Tax evasion#United Kingdom

{{About|the illegal reduction of taxes|the legal equivalent|tax avoidance}}{{Taxation}}

Tax evasion or tax fraud is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability, and it includes dishonest tax reporting, declaring less income, profits or gains than the amounts actually earned, overstating deductions, bribing authorities and hiding money in secret locations.

Tax evasion is an activity commonly associated with the informal economy.[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3529340 Tax Evasion & Whistleblowers: Curious Policy or Durable Strategy?] {{Webarchive|url=https://web.archive.org/web/20210725140918/https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3529340 |date=2021-07-25 }} Tax Law: International & Comparative Tax eJournal. SSRN. Accessed 5 May 2020. One measure of the extent of tax evasion (the "tax gap") is the amount of unreported income, which is the difference between the amount of income that the tax authority requests be reported and the actual amount reported.

In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion and tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state's tax system, but such classification of tax avoidance is disputable since avoidance is lawful in self-creating systems.{{cite journal|url=https://digitalcollections.anu.edu.au/bitstream/1885/41624/2/WP6.pdf|pages=4–5|author=Michael Wenzel|title=The Impact of Outcome Orientation and Justice Concerns on Tax Compliance|year=2002|journal=Journal of Applied Psychology|quote=When taxpayers try to find loopholes with the intention to pay less tax, even if technically legal, their actions may be against the spirit of the law and in this sense considered noncompliant.|access-date=2016-07-26|archive-date=2016-08-16|archive-url=https://web.archive.org/web/20160816180626/https://digitalcollections.anu.edu.au/bitstream/1885/41624/2/WP6.pdf|url-status=live}} Both tax evasion and tax avoidance can be practiced by corporations, trusts, or individuals.

Economics

File:German GDP in tax havens.pngs in relation to the total German GDP, 1996–2008.{{cite journal |first = Shafik |last = Hebous |year = 2011 |ssrn = 1934164 |title = Money at the Docks of Tax Havens: A Guide |journal = CESifo Working Paper Series |volume = 70 |number = 3587 |page = 9 |doi = 10.1628/001522114X684547 |hdl = 10419/52472 |s2cid = 39873207 |url = https://www.cesifo.org/DocDL/cesifo1_wp3587.pdf |hdl-access = free |access-date = 2021-12-20 |archive-date = 2021-12-09 |archive-url = https://web.archive.org/web/20211209082605/https://www.cesifo.org/DocDL/cesifo1_wp3587.pdf |url-status = live }} The "Big 7" shown are Hong Kong, Ireland, Lebanon, Liberia, Panama, Singapore, and Switzerland.]]

In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime,{{Cite journal |author=Gary Becker |title=Crime and Punishment: An Economic Approach |journal=The Journal of Political Economy |year=1968 |volume=76 |issue=2 |url=https://www.nber.org/chapters/c3625.pdf |pages=169–217 |doi=10.1086/259394 |access-date=2018-03-09 |archive-date=2020-10-04 |archive-url=https://web.archive.org/web/20201004004645/https://www.nber.org/chapters/c3625.pdf |url-status=live }} on the basis of which authors M.G. Allingham and A. Sandmo produced, in 1972, an economic model of tax evasion. This model deals with the evasion of income tax, the main source of tax revenue in developed countries. According to the authors, the level of evasion of income tax depends on the detection probability and the level of punishment provided by law.Allingham, M. G. and A. Sandmo [1972] 'Income Tax evasion: A Theoretical Analysis', Journal of Public Economics, Vol. 1, 1972, pp. 323–38. Later studies, however, pointed limitations of the model, highlighting that individuals are also more likely to comply with taxes when they believe that tax money is appropriately used and when they can take part on public decisions.{{Cite book|last=Torgler|first=Benno|url=https://books.google.com/books?id=xFYijxMKjqAC&dq=Tax+compliance+and+tax+morale%3A+A+theoretical+and+empirical+analysis.&pg=PR5|title=Tax Compliance and Tax Morale: A Theoretical and Empirical Analysis|date=2007-01-01|publisher=Edward Elgar Publishing|isbn=978-1-84720-720-3|language=en}}{{Cite journal|last1=Touchton|first1=Michael|last2=Wampler|first2=Brian|last3=Peixoto|first3=Tiago|date=2021|title=Of democratic governance and revenue: Participatory institutions and tax generation in Brazil|url=https://onlinelibrary.wiley.com/doi/abs/10.1111/gove.12552|journal=Governance|language=en|volume=34|issue=4|pages=1193–1212|doi=10.1111/gove.12552|s2cid=228863220|issn=1468-0491|access-date=2021-12-18|archive-date=2021-12-18|archive-url=https://web.archive.org/web/20211218060042/https://onlinelibrary.wiley.com/doi/abs/10.1111/gove.12552|url-status=live}}{{Cite journal|last=Alm|first=James|date=2012-02-01|title=Measuring, explaining, and controlling tax evasion: lessons from theory, experiments, and field studies|url=https://doi.org/10.1007/s10797-011-9171-2|journal=International Tax and Public Finance|language=en|volume=19|issue=1|pages=54–77|doi=10.1007/s10797-011-9171-2|s2cid=8221198|issn=1573-6970}}{{Cite journal|last=Torgler|first=Benno|date=2005-06-01|title=Tax morale and direct democracy|url=https://www.sciencedirect.com/science/article/pii/S0176268004000825|journal=European Journal of Political Economy|language=en|volume=21|issue=2|pages=525–531|doi=10.1016/j.ejpoleco.2004.08.002|issn=0176-2680|access-date=2021-12-18|archive-date=2016-02-18|archive-url=https://web.archive.org/web/20160218171308/http://www.sciencedirect.com/science/article/pii/S0176268004000825|url-status=live}}

