The Protection of the European Union's Financial Interests by Anti-fraud and Anti-tax Evasion Measures in Romania

Abstract

For the European Union (EU), the need to mitigate and control the financial crime phenomenon faced by public institutions depends largely on how they master the elements of information about the EU financial resources, on how these revenues are formed and on the method of allocation and utilization of budgetary resources. Taking into account these specific aspects that the European Union is facing, tackling the optimization of the activity of anti-fraud and anti-tax evasion institutions, with the shown risks, is an absolute and unequivocal necessity.

Headnote

Abstract

For the European Union (EU), the need to mitigate and control the financial crime phenomenon faced by public institutions depends largely on how they master the elements of information about the EU financial resources, on how these revenues are formed and on the method of allocation and utilization of budgetary resources. Taking into account these specific aspects that the European Union is facing, tackling the optimization of the activity of anti-fraud and anti-tax evasion institutions, with the shown risks, is an absolute and unequivocal necessity.

Keywords: anti-fraud measures, tax evasion, the Community budget, OLAF, DLAF

JEL Classification: G31, G32

Introduction

One of the major problems that the European Union is confronted with, from the financial point of view, is embezzlement of the community budget [Antoniu G., 2002:9]. Research conducted in this regard revealed that the EU budget is profoundly affected by the phenomena of fraud and tax evasion, both in terms of budgetary resources (revenues) and in terms of how these budget resources are used (expenditure). In other words, the EU budget gets paid much less than normally due and in terms of expenditure it is found that some amounts granted by the European institutions, in the form of grants and aid often end up taking other destinations than those consistent with the purposes for which they were granted and with the EU interests [Fourgoux J.C., 2012: 15-21]'

Given the fact that fraud and tax evasion affecting the Community budget is often committed by criminal organizations operating throughout the EU, it has become necessary for the European Union, through its institutions, to incriminate these actions that bring significant financial damage to the community's interests and to adopt a coherent and effective set of measures enabling Member States to cooperate in preventing and combating fraud and tax evasion [Ghinea, N., 2012:15-21].

The Treaty on the Functioning of the European Union stipulates that the EU and Member States have a shared responsibility to protect EU financial interests and to combat fraud and tax evasion.

The Convention on the protection of the European Communities' financial interests adopted having regarding to the Treaty on European Union regarding the protection of the European Communities' financial interests defines "fraud" as being an intentional act or omission relating to [Official Journal of the European Communities No C 316/49 - COUNCIL ACT of 26 July]:

* the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities;

* the non-disclosure of information in violation of a specific obligation, with the same effect;

* the misapplication of such funds for purposes other than those for which they were originally granted.

In the Community legislation, the term of fraud is used both in relation to international crimes committed in the EU (international fraud) and in relation to transnational crime, against the interests of the EU (Community financial fraud) [Ghinea, N., 2012:15-21]. Thus, the European Anti-Fraud Office (OLAF) was established in order to protect EU financial interests and also to ensure the best possible use of its resources. It fights to combat fraud, corruption and any illegal activity or to correct abnormal behaviors within the European institutions. The type of fraud that has the highest impact on EU finances is the embezzlement of European Structural Funds, which could be used for regional and social development projects.

Investigative independence is crucial to OLAF's effectiveness. Consequently, it has a special status within the EU institutional framework. Although it was established as part of the European Commission, the OLAF Director is not allowed to seek or accept instructions from any government or any other institution, including the Commission itself. OLAF can refer the case to the European Court of Justice if its independence is threatened.

OLAF works under close supervision of a committee consisting of five independent experts who do not work in any EU institution. Their duties are: carrying out external administrative investigations in the Member States, but not only there. A cooperation agreement is required, its aim being to combat fraud and illegal activities affecting the financial interests of the Community.

Another responsibility would be to carry out internal administrative investigations in the European institutions and improving cooperation with Member States in preventing fraud. EU legislation considers the prevention of tax evasion and tax avoidance as one of the main objectives of EU tax policy. This is the reason why a specialised structure was set up in the European Commission, namely the European Anti-Fraud Office (OLAF).

