are they really effective in fighting tax evasion? –


These days we are witnessing a heated debate about lowering the limit for cash payments to 1,000 euros.The debate essentially sees two opposing currents: those who support the effectiveness of these limitations, on the basis of the fact that such measures, by incentivising traceable payments, would reduce the area of ​​evasion and undeclared work; and those who deny any kind of anti-evasion effectiveness to such measures.
As always, in matters of fiscal policy it is difficult to say clearly who is right and who is wrong. What can be affirmed is that indeed in the international arena there are strong doubts as to whether the limits to cash payments are effective in combating tax evasion, as well as on the fact that such measures are proportionate to the light of the end they set for themselves.

It seems useful to start from what the European Commission said in 2018 (Report to the European Parliament and the Council on the restrictions on cash payments), which also examined the topic by means of a very detailed study (Study on an EU initiative for a cash restriction on payments, of Center for European Policy StudiesEcorys).Let us anticipate the conclusions as of now: the Commission has decided not to undertake any legislative initiative, also because the restrictions on cash payments present significant problems and their effectiveness is yet to be demonstrated.

In February 2018, in fact, the aforementioned study showed that the restrictions on cash payments, while useful in the anti-money laundering field, would make a poor contribution to combating the financing of terrorism or tax fraud, essentially for two reasons.

The first reason concerns the costs of terrorist attacks, which currently (as opposed to the completely exceptional attacks of 11 September 2001) are very often costing less than 10,000 euros, and the individual operations are often even of an even lower amount. Consequently, the limits on cash transfer would have little effect on the ability to prepare such attacks. Moreover, the Commission, in a rather self-evident way, considers it unlikely "that criminals, who already intentionally violate the law, will be deterred by a further ban on the payment of the operation, especially if the sanctions associated with this further ban are irrelevant to the sanctions associated with the main criminal activity".

The second reason, more significant for our purposes, concerns the fact that really significant tax frauds are not perpetrated through the use of cash, but through complex legal operations and structures, which often involve several states. So much so that in Austria, for example, the level of tax fraud is low, but there is a high use of cash.

Where, on the other hand, tax fraud and tax evasion are based on cash, they generally involve small amounts of cash transactions (for example, restaurant bills), and therefore would not be interested in the limits, which, even if contained, are still higher – to unless, of course, the threshold is set at a very low level.

However, the fact remains that cash payment limits could still prove useful against money laundering; nevertheless, the aforementioned study points out that money laundering through the use of cash is often through the purchase of high value goods, so according to the Commission itself it could be useful to examine also some alternative measures, such as the forecast of a obligation of data collection and declaration by retailers (measure on the effectiveness, notes the Commission, could still be discussed).

A very relevant aspect to consider is also that, as clearly highlighted by the European Commission, the existence of divergent restrictions at national level has a considerable negative impact on the internal market, distorting competition and creating conditions of disparity between some companies.

In fact, it seems that the presence of national limits to cash payments, different from state to state, affects the shift of turnover from one country to another, which has negative consequences both on the integrity of the internal market, and "on the efficiency of the national measure in achieving public policy objectives"In other words, therefore, there is a risk of favoring the economic systems of neighboring countries to the detriment of the national one, without great benefits in terms of revenue recovery.
In addition to what the European Commission has stated, there are also the (not very favorable) opinions of the European Central Bank on the restrictions on cash payments.

The ECB in recent years has in fact expressed itself on the proposals presented by some States (including Spain in 2018, Bulgaria and Portugal in 2017) to insert a quantitative limit for cash payments, or to significantly reduce the amount. Especially significant is the case of Spain, because the Spanish proposal set a payment limit of just 1,000 euros cash, although only for some types of tax payers.

The Central Bank states that the fight against tax evasion can actually be a reason to place restrictions on the use of cash, but also that these limitations must be proportionate and not go beyond what is necessary to achieve these goals, because they must in any case be compatible with the legal tender of coins and banknotes in Euro.

Well, the ECB underlines two elements, among others, that seem particularly important: the fact that there are large sections of population for which the possibility of paying in cash remains important, for different (and completely legitimate) reasons, and the made that payments cash they favor access to the economic system of the entire population.

Precisely for these reasons, the Central Bank considered "disproportionate" (disproportionate) the 1,000 euro limit proposed by Spain, because on the one hand it risked jeopardizing the legal tender of euro banknotes and coins (and the entire payment system), and on the other hand because electronic payments depend on technical infrastructures that can fail or be temporarily unavailable.

In short, it can be said that, based on the findings of the European Commission, and in light of the ECB's opinions, the limits to cash payments are likely to be the wrong answer to a real problem (tax evasion), and moreover several authoritative Italian commentators have already pointed out their "symbolic" function as well as the poor attitude to counter evasion.

If you intend to affect the payment system to combat tax evasion, it seems more effective to introduce incentives for the use of electronic payments, also because "demonizing" the cash risks to not bring appreciable benefits in terms of revenue and to reduce consumption, and frankly, a further drop in consumption does not seem to be something the Italian economic system can afford.

* Adjunct Professor of Tax Law at the University of Turin and associate at the CBA studio

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