WP2 – Regulatory and Administrative Capacity

coffers 15 Jul , 2016

Work Package (WP) 2: Regulatory and Administrative Capacity

WP Leader: Tax Justice Network, Markus Meinzer

Other Partners: City University London, University of Bamberg


  • Generate a comprehensive comparative analysis of anti-avoidance and anti-evasion rules across Member States.
  • Generate a cross-country comparison of administrative and enforcement capacity
  • Generate an index of financial secrecy and opacity across Member States and significant third countries.

Description of work:

  • The first goal is to survey and evaluate anti-evasion and anti-avoidance rules in each Member State. Through survey work and where found necessary follow up semi-structured interviews it builds a comprehensive picture of where these rules are on target and have the capacity to tackle European inequalities and where these rules are off target, absent or inadequate, and are likely to exacerbate European inequalities. Particular focus is on the regulation of corporate entities and trusts and how far these facilitate fiscal fraud and illicit transactions. An important element of the work here is to generate an analysis that transcends analysis that focuses on specific aspects of these rules to arrive at a systematic and comprehensive analysis of anti-evasion and anti-avoidance rules allowing for the identification of critical weaknesses.
  • The second goal is to generate a comprehensive comparative analysis of administrative and enforcement capacity on the basis of acknowledging that rules and regulation are toothless if not sufficiently resourced for implementation. The task here is to analyse this capacity for each of the anti-evasion and anti-avoidance rules across Member States and in third countries recognized to play a role in increasing European inequalities by facilitating the circumvention of obligations due to other jurisdictions. To ensure understanding of the circumstances under which officials work semi-structured interviews complement survey work.
  • The third goal is to generate an extended financial secrecy index that incorporates Member State and relevant third country regulatory and legal regimes, but accounts for administrative and enforcement tools and capacity. The task is to extend previous Financial Secrecy Indices with a specific focus on the requirements for a more equitable Europe. Specific risk profiles for each jurisdiction are complemented with bi-lateral secrecy indicators that identify key points of fiscal regime vulnerability that emerge from cross-country interactions between legal and regulatory mechanisms and enforcement and administrative weaknesses. Drawing on the legal expertise and prior experience in building a jurisdictional secrecy index within the work package team the survey provides a heat map of strengths and vulnerabilities across the European fiscal regime that serves as a benchmark for the analysis of jurisdictions


Comparative reviews of EU-wide anti-avoidance and anti-evasion tax rules have mostly been focusing on certain aspects in isolation, and have not comprehensively analysed those measures, which can be expected to have the most direct linkages with inequalities. In generating a comprehensive heat map of tax risk in the European Union identifying points of weakness in the fiscal regime and cross-jurisdictional relationships that undermine its integrity WP5 test four hypotheses:

Hypotheses 1. Financial secrecy in the partner jurisdiction for given economic and financial transactions (and equivalently in aggregate bilateral relationships) can serve as an important and useful proxy for tax risk, money laundering risk, and risk of regulatory arbitrage; and for this reason:

Hypothesis 2. Greater exposure to financial secrecy, and greater (estimated) losses to corporate tax avoidance and to individual tax evasion through undeclared offshore wealth, are associated with poorer outcomes, including in terms of inequality, growth and/or the strength of political institutions.

Hypotheses 3. There is a difference in the effectiveness and sustainability of policies countering tax evasion and avoidance that is hinging upon the level of public transparency available to evaluate the results of these policies.

Hypotheses 4. Shortages in tax administration and tax law enforcement capacity and/or integrity are becoming an important substitute playground for tax competition ideology.

This work package focuses on three issues to produce an extended Financial Secrecy Index (FSI) with the sustainability of the European fiscal regime as motive.

Firstly, an international comparison of the legal and regulatory instruments designed to contain tax evasion and avoidance that have become part of the tax ecosystem will be undertaken. We will question the extent and nature of variation of existing laws, regulations and loopholes within the European Union and in selected countries beyond. Here, the role of financial secrecy will be a recurring theme. Reviewing and historically tracing the international and EU legal and regulatory landscapes for financial and tax transparency; for containing tax evasion and avoidance and their impact on multiple inequalities will be the key challenge.

The work will involve the building of a substantial data set with an emphasis on how weaknesses in tax systems have been exploited across international boundaries to facilitate both tax avoidance and tax evasion. The output will be a new tool to assess financial secrecy, the risks it creates and the locations and relationships from which that risk is likely to emanate.

Secondly, the regulation of companies and other entities that might be used for the purposes of tax avoidance and evasion will be reviewed. We place particular focus on the availability and regulation of companies in European jurisdictions when these are so readily available for use to disguise responsibility for and the beneficiaries of illicit transactions. Whilst the focus of the whole work package is on taxation, the availability of unaccountable legal entities for use in tax abuse of varying forms is so fundamental to the mechanisms used to pursue tax abuse, that this review is critical to the emergence of an appropriate regulatory environment in the future. The work will be largely survey based and will appraise the resources dedicated to company regulation across Europe and the likelihood that secrecy is available as a consequence, whether by design or as the consequence of practice.

Third, the administrative capacity that jurisdictions dedicate to tackling the tax gap and the impact that this has on their efficiency. The creation of regulation that is appropriate to need is an essential part of the phased approach that responded to financial crises, outlined in the description of Work Package 1, but necessarily fails if the resources to implement the resulting legal requirements are not made available to those tasked with enforcement. Based on survey data and published information provided by European governments, the EU, OECD and others, this part of the work programme addresses the capacity of EU tax authorities to act in the face of the challenges they face.

WP5 develops a ‘Bilateral Financial Secrecy Index’ to assess which secrecy jurisdictions are important for which countries, income groups and regions, focusing on European countries as both potential secrecy jurisdictions and countries affected by them. We identify how much European countries are exposed to financial secrecy and what the most important secrecy jurisdictions for Europe and European secrecy jurisdictions for resource rich developing countries are. Generally expectation is of a high degree of heterogeneity across secrecy jurisdictions in Europe as well as globally. Expected heterogeneity across jurisdictions has been neglected by previous research. This new geography of financial secrecy has significant implications for policy recommendations and further research, providing risk profiles specific to each country. The analysis will point policy makers’ limited resources and attention towards the most relevant secrecy jurisdictions for given countries.

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