The literature's theoretical models are elegant in their effort to identify the variables likely to affect non-compliance. Alternative specifications, however, yield conflicting results concerning both the signs and magnitudes of variables believed to affect tax evasion. Empirical work is required to resolve the theoretical ambiguities. Income tax evasion appears to be positively influenced by the tax rate, the unemployment rate, the level of income and dissatisfaction with government.{{cite journal |first1=Richard |last1=Cebula |first2=Edgar L. |last2=Feige |title=America's Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S |journal=Mpra Paper |url=https://ideas.repec.org/p/pra/mprapa/29672.html |publisher=Ideas.repec.org |date=n.d. |access-date=2015-03-21 |archive-date=2022-03-23 |archive-url=https://web.archive.org/web/20220323204943/https://ideas.repec.org/p/pra/mprapa/29672.html |url-status=live }} The U.S. Tax Reform Act of 1986 appears to have reduced tax evasion in the United States.{{Cite journal|last1=Kinsey|first1=Karyl A.|last2=Grasmick|first2=Harold G.|date=1993|title=Did the Tax Reform Act of 1986 Improve Compliance? Three Studies of Pre- and Post-TRA Compliance Attitudes*|url=https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9930.1993.tb00111.x|journal=Law & Policy|language=en|volume=15|issue=4|pages=293–325|doi=10.1111/j.1467-9930.1993.tb00111.x|issn=1467-9930|access-date=2021-12-18|archive-date=2021-12-18|archive-url=https://web.archive.org/web/20211218053315/https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9930.1993.tb00111.x|url-status=live}}

In a 2017 study Alstadsæter et al. concluded based on random stratified audits and leaked data that occurrence of tax evasion rises sharply as amount of wealth rises and that the very richest are about 10 times more likely than average people to engage in tax evasion.Alstadsæter et al. 2017. [https://gabriel-zucman.eu/files/AJZ2017.pdf Tax Evasion and Inequality∗] {{Webarchive|url=https://web.archive.org/web/20180108114318/http://gabriel-zucman.eu/files/AJZ2017.pdf |date=2018-01-08 }}

Tax gap

File:20220826 Share of unpaid taxes, by income level - area chart, treemap - NYTimes - Dept of Treasury.svg

The tax gap describes how much tax should have been raised in relation to much tax is actually raised. The IRS defines the gross tax gap as the difference between the true tax liability for a given year and the taxes actually remitted on time. It comprises the non-filing gap, the underreporting gap, and the underpayment (or remittance) gap. Voluntary tax compliance in the U.S. is approximately 85% of taxes actually due, leaving a gross tax gap of about 15%.

The tax gap is growing mainly because of two factors, the lack of enforcement on the one hand and the lack of compliance on the other hand. The former is mainly rooted in the costly enforcement of the taxation law.{{Cite journal|last=Sandmo|first=Agnar|date=2005|title=The Theory of Tax Evasion: A Retrospective View|journal=National Tax Journal|volume=58|issue=4|pages=643–663|doi=10.17310/ntj.2005.4.02|hdl=11250/162784|s2cid=4847820|hdl-access=free}} The latter is based on the foundation that tax compliance is costly for individuals as well as firms (tax filling, bureaucracy), hence not paying taxes would be more economical in their opinion.

Evasion of customs duty

Customs duties are an important source of revenue in developing countries.{{Cn|date=November 2019}}{{Clarify|date=November 2019}} Importers attempt to evade customs duty by (a) under-invoicing and (b) misdeclaration of quantity and product-description. When there is ad valorem import duty, the tax base can be reduced through under-invoicing. Misdeclaration of quantity is more relevant for products with specific duty. Production description is changed to match a H. S. Code commensurate with a lower rate of duty.{{better source|date=January 2015}}

=Smuggling=

Smuggling is import or export of products by illegal means.{{Cite web |title=Lawyer for tax and customs criminal Law Torsten Hildebrandt |url=https://steuerstrafrecht-rechtsanwalt.de/en/smuglling-en.html |access-date=2024-06-20 |website=steuerstrafrecht-rechtsanwalt.de |language=en}} Smuggling is resorted to for total evasion of customs duties, as well as for the import and export of contraband. Smugglers do not pay duty since the transport is covert, so no customs declaration is made.{{better source|date=January 2015}}

Evasion of value-added tax and sales taxes

File:Countries with Largest Tax Evasion Amount v3.jpg's estimate of the ten countries with the largest absolute levels of tax evasion. He estimated that global tax evasion amounts to 5 percent of the global economy.{{cite news| url=http://blogs.reuters.com/david-cay-johnston/2011/12/13/wheres-the-fraud-mr-president/ | archive-url=https://web.archive.org/web/20120107204610/http://blogs.reuters.com/david-cay-johnston/2011/12/13/wheres-the-fraud-mr-president | url-status=dead | archive-date=7 January 2012 | work=Reuters|title=Where's the fraud, Mr. President?|date=13 December 2011|author=David Cay Johnston|author-link=David Cay Johnston}}]]

During the second half of the 20th century, value-added tax (VAT) emerged as a modern form of consumption tax throughout the world, with the notable exception of the United States. Producers who collect VAT from consumers may evade tax by under-reporting the amount of sales.Spiro, Peter S. (2005), "Tax Policy and the Underground Economy," in Christopher Bajada and Friedrich Schneider, eds., Size, Causes and Consequences of the Underground Economy (Ashgate Publishing). The US has no broad-based consumption tax at the federal level, and no state currently collects VAT; the overwhelming majority of states instead collect sales taxes. Canada uses both a VAT at the federal level (the Goods and Services Tax) and sales taxes at the provincial level; some provinces have a single tax combining both forms.{{citation needed|date=January 2015}}

In addition, most jurisdictions which levy a VAT or sales tax also legally require their residents to report and pay the tax on items purchased in another jurisdiction.{{citation needed|date=January 2015}} This means that consumers who purchase something in a lower-taxed or untaxed jurisdiction with the intention of avoiding VAT or sales tax in their home jurisdiction are technically breaking the law in most cases.

This is especially prevalent in federal countries like the United States and Canada where sub-national jurisdictions charge varying rates of VAT or sales tax.

In liberal democracies, a fundamental problem with inhibiting evasion of local sales taxes is that liberal democracies, by their very nature, have few (if any) border controls between their internal jurisdictions. Therefore, it is not generally cost-effective to enforce tax collection on low-value goods carried in private vehicles from one jurisdiction to another with a different tax rate. However, sub-national governments will normally seek to collect sales tax on high-value items such as cars.{{cite web|last=Tomášková |first=Eva |year=2008 |url=http://www.aicels.org/aicels/Interduction_to_czech_law_-_AICELS%20-%20Abstract1.pdf |title=Tax Evasion in the Czech Republic – In: A Brief Introduction to Czech Law. Rincon: The American Institute for Central European Legal Studies (AICELS) 2008. pp. 111–21 ISBN 978-0-692-00045-8 |url-status=dead |archive-url=https://web.archive.org/web/20110903121846/http://www.aicels.org/aicels/Interduction_to_czech_law_-_AICELS%20-%20Abstract1.pdf |archive-date=September 3, 2011 }}

Objectives to evade taxes

One reason for taxpayers to evade taxes is the various personal financial benefits that come with it; however, the degree of evasion of taxes is likely attributed to how much risk an individual is willing to take.{{Cite journal|date=1972-11-01|title=Income tax evasion: a theoretical analysis|url=https://www.sciencedirect.com/science/article/abs/pii/0047272772900102|journal=Journal of Public Economics|language=en|volume=1|issue=3–4|pages=323–338|doi=10.1016/0047-2727(72)90010-2|issn=0047-2727|last1=Allingham|first1=Michael G.|last2=Sandmo|first2=Agnar|access-date=2021-04-26|archive-date=2021-04-26|archive-url=https://web.archive.org/web/20210426081812/https://www.sciencedirect.com/science/article/abs/pii/0047272772900102|url-status=live}} Additionally, Wallschutzky's exchange relationship hypothesis{{Cite book|last=Wallschutzky|first=Ian G.|url=https://www.worldcat.org/oclc/20053454|title=The effects of tax reform on tax evasion|date=1988|publisher=Australian Tax Research Foundation|isbn=0-949482-23-4|location=Sydney|oclc=20053454}}{{Cite journal|date=1984-12-01|title=Possible causes of tax evasion|url=https://www.sciencedirect.com/science/article/abs/pii/0167487084900345|journal=Journal of Economic Psychology|language=en|volume=5|issue=4|pages=371–384|doi=10.1016/0167-4870(84)90034-5|issn=0167-4870|last1=Wallschutzky|first1=I.G.}} presents as a sufficient motive for many. The exchange relationship hypothesis states that tax payers believe that the exchange between their taxes and the public good/social services as unbalanced.{{Cite journal|last=Cowell|first=F.A.|date=December 1992|title=Tax evasion and inequity|url=http://dx.doi.org/10.1016/0167-4870(92)90010-5|journal=Journal of Economic Psychology|volume=13|issue=4|pages=521–543|doi=10.1016/0167-4870(92)90010-5|issn=0167-4870}} Furthermore, the little capability of the system to catch the tax evaders reduces associated risk.{{Cite news |last=O’Dwyer |first=Michael |date=2024-09-08 |title=Small businesses dodge £4.4bn of UK tax each year |url=https://www.ft.com/content/37323ee9-16d9-4caf-9eda-120ed39adf89 |access-date=2024-12-17 |work=Financial Times}} Most often, it is more economical to evade taxes, being caught and paying a fine as a consequence, than paying the accumulated tax burden over the years.{{Citation needed|date=December 2023}} Thus, evasion numbers should be even higher than they are, hence for many people there seem to be moral objective countering this practice.{{Citation needed|date=December 2023}}

Government response

File:Size of European Shadow Economy.jpg

The level of evasion depends on a number of factors, including the amount of money a person or a corporation possesses. Efforts to evade income tax decline when the amounts involved are lower.{{Citation needed|date=June 2017}} The level of evasion also depends on the efficiency of the tax administration. Corruption by tax officials makes it difficult to control evasion. Tax administrations use various means to reduce evasion and increase the level of enforcement: for example, privatization of tax enforcementChowdhury, F. L. (1992) Evasion of Customs Duty in Bangladesh, unpublished MBA dissertation, Graduate School of Management, Monash University, Australia.{{better source|date=January 2015}} or tax farming.{{Cite journal | last1 = Stella | first1 = Peter | year = 1993 | title = Tax Farming: A Radical Solution for Developing Country Tax Problems? | journal = IMF Staff Papers | volume = 40 | issue = 1 | pages = 217–25 | jstor = 3867383 | doi = 10.2307/3867383 | s2cid = 153924531 | url = http://elibrary.imf.org/view/IMF001/06707-9781451960327/06707-9781451960327/06707-9781451960327.xml | access-date = 2022-11-02 | archive-date = 2018-06-02 | archive-url = https://web.archive.org/web/20180602113951/http://www.elibrary.imf.org/view/IMF001/06707-9781451960327/06707-9781451960327/06707-9781451960327.xml | url-status = live }}Alam. D (1999) Introduction of PSI system in Bangladesh: Facts and Documents, Desh Prokashon, Dhaka.

In 2011, HMRC, the UK tax collection agency stated that it would continue to crack down on tax evasion, with the goal of collecting £18 billion in revenue before 2015.{{Cite web |title=2010 to 2015 government policy: tax evasion and avoidance |url=https://www.gov.uk/government/publications/2010-to-2015-government-policy-tax-evasion-and-avoidance/2010-to-2015-government-policy-tax-evasion-and-avoidance |access-date=2024-12-17 |website=GOV.UK |language=en}} In 2010, HMRC began a voluntary amnesty program that targeted middle-class professionals and raised £500 million.{{cite news|url=https://www.telegraph.co.uk/finance/financial-crime/8566897/HMRC-opens-16-criminal-cases-over-tax-evasion.html |archive-url=https://ghostarchive.org/archive/20220112/https://www.telegraph.co.uk/finance/financial-crime/8566897/HMRC-opens-16-criminal-cases-over-tax-evasion.html |archive-date=2022-01-12 |url-access=subscription |url-status=live | title=HMRC opens 16 criminal cases over tax evasion | last=Russell | first=Jonathan | date=June 10, 2011 | work=The Telegraph |publisher=telegraph.co.uk | access-date=August 12, 2011 | location=London}}{{cbignore}}

=Corruption by tax officials=

Corrupt tax officials co-operate with the taxpayers who intend to evade taxes. When they detect an instance of evasion, they refrain from reporting it in return for bribes. Corruption by tax officials is a serious problem for the tax administration in many{{which|date=June 2013}} countries.{{Cite web |title=TAX ADMINISTRATION AND CORRUPTION. TOPIC GUIDE |url=https://knowledgehub.transparency.org/assets/uploads/kproducts/Tax_administration_topic_guide.pdf |access-date=17 December 2024 |website=Transparency International}}

=Level of evasion and punishment=

File:Tax-delinquent apartment rental building in Santa Fe, Dasmariñas, Cavite.jpg closed for property tax evasion.]]

Tax evasion is a crime in almost all developed countries, and the guilty party is liable to fines and/or imprisonment. In Switzerland, many acts that would amount to criminal tax evasion in other countries are treated as civil matters. Dishonestly misreporting income in a tax return is not necessarily considered a crime. Such matters are handled in the Swiss tax courts, not the criminal courts.{{citation needed|date=November 2012}}

In Switzerland, however, some tax misconduct (such as the deliberate falsification of records) is criminal. Moreover, civil tax transgressions may give rise to penalties. It is often considered that the extent of evasion depends on the severity of punishment for evasion.

