Tackling tax avoidance

Policy Study

Promoting welfare requires just and efficient taxation. Unfortunately, this goal has been undermined by tax avoidance and evasion tied to international investment. The encouraging news is that the past decade has seen a major turn in tackling tax base erosion and harmful tax competition. While major international reforms have made corporate tax avoidance more challenging, they have not yet solved the issues of capital income taxation. 

To address this gap, the Foundation for European Progressive Studies (FEPS), in collaboration with the Kalevi Sorsa Foundation, has conducted a policy study on capital income taxation in the European Union. Co-authored by Lauri Finér, Director, Kalevi Sorsa Foundation and Niko Pankka, Head of Public Affairs, Central Organisation of Finnish Trade Unions (SAK), the research examines the current state of capital income tax avoidance in the EU and presents policy proposals to solve the current problems. 

The analysis is based on earlier research and case studies that examine tax regimes in 15 selected European countries. Several countries have very low tax rates on capital income, which taxpayers in other countries can benefit from by avoiding the higher rates that would be applicable in their country of residence. The case studies also highlight good tax practices, such as exit tax rules to protect tax bases. 

The study presents five key recommendations to tackle tax base erosion. It calls on the EU to adopt a directive establishing a minimum capital income tax rate and to broaden the scope of the Anti-Tax Avoidance Directive to include capital income.

This policy study was presented at the European Parliament during the event ‘Capital and wealth taxation in the EU‘, organised in collaboration with the S&D Group and Kalevi Sorsa Foundation.