In accordance with Article 325 of the Treaty on the Functioning of the European Union, Member States and the European Commission organises a close and regular cooperation between their competent authorities. An important forum for coordination activities is the Advisory Committee for Coordination of Fraud Prevention (C°CoLAF).

A review of the structure of C°CoLAF and of the various existing expert groups is planned to improve the overall functioning of groups and to provide a clear overview of the activities involving the Commission (OLAF) and the Member States.

C°CoLAF's mission is to advise the European Commission on all matters relating to the prevention and prosecution of fraud and all other illegal activities adversely affecting the financial interests of the EU and on any matter relating to cooperation between Member States and the Commission regarding the protection of EU financial interests, in order to organise close and effective cooperation between the competent authorities in combating fraud.

C°CoLAF's duties [DLAF] are:

* to facilitate the implementation of EU legislation on fraud prevention through periodical consultations on any specific problems arising from its application in situations where exchanges of views are necessary;

* to facilitate consultations between Member States regarding the conditions for implementing EU legislation at national level;

* to coordinate actions between Member States and ensure regular close cooperation;

* to advise the European Commission, if necessary, regarding additions or amendments or adaptations of EU law.

Tax evasion persists in all countries and in all periods, despite sanctions. Moreover, it leaves many people indifferent beliefs. The national survey conducted in France in 1982, reveals that almost 20% of taxpayers estimated tax fraud little or not at all condemnable.

Tax evasion is one of the complex social and economic phenomena of the utmost importance that states face today. The member states seek to limit as much as possible the unintended consequences, since its eradication is practically impossible. The effects of tax evasion have a direct impact on levels of tax revenues, leading to distortions in the market mechanism and contributing to social inequities due to different "access" and "inclination" to tax evasion by taxpayers.

1. Definitions of tax evasion in some EU countries [Ungureanu, M.A., 2013]

* Netherlands: Tax evasion is defined as deliberately drawing a misstatement, presenting false documents or infringing any legal obligation to provide certain information to tax control administration. Tax fraud is punishable by imprisonment.

* Luxemburg: Tax fraud is divided into two concepts: simple fraud and international fraud. Simple fraud has an involuntary nature and is committed through negligence by any contributor. This offense is punishable only by a fine. International fraud is punishable by fines which are not limited by law, but it can be punished by imprisonment, which has a fixed maximum of two years.

* Ireland: Tax fraud is defined as any activity of tax offenses carried out intentionally to evade tax payment. Penalties are higher if tax offenses are common to all taxes levied by the fiscal administration. It is the case of very serious offenses and punishable by severe sanctions. For example: establishing an inaccurate statement or communicating an inaccurate document, opposing to tax control, refusing to keep or to provide the documents required by the law.

* Germany: The deliberate failure to disclose to the government the elements which determine the tax computation or the provision of inaccurate or false documents, whether in order to reduce taxation or to obtain unjustified tax advantages, is deemed as tax fraud. [Ungureanu, M.A., 2013]

2. Aspects of Combating Fraud in Romania

In the Romanian national legislation, the term fraud was first used within the definition given by the GO 79/2003 regarding the control and recovery of Community funds and of misused co-financing funds.

The GEO 49/2005 establishing measures to reorganize the central administration, the Anti-Fraud Fight Department (DLAF) was established as an institution of contact with the European Anti-Fraud Office, which has the following tasks:

* to ensure coordination of anti-fraud fight and to effectively and equivalently protect the financial interests of the EU in Romania;

* to inspect the obtaining, carrying or use of funds from the EU budget, having the quality of finding body regarding possible irregularities and/or fraud affecting EU's financial interests in Romania;

* to ensure and facilitate cooperation between national institutions involved in the protection of EU financial interests in Romania, and between them and the European Anti-Fraud Office and EU Member States;

* to initiate and approve draft laws regarding the protection of EU financial interests in Romania in order to harmonize the legal framework;

* to collects, analyse and process the data in order to achieve relevant analyses in the field of protection of EU financial interests in Romania;

* to develop and coordinate training programs, apprenticeships and training in the fight anti-fraud field.

In carrying out its duties, according to the law, DLAF acts based on functional and decision-making autonomy, independently of any other public authorities and institutions.

