The European Commission is considering setting up a single European tax identification number for EU citizens and companies in order to improve tax collection rates, according to an internal document seen by EURACTIV.

The proposal is part of a report that the Commission will put forward next week ahead of the European Summit on 28-29 June.

The move comes as member states are struggling to find resources to reduce their deficits and debts in the midst of the worst economic crisis in decades.

“In these difficult times we must ensure that taxes are efficiently and fairly collected," said Algirdas Šemeta, the EU tax commissioner, in a 27 April speech.

"We cannot ask citizens to accept the burden of increased taxes and cuts in public services if we do not do our utmost to clamp down on activities and practices that robs member states of legitimate income,” the Commissioner said.

The Commission's approach is based on three pillars.

First, Brussels wants national authorities to improve their tax collection levels. In its recommendations to member states issued in May, it advised many countries to improve their action against tax evasion in the coming months.

A single EU identity for taxpayers?

The second pillar relates to the improvement of cross-border cooperation. The fragmented nature of the European single market has encouraged companies and individuals to exploit the loopholes offered by separate tax systems.

A widespread trick is to move revenues to countries with lower taxation, such as many Eastern European member states, and keep costs in countries with higher social protection, like the welfare champions of continental Western Europe.

Tax administrations in different member states already cooperate to pin down those tricks, but their levers are limited and the chances of getting caught remain low. “Progress should be made to build trust between tax administrations as tax fraud and evasion often have a cross-border character,” says the internal Commission paper seen by EURACTIV.

To counter this problem, the Commission suggests “improving identification of taxpayers, possibly creating a European tax identification number.”

Most member states use tax identification numbers (TINs) to identify taxpayers. This helps follow the financial moves of citizens within national borders. But when operations happen in another member state, national administrations have to rely on information provided by their counterparts. Exchange of information is not automatic.

Moreover, “TIN structures are decided at a national level. Some countries even have a different TIN structure for different categories of individuals,” a Commission official said.

For the Commission, the process is too cumbersome and makes it harder to uncover illegal practices. A single European tax identification number would make things easier, but is likely to face opposition from countries that are able to attract taxpayers for the very confidentiality of their banking systems – such as Luxembourg and Austria.

The Commission is also thinking about developing “rapid-reaction capacity to new trends in tax fraud schemes” and is considering “minimum criminal sanctions for tax fraud, extending tools for indirect taxation to direct taxation where appropriate,” according to the internal document.

Indeed, the fight against fraud in indirect taxation, such as VAT, has proved more successful so far than avoidance in direct taxation.

Tax havens

The other big issue is how to deal with tax havens located outside the EU.

“There is a need to push, at global level, for the development and the implementation of standards equivalent to EU standards,” reads the paper.

The EU executive has repeated those appeals many times, especially since the financial crisis erupted, but with little result so far. And it is the first to admit that its chances of success are low.

“Some member states are likely to resist the push for more ambition on transparency, exchange of information and the fight against harmful tax competition,” reads the paper outlining the communication of next week.

“In this context, the Commission is likely to face resistance to additional negotiation mandates with third countries. It is important that the June European Council endorses this contribution and tasks the Council to analyse it and act as appropriately,” the document adds.

Next week’s paper will raise once again the issue of more fiscal transparency and cooperation with third countries, like Switzerland, but without specifying possible actions.

A more detailed set of proposals is expected by the end of 2012 when “the Commission will propose a way forward to deal with tax havens and aggressive tax planning,” adds the paper.