Countermeasures to tax fraud, evasion and avoidance: A critical review

Abstract

After an overview of size and methods of tax evasion and avoidance, I provide an ethical evaluation of a number of controversial enforcement methods used to coerce compliance with tax laws: creating third-party liability for lost VAT; the abuse of law doctrine as developed by the Court of Justice of the European Union; blacklisting of tax havens; public shaming of tax avoiders; and imposing mandatory, third-party, cross-border reporting. The results of the evaluation are mixed but, generally, not positive. Third-party liability is reasonably applied in the EU when it comes to persons acting in good faith but the standards applied to those acting with some degree of mala fides are less satisfactory. Blacklisting is an ethically unacceptable effort to pressure low-tