Centralised digital tax system to reduce tax fraud in EU

The EU Commission is looking to introduce a mandatory digital tax system to combat tax fraud and assist countries in overcoming the challenges associated with double taxation and withholding of taxes. 

We identified the following problems as part of the EU consultation process:

• tax fraud
• lack of cross border investment
• inefficient withholding of tax relief and
• challenges resulting from Covid restrictions.

Based on our research we make the following recommendations:

Improving withholding tax refund procedures to make them more efficient

Digital taxation system will enhance the traceability of the wrong double taxation, and thus it will reduce the no of refund claims. The EU standardised forms and procedures could strengthen the predictability of the digital tax system.

Establishment of a fully-fledged common EU relief at source system

We agree with the commission's proposal on a standardised EU-wide system for withholding tax relief at source. Such policy will allow the countries to apply a correct withholding tax rate at the time of payment to a non-resident, which will mitigate the chances of double taxation.

Enhancing the existing administrative cooperation framework to verify entitlement to double tax convention benefits

A digital and centralised tax system will reduce the administrative burden created by the current paper-based process. Higher verification capacity will decrease the no of fraud cases related to labour-intensive cross-border taxation.  By reducing paper-based lengthy process the commission will be able to generate a sustainable and environment-friendly system. Simplified and highly transparent taxation system will reduce tax fraud and will create a socio-economic impact to support the post-Covid growth of the world economy.

Our research provides a clear guideline to the policymakers supporting the president of the EU Commission to convert the proposal to a legal requirement.

Our research team

Peter Jelfs is Professor of Taxation at Brunel University, London. He has extensive experience of working as a business tax advisor for large accountancy and law firms, as well as for UK government departments, including HM Revenue & Customs and the Department for International Trade. He has experience in managing withholding tax reclaims on behalf of clients.

Suman Lodh is Assistant Professor in Finance at Middlesex University, London. He is an expert in economic modelling and has extensive knowledge in analysing the big data generated by a digital system. His industry experience and research skill is an asset to the team.

Monomita Nandy is an Associate Professor in Accounting and Finance at Brunel University, London. She is well recognised in the research network for her excellent research skills to create a socio-economic impact in practice. She has experience in working with international policymakers and industry leaders.

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Related Research Group(s)

Accounting and Auditing - Investigating current issues in accounting that include financial reporting, assurance, corporate governance, corporate social responsibility and business models in large and small business entities

Project last modified 12/10/2023