=Privatization of tax enforcement=

File:(Venice) Bocca di Leone in the Doge's Palace.jpg in Venice, Italy. Text translation: "Secret denunciations against anyone who will conceal favors and services or will collude to hide the true revenue from them."]]

Professor Christopher Hood first{{Citation needed|date=July 2008}} suggested privatization of tax enforcement to control tax evasion more efficiently than a government department would,Hood, C. (Autumn, 1986) Privatizing UK tax Law Enforcement?, Public Administration, Vol. 64, pp. 319–333. and some governments have adopted this approach. In Bangladesh, customs administration was partly privatized in 1991.{{better source|date=January 2015}}

Abuse by private tax collectors (see tax farming below) has on occasion led to revolutionary overthrow of governments who have outsourced tax administration.

=Tax farming=

Tax farming is a historical means of collection of revenue. Governments received a lump sum in advance from a private entity, which then collects and retains the revenue and bears the risk of evasion by the taxpayers. It has been suggested that tax farming may reduce tax evasion in less developed countries.

This system may be liable to abuse by the "tax-farmers" seeking to make a profit, if they are not subject to political constraints. Abuses by tax farmers (together with a tax system that exempted the aristocracy) were a primary reason for the French Revolution that toppled Louis XVI.{{citation needed|date=January 2016}}

=PSI agencies=

Pre-shipment inspection agencies like Société Générale De Surveillance S. A. and its subsidiary Cotecna are in business to prevent evasion of customs duty through under-invoicing and misdeclaration.

However, PSI agencies have cooperated with importers in evading customs duties. Bangladeshi authorities found Cotecna guilty of complicity with importers for evasion of customs duties on a huge scale.{{cite web|url=http://www.newagebd.com/2007/sep/14/front.html#21 |date=14 September 2007 |work=New Age |publisher=Media New Age Ltd|location = Dhaka |url-status=dead |archive-url= https://web.archive.org/web/20101120114802/http://www.newagebd.com/2007/sep/14/front.html |archive-date=November 20, 2010 |title = NBR showcauses Cotecna on car import scam}} In August 2005, Bangladesh had hired four PSI companies – Cotecna Inspection SA, SGS (Bangladesh) Limited, Bureau Veritas BIVAC (Bangladesh) Limited and INtertek Testing Limited – for three years to certify price, quality and quantity of imported goods. In March 2008, the Bangladeshi National Board of Revenue cancelled Cotecna's certificate for serious irregularities, while importers' complaints about the other three PSI companies mounted. Bangladesh planned to have its customs department train its officials in "WTO valuation, trade policy, ASYCUDA system, risk management" to take over the inspections.{{cite news|date=3 May 2008|title=PSI system likely to continue|work=Bangladesh News|url=http://www.independent-bangladesh.com/200805034959/country/psi-system-likely-to-continue.html|url-status=usurped|access-date=3 January 2015|archive-url=https://web.archive.org/web/20080511223840/http://www.independent-bangladesh.com/200805034959/country/psi-system-likely-to-continue.html|archive-date=May 11, 2008}}

Cotecna was also found to have bribed Pakistan's prime minister Benazir Bhutto to secure a PSI contract by Pakistani importers. She and her husband were sentenced both in Pakistan and Switzerland.{{cite news |newspaper=New York Times |date=6 August 2003 |title=Pakistan: Bhutto Sentenced In Switzerland |url=https://www.nytimes.com/2003/08/06/world/world-briefing-asia-pakistan-bhutto-sentenced-in-switzerland.html |first=Alison |last=Langley |access-date=20 February 2017 |archive-date=17 April 2019 |archive-url=https://web.archive.org/web/20190417091422/https://www.nytimes.com/2003/08/06/world/world-briefing-asia-pakistan-bhutto-sentenced-in-switzerland.html |url-status=live }}

By continent

=Asia=

==India==

==United Arab Emirates==

In early October 2021, 11.9 million leaked financial records in addition to 2.9 TB of data was released in the name of Pandora Papers by the International Consortium of Investigative Journalists (ICIJ), exposing the secret offshore accounts of around 35 world leaders in tax havens to evade taxes. One of the many leaders to be exposed was the ruler of Dubai and prime minister of the United Arab Emirates, Sheikh Mohammed bin Rashid al-Maktoum. Sheikh Mohammed was identified as the shareholder of three firms that were registered in the tax havens of Bahamas and British Virgin Islands through an Emirati company, partially owned by an investment conglomerate, Dubai Holding and Axiom Limited, major shares of which were owned by the ruler.{{cite web|url=https://themedialine.org/headlines/world-leaders-including-jordans-abdullah-uaes-sheikh-mohammed-found-in-pandora-papers/|title=World Leaders, Including Jordan's Abdullah, UAE's Sheikh Mohammed Found in Pandora Papers|accessdate=4 October 2021|website=The Media Line|date=4 October 2021|archive-date=2 January 2020|archive-url=https://web.archive.org/web/20200102225119/https://themedialine.org/headlines/world-leaders-including-jordans-abdullah-uaes-sheikh-mohammed-found-in-pandora-papers/|url-status=live}}

As per the leaked records, the Dubai ruler owned a massive number of upmarket and luxurious real estate across Europe via the cited offshore entities registered in tax havens.{{cite web|url=https://www.middleeasteye.net/news/pandora-papers-uae-dubai-ruler-sheikh-mohammed-offshore-companies|title=Pandora Papers: The offshore companies of UAE's Sheikh Mohammed|accessdate=4 October 2021|website=Middle East Eye|archive-date=2 January 2020|archive-url=https://web.archive.org/web/20200102225119/https://www.middleeasteye.net/news/pandora-papers-uae-dubai-ruler-sheikh-mohammed-offshore-companies|url-status=live}}

Additionally, the Pandora Papers also cites that the former Managing Director of IMF and French finance minister, Dominique Strauss-Kahn was permitted to create a consulting firm in the United Arab Emirates in 2018 after the expiry of tax exemptions of his Moroccan company, which he used for receiving millions of dollars worth of tax free consulting fees.{{cite web|url=https://www.politico.eu/article/pandora-papers-europe-tony-blair-andrej-babis-milo-dukanovic-volodymyr-zelenskiy-wopke-hoekstra-john-dalli-dominique-strauss-kahn/|title=Meet the European leaders named in the Pandora Papers|accessdate=4 October 2021|website=Politico|date=4 October 2021|archive-date=2 January 2020|archive-url=https://web.archive.org/web/20200102225119/https://www.politico.eu/article/pandora-papers-europe-tony-blair-andrej-babis-milo-dukanovic-volodymyr-zelenskiy-wopke-hoekstra-john-dalli-dominique-strauss-kahn/|url-status=live}}

=Europe=

==Germany, France, Italy, Denmark, Belgium==

A network of banks, stock traders and top lawyers has obtained billions from the European treasuries through suspected fraud and speculation with dividend tax. The five hardest hit countries have lost together at least $62.9 billion.{{Cite web|url=https://cumex-files.com/en/|title=CORRECTIV – Investigative. Independent. Non-profit.|website=cumex-files.com|date=18 October 2018|language=en-US|access-date=2018-11-09|archive-date=2018-10-18|archive-url=https://web.archive.org/web/20181018094515/https://cumex-files.com/en/|url-status=dead}} Germany is the hardest hit country, with around €31 billion withdrawn from the German treasury.{{Cite news|url=https://www.bbc.com/news/world-europe-40199259|title=Germany fears huge losses in massive tax scandal|last=Hill|first=Jenny|date=2017-06-09|work=BBC News|access-date=2018-11-09|language=en-GB|archive-date=2018-11-10|archive-url=https://web.archive.org/web/20181110000223/https://www.bbc.com/news/world-europe-40199259|url-status=live}} Estimated losses for other countries include at least €17 billion for France, €4.5 billion in Italy, €1.7 billion in Denmark and €201 million for Belgium.{{Cite web|url=https://www.dr.dk/nyheder/penge/tema/skattesvindel|title=Kuppet mod Europa|website=DR|language=da|access-date=2018-11-09|archive-date=2018-11-11|archive-url=https://web.archive.org/web/20181111181027/https://www.dr.dk/nyheder/penge/tema/skattesvindel|url-status=live}}{{Cite news|last=Vartdal|first=Ragnhild|title=Norge rammet av europeisk skatteskandale|language=nb-NO|trans-title=Norway affected by European tax scandal|work=NRK|url=https://www.nrk.no/urix/norge-rammet-av-europeisk-skatteskandale-1.14253588|access-date=2018-11-09}}{{Cite news|last=magazine|first=Le Point|date=2018-10-18|title="CumEx Files " : la fraude fiscale à 55 milliards d'euros|language=fr-FR|trans-title="CumEx Files": tax fraud at 55 billion euros|work=Le Point|url=https://www.lepoint.fr/economie/cumex-files-la-fraude-fiscale-a-55-milliards-d-euros-18-10-2018-2263950_28.php|access-date=2018-11-09|archive-date=2018-10-20|archive-url=https://web.archive.org/web/20181020223920/https://www.lepoint.fr/economie/cumex-files-la-fraude-fiscale-a-55-milliards-d-euros-18-10-2018-2263950_28.php|url-status=live}}

==Greece==

==Scandinavia==

A paper by economists Annette Alstadsæter, Niels Johannesen and Gabriel Zucman, which used data from HSBC Switzerland ("Swiss leaks") and Mossack Fonseca ("Panama Papers"), found that "on average about 3% of personal taxes are evaded in Scandinavia, but this figure rises to about 30% in the top 0.01% of the wealth distribution... Taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly, highlighting the need to move beyond tax data to capture income and wealth at the top, even in countries where tax compliance is generally high. We also find that after reducing tax evasion—by using tax amnesties—tax evaders do not legally avoid taxes more. This result suggests that fighting tax evasion can be an effective way to collect more tax revenue from the ultra-wealthy."{{Cite web|url=http://gabriel-zucman.eu/files/AJZ2017.pdf|title=Tax Evasion and Inequality|last1=Alstadsæter|first1=Annette|last2=Johannesen|first2=Niels|last3=Zucman|first3=Gabriel|date=23 October 2018|website=gabriel-zucman.eu|access-date=29 May 2017|archive-date=30 May 2017|archive-url=https://web.archive.org/web/20170530121542/http://gabriel-zucman.eu/files/AJZ2017.pdf|url-status=live}}

==United Kingdom==

File:HMRC offshore evasion poster February 2014.jpg

HMRC, the UK tax collection agency, estimated that in the tax year 2016–17, pure tax evasion (i.e. not including things like hidden economy or criminal activity) cost the government £5.3 billion. This compared to a wider tax gap (the difference between the amount of tax that should, in theory, be collected by HMRC, against what is actually collected) of £33 billion in the same year, an amount that represented 5.7% of liabilities. At the same time, tax avoidance was estimated at £1.7 billion (this does not include international tax arrangements that cannot be challenged under the UK law, including some forms of base erosion and profit shifting (BEPS)).{{cite web |url=https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/715742/HMRC-measuring-tax-gaps-2018.pdf |title=Measuring tax gaps 2018 edition |publisher=HM Revenue & Customs |date=14 June 2018 |access-date=18 June 2018 |archive-date=18 June 2018 |archive-url=https://web.archive.org/web/20180618175226/https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/715742/HMRC-measuring-tax-gaps-2018.pdf |url-status=live }}

In 2013, the Coalition government announced a crackdown on economic crime. It created a new criminal offence for aiding tax evasion and removed the requirement for tax investigation authorities to prove "intent to evade tax" to prosecute offenders.{{cite web|url=https://www.bbc.co.uk/news/uk-politics-31961405|title=UK government announces corporate tax evasion clampdown|work=BBC News|date = 19 March 2015}}

In 2015, Chancellor of the Exchequer George Osborne promised to collect £5 billion by "waging war" on tax evaders by announcing new powers for HMRC to target people with offshore bank accounts.{{cite web|url=http://www.channel4.com/news/george-osborne-budget-2015-tax-avoidance-general-elections|title=George Osborne wages war on tax evasion and avoidance|work=Channel 4 News|date=19 March 2015|access-date=7 August 2015|archive-date=27 July 2015|archive-url=https://web.archive.org/web/20150727092455/http://www.channel4.com/news/george-osborne-budget-2015-tax-avoidance-general-elections|url-status=live}} The number of people prosecuted for tax evasion doubled in 2014/15 from the year before to 1,258.{{cite news|url=https://www.thetimes.com/best-law-firms/profile-legal/article/lawyers-and-tradesmen-caught-in-tax-clampdown-9k7sh5zmm7k|title=Lawyers and tradesmen caught in tax clampdown|last1=Ames|first1=Jonathan|last2=Gibb|first2=Frances|date=14 December 2015|url-access=limited|access-date=14 December 2015|archive-date=14 December 2015|archive-url=https://web.archive.org/web/20151214043704/http://www.thetimes.co.uk/tto/money/tax/article4640191.ece|url-status=live}}

=United States=

In the United States of America, Federal tax evasion is defined as the purposeful, illegal attempt to evade the assessment or the payment of a tax imposed by federal law. Conviction of tax evasion may result in fines and imprisonment,26 U.S.C. § 7201. such as five years in prison on each count of tax evasion.{{Cite web |date=2024-05-31 |title=Brooklyn business owner pleads guilty to tax evasion; underreported proceeds from his buyout agreement {{!}} Internal Revenue Service |url=https://www.irs.gov/compliance/criminal-investigation/brooklyn-business-owner-pleads-guilty-to-tax-evasion-underreported-proceeds-from-his-buyout-agreement |access-date=2024-06-20 |archive-url=https://web.archive.org/web/20240531012623/https://www.irs.gov/compliance/criminal-investigation/brooklyn-business-owner-pleads-guilty-to-tax-evasion-underreported-proceeds-from-his-buyout-agreement |archive-date=2024-05-31 }}

The Internal Revenue Service (IRS) has identified small businesses and sole proprietors as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives. Small businesses and sole proprietorships contribute to the tax gap because there are few ways for the government to know about skimming or non-reporting of income without mounting significant investigations.

Shell companies have historically been utilized as vehicles for tax evasion and other illicit financial activities due to their opaque ownership structures. These entities, often devoid of substantial operations or assets, allow individuals to conceal their true identities and assets, thereby evading taxes and facilitating money laundering. Recognizing the vulnerabilities posed by such practices, the United States enacted the Corporate Transparency Act (CTA). The CTA mandates that companies disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), aiming to dismantle the anonymity of shell corporations and increase transparency in corporate ownership. By requiring comprehensive reporting of beneficial ownership information (BOI), the CTA seeks to mitigate the misuse of shell companies for tax evasion purposes and bolster efforts to combat financial crimes within the U.S. jurisdiction.{{Cite web |date=2024-05-07 |title=The Corporate Transparency Act is Constitutional, Government and "Friend of the Court" Briefs Make Clear |url=https://thefactcoalition.org/the-corporate-transparency-act-is-constitutional/ |access-date=2024-06-20 |website=The FACT Coalition |language=en-US}}

{{As of |2007}} the most common means of tax evasion was overstatement of charitable contributions, particularly church donations.{{cite news |first=Patricia |last=Sabatini |newspaper=Pittsburgh Post-Gazette |title=Tax Cheats Cost U.S. hundreds of billions |url=http://www.post-gazette.com/pg/07084/772106-28.stm |date=25 March 2007 |access-date=21 October 2011 |archive-date=23 February 2012 |archive-url=https://web.archive.org/web/20120223003234/http://www.post-gazette.com/pg/07084/772106-28.stm |url-status=live }}

==Estimates of lost government revenue==

The IRS estimates that the 2001 tax gap was $345 billion and that the 2006 tax gap was $450 billion.{{cite web|title=Tax Gap for Tax Year 2006 Overview Jan. 6, 2012|url=https://www.irs.gov/pub/irs-soi/06rastg12overvw.pdf|publisher=U.S. Internal Revenue Service|access-date=2012-06-14|archive-date=2019-12-10|archive-url=https://web.archive.org/web/20191210013511/https://www.irs.gov/pub/irs-soi/06rastg12overvw.pdf|url-status=live}} A study of the 2008 tax gap found a range of $450–$500 billion, and unreported income to be about $2 trillion, concluding that 18 to 19 percent of total reportable income was not being properly reported to the IRS.

Tax evasion and inequality

Generally, individuals tend to evade taxes, while companies rather avoid taxes. There is a great heterogenic among people who evade people as it is a substantial issue in society, that is creating an excessive tax gap. Studies suggest that 8% of global financial wealth lies in offshore accounts.{{Cite journal|last1=Alstadsæter|first1=Annette|last2=Johannesen|first2=Niels|last3=Zucman|first3=Gabriel|date=2019-06-01|title=Tax Evasion and Inequality|journal=American Economic Review|volume=109|issue=6|pages=2073–2103|doi=10.1257/aer.20172043|issn=0002-8282|doi-access=free}} Often, offshore wealth that is stored in tax havens stays undetected in random audits.{{Cite journal|last1=Guyton|first1=John|last2=Langetieg|first2=Patrick|last3=Reck|first3=Daniel|last4=Risch|first4=Max|last5=Zucman|first5=Gabriel|date=2021-03-22|title=Tax Evasion at the Top of the Income Distribution: Theory and Evidence|journal=Working Paper Series|doi=10.3386/w28542|s2cid=233637494|url=https://www.nber.org/papers/w28542|language=en|doi-access=free|access-date=2021-04-26|archive-date=2021-04-26|archive-url=https://web.archive.org/web/20210426081812/https://www.nber.org/papers/w28542|url-status=live}} Even though there is high diversity among people who evade taxes, there is a higher probability among the highest wealth group. According to Alstadsæter, Johannesen and Zucman 2019 the extent of taxes evaded is substantially higher with higher income, and exceptionally higher among people of the top wealth group. In line with this, the probability to appear in the Panama Papers rises significantly among the top 0.01% of the wealth group, as does the probability to own an unreported account at HSBC. However, the upper wealth group is also more inclined to use tax amnesty.

References

External links

[http://www.economist.com/topics/tax-evasion-and-fraud Tax Evasion and Fraud] collected news and commentary at The Economist
{{NYTtopic|subjects/t/tax_evasion|Tax Evasion}}
[https://www.irs.gov/uac/Employment-Tax-Evasion-Schemes Employment Tax Evasion Schemes] {{Webarchive|url=https://web.archive.org/web/20170629155519/https://www.irs.gov/uac/employment-tax-evasion-schemes |date=2017-06-29 }} common employment schemes at IRS

;United States

[https://web.archive.org/web/20090830103920/http://www.usdoj.gov/tax/txdv09729.htm US Justice Dept press release] on Jeffrey Chernick, UBS tax evader
[https://www.justice.gov/tax US Justice Tax Division] and its enforcement efforts

Category:Informal economy