFD), and VIRTEU Leading National Expert for the United Kingdom, Dr. Branislav Hock, who is Senior Lecturer in Economic Crime at the University of Portsmouth.
Summary of the Roundtable (by Mairi Laird)
Dr. Costantino Grasso opened the session welcoming the participants and illustrating VIRTEU research project as well as its methodology. In particular, he highlighted how tax corruption is a subtle, pervasive, and dangerous criminal phenomenon, whose dynamics are still obscure and that has not been yet systematically explored. He then explained that VIRTEU research tries to investigate these illicit practices from both a phenomenological and legal perspective adopting at the same time an interdisciplinary approach aimed at casting light on and propose solutions to counter them.
After the opening, Dr Lorenzo Pasculli offered an introduction to the topic. Specifically, he explained that there is a need for theorization of the relationships between fraudulent and corrupt practices in the area of taxation from a socio-legal perspective. He then illustrated the main issues on which VIRTEU Core Research Team focuses: the definitions of tax evasion, tax avoidance and corruption; the observation of the relating criminal phenomena; the examination of both the immediate and remote causes of corruption.
It followed the Roundtable Discussion session chaired by Prof. Diane Ring, who started asking the panelists the general question of where do they think the interconnections between tax fraud and corruption lie. This was answered first by Dr. Branislav Hock, who looked at corruption and proposed to use that as a framework to interpret fraudulent practices and understand the difference between tax evasion and honest tax planning. Prof. Pistone continued by considering the definition of corruption as dishonest conduct of public officials, with corruption and collusion related to conspiracy. He opined that the competitor for each state was other states, as companies sought to gain an advantage, and how multinational enterprises exploit the difference between tax avoidance and evasion, as well as the lack of a global framework. Then, Prof. de la Feria looked at tax fraud and corruption from the perspective of the actors in context, from individuals to enterprises. She touched on the leaks of the various ‘papers’ for example, the Panama Papers, and how they show the links between the perpetrators of tax fraud and corruption at an institutional level, and further to the facilitators of tax fraud, with a need for investigation of how professionals get involved in facilitating tax fraud. She also expressed that public opinion has an impact on tax morale and influences general tax compliance.
Prof. Ring then stimulated the discussion by asking the panelist to explore what in society gives the potential for systemic corruption, what are the relationships behind the scenes, and what are the biggest drivers when there is systemic corruption. Dr. Hock explored the relevant criminological aspects, using the example of an individual paying a bribe and trying to hide that as a legitimate business expense. Theories of rational choice theory come into play. In addition, he highlighted how in multinational enterprises criminal behavior could be driven by the competitive motivations of the managers, which gives issues of corporate compliance. Prof. Pistone expressed the view that some fields of business are flooded with tax fraud, for example, SMEs in the computer selling marketplace, and there is a danger that if a business doesn’t engage in tax fraud it will be forced out of the market. The situation becomes a vicious circle between tax evasion, tax avoidance, and corruption. He was of the opinion that this was fuelled by the inability of legislators to address the problems, with often the cheapest solution for an enterprise being to bribe officials. Prof. de la Feria focused on the systemic problem whereby the symptoms of corruption are addressed, but the causes are not. She referred to several potential causes including the weakness in the applicable legislation that may give an opportunity for tax fraud, tax evasion, and corruption. From her perspective, there is a necessity to design the legal framework so that it gives rise to a minimal propensity to fraud.
Prof. Ring then asked the question of how policymakers should approach the role of professionals in enabling tax fraud and what steps could be suggested to policymakers. Prof. Pistone affirmed it was necessary to understand where the incentives came from and explained that the UK was the master of increasing reporting obligations on intermediaries, which was not always a good thing. He also stressed how artificial intelligence may play a key role in the detection of potentially corrupt or fraudulent behaviors. He also said that there is a need for a common framework for tax fraud, corruption, and money laundering with the interaction between them. Dr. Hock discussed the fragmentation of the anti-tax evasion approach, the lack of cooperation transnationally, as well as the overlap of offenses, using the example of bribery, tax fraud, and books and records charges. He also looked at the criticism leveled at HMRC in the UK in terms of their enforcement of bribery cases. Prof. de la Feria viewed VAT fraud as a mobility crime in that it is predicated on the movement of goods, with capital and people and goods being mobile, and thus the crime being on a global scale, which needs an integrated global approach.
A short Q&A session then followed, where questions relating to morality and the immoral versus the illegal definitions and a question about Brexit and the implications of it, which the panelists thought would lead to a growth of VAT fraud, with the relationship of Northern Ireland being particularly problematic. A question of investor citizenship schemes was then raised, with reference to Cyprus specifically, with the view being expressed that these sort of schemes will not be around for much longer. The last question focused on the need for transnational definitions, and the weakness of enforcement, as well as the high secrecy levels in some European tax havens and the consequences for VAT.
At that point, the discussion closed. The roundtable was a great success, with an interesting, high-level but practically-focused discussion around the drivers for VAT fraud and corruption. Clear themes around the lack of agreed definitions, as well as the international nature of the problems and the issues of professional enablers, were teased out and provide clear signposts for future work.