European Commission’s Marie Skłodowska-Curie Action has funded the research project TAXFAIR that aims to provide a knowledge-based framework for governments and policymakers around the world to implement an effective system for the automatic exchange of information.
Tax evasion represents a pervasive phenomenon as the related revenues loss for governments ranges from USD 441 billion per year in the United States1 to EUR 1,000 billion per year within the EU territory2. While partially caused by unreported income held locally, a substantial portion can be attributable to income held abroad, especially in jurisdictions offering very attractive tax systems together with a sound level of bank secrecy, i.e. the so-called tax havens. As a response, many countries have implemented automatic exchange of information (AEOI) systems for the collection and exchange of financial account information across borders.
Financial institutions and tax authorities face substantial direct costs for the IT infrastructure investments and maintenance costs. In addition, indirect costs related to privacy concerns arises since financial institutions and tax authorities automatically collect and exchange highly sensitive financial data across borders. Yet, we currently lack an empirical assessment of the utility of the AEOI systems in increasing tax revenues from previously unreported financial accounts located worldwide. This is mainly due to the lack of access to micro data, which prevent any assessment of changes in reported wealth and related income.
Using high-quality Norwegian administrative data, TAXFAIR aims to analyse the effectiveness of the AEOI system to mobilize tax revenues and to determine the characteristics of an AEOI system that maximizes tax revenue extraction. Overall, TAXFAIR will provide a knowledge-based framework for governments and policymakers around the world to implement an effective system for the automatic exchange of information exchange, which will allow them to increase the monetary resources highly needed for financing the recovery from the current massive negative economic shock.
For more information on the results from European Commission’s Marie Skłodowska-Curie Action, see https://marie-sklodowska-curie-actions.ec.europa.eu/news/msca-awards-eu242m-to-the-2021-postdoctoral-fellowships-applicants
1IRS (2016) The tax gap, available at https://www.irs.gov/newsroom/the-tax-gap.
2European Commission. (2012) Tax evasion and avoidance: Questions and answers, available at http://europa.eu/rapid/press-release_MEMO-12-949_en.htm#footnote-1.