DLAF provides, supports and coordinates the fulfilment of the obligations of Romania concerning the protection of EU financial interests, in accordance with Art. 325 of the Treaty on the functioning of the European Union.

DLAF has the following functions according to Law 61/2011]:

* the function of coordination of anti-fraud fight, in order to ensure effective and equivalent protection of EU financial interests in Romania;

* the function of control, in order to identify irregularities, fraud and other illegal activities harming the EU's financial interests in Romania;

* the function of regulation, which ensures the development of the regulatory and institutional framework necessary for the protection of EU financial interests in Romania;

* the function of representation, which ensures Romania's participation in consultative committees, working groups and communication networks or information exchange, regarding the protection of EU financial interests.

In accordance with Art. 325 of the Treaty on the Functioning of the European Union [HG 738/2011], DLAF ensures the protection of EU financial interests in Romania, as follows:

* it cooperates with the Member States and European institutions to protect EU financial interests;

* it coordinates the adoption of national legislative measures, administrative and operational, to combat fraud and any other illegal activity affecting the financial interests of the EU and national financial interests;

* it elaborates, in cooperation with other national institutions, and transmits Romania's contribution to the European Commission's Annual Report regarding the measures taken to implement the provisions of art. 325 of the Treaty on the Functioning of the European Union;

Regarding the protection of EU financial interests through operational measures, the Anti-Fraud Fight Department DLAF [DLAF, 2014]:

* has maintained its role to combat fraud through a number of constant control actions opened or completed in both 2013 and 2014;

* has maintained the control policy oriented towards verification of all types of European funds;

* has received several complaints with a recovery potential during its control actions in 2014, in comparison to 2013;

* has strengthened institutional collaboration with the Anti-Corruption National Department (DNA) and with the European funds managing authorities, which have referred several cases to DLAF.

3.Issues on tax evasion in Romania

Analysing the tax legislation, especially the normative acts that determine the amount and payment of taxes, it can be concluded that they are susceptible infringements committed through culpable acts and omissions, both for our country and other countries. Among those violations, prevail those committed by taxable subjects animated by a desire to pay due taxes the state as little as possible, but also to evade established checks and tax follow-ups. Infringements can also be committed by the responsible civil servants with duties in tax, customs and financial control, with the consequence of tax evasion [Ungureanu, M.A., 2013].

Considering the causes of tax evasion, the main way to combat it is through legislative measures. In this regard, currently are in force:

* the law on preventing and combating tax evasion (low no. 245/2005);

* the law on measures to ensure transparency in exercising public dignities, public and functions and in the business environment, preventing and sanctioning corruption (Law 161/2003).

In support of the law to prevent and combat tax evasion, a number of laws must be taken into account such as: the Law on Accounting (Law no. 82/1991), the Tax Code (Law no. 571/2003), the Tax Procedure Code (O.G. no.92/2003), the Law on Prevention and Punishment of Money Laundering (Law no. 656/2002) and other laws governing taxation in Romania, with good and less good provisions.

The law defines tax evasion as "avoidance by any means, in whole or in part, of payments of taxes, duties and other amounts owed to the state budget, local budgets, budgets of state social insurance and special funds off-budget by Romanian natural persons and legal persons or foreign taxpayers with the contributor quality." [Law no. 241/2005]

Fighting tax evasion is conceived and pursued, as shown by the whole of the special law - both through preventive actions and sanctions.

Fiscal sanctions are multiple and can be classified according to their severity and application:

* fiscal fine is the most common way to sanction tax evasion which is applied by the control body and it's a fixed amount of money;

* penal sanction is applied by the instance on the basis of the fiscal control documents for facts considered infringements of the law;

* the interest and the penalties for the non-payments of the taxes;

* the seizure of goods as a complementary measure in accordance with the law;

* Rectifying the state prejudice produced by tax evasion this way: the control body is entitled to estimate the taxes owed to the state using any documents and information relating to the activity and the unfolded period.

"This work was supported by the project " Interdisciplinary excellence in doctoral scientific research in Romania - EXCELLENTIA" co-funded from the European Social Fund through the Development of Human Resources Operational Programme 2007-2013, contract no. POSDRU/187/1.5/S/155425."

References

References

Adam, A. , Popescu (Iacob) S. E., Bäjan I. (2009), "The Role Of Social Justice In Public Administration", paper presented at the International Scientific Conference "Politici Sociale §i Administrate Publicü În Context European", organised by "Eftimie Murgu" University, Reçifa, and published in a special volume, B+ category, Re§i(a, 2009, pages 11-19, ISSN 1584-0972

Antoniu G., Protecjia penalü a intereselor financiare ale Comunitäjilor Europene, RDP issue: 2, 2002.

Fourgoux J.C., Un espace judiciaire contre la fraude communautaire: un corpus iuris entre reve et realite, 1997, Chron.349 (nr.40), quoted by Ghinea, N., Unele considerajii privitoare la frauda care prejudiciazä interesele financiare ale Comunitäjilor Europene, Public Security Studies, issue: 4/2012, pages 15-21, www.ceeol.com.

Ghinea, N., Unele considerajii privitoare la frauda care prejudiciazä interesele financiare ale Comunitäjilor Europene, Public Security Studies, issue: 4/2012, page 15-21, www.ceeol.com.

Ghinea, N., (2008) Managementul investigärii fraudei care afecteazä interesele financiare ale Uniunii Europene, Editura SITECH, Craiova.

Ghinea N., Bolbosanu C., s.a. (2009) Criminalitatea economico-financiarä în Uniunea Europeanä, Editura Sitech, Craiova;

Popescu (Iacob) S. E., Popescu C., Paçculea M. (2009), "The Role And Importance Of The Communication Within A Public Institution", paper presented at the International Scientific Conference "Politici Sociale §i Administrate Publicä In Context European" organised by "Eftimie Murgu" University on May 8-9th 2009, Reçifa, and published in a special volume, B+ category, pages 494-502, ISSN 1584-0972.

Läcrifä, G.N., Ungureanu, M.A. (coord.), (2009) Dicjionar legislativ fiscal, Ed. Didacticä §i Pedagogicä, Bucureçti;

Läcrifä, G.N., Ungureanu, M.A. (coord.), (2010) Dicjionarul Codului de procedurä fiscalä, Ed. SITECH, Craiova;

Ungureanu, M.A., (coord.), (2013) Politici si practici financiare, Ed. Universitarä, Bucuresti;

Official Journal of the European Communities No C 316/49 - COUNCIL ACT of 26 July 1995 drawing up the Convention on the protection of the European Communities' financial interests (95/C 316/03).

Raportul anual de activitate al DLAF, 2014, www.antifrauda.gov.ro

RAPORT AL COMISIEI CÄTRE PARLAMENTUL EUROPEAN SI CONSILIU Protejarea intereselor financiare ale Uniunii Europene - Combaterea fraudei, Raportul anual pe 2012. www.ipex.eu.

Law no. 205/2007, privind aprobarea OG 12/2007 pentru modificarea §i completarea OG 79/2003 privind controlul §i recuperarea fondurilor comunitare, precum §i a fondurilor de cofman(are aferente utilizate necorespunzätor.

Law no. 61/2011 privind organizarea si functionarea Departamentului pentru lupta antifrauda - DLAF.

HG 738/2011 pentru aprobarea Regulamentului de organizare si functionare al Departamentului pentru lupta antifrauda-DLAF.

Law no. 241/2005 regarding preventing and combating tax evasion, published in MO nr. 672/27.07.2005.

Law no. 161/2003 on measures to ensure transparency in the exercise of public dignities, public functions and in business, prevent and punish corruption, published in M.O. nr.279 din 21.04.2003.

Accounting Law no.82 din 24.12.1991, republished in M.O. nr. 48/14.01.2005.

Law no 571/2003 regarding Fiscal Code, published in MO nr 927/2003 with subsequent amendments.

O.G. no.92 din 24.12.2003 regarding Fiscal Procedure Code, published in M.O. nr. 941/29.12.2003, republished in M.O. nr. 863/26.09.2005 and certificated in M.O. no. 974/02.11.2005, with up to date modifications.

Law no. 656 din 07.12.2002, on preventing and sanctioning money laundering, published in M.O. no. 904 /12.12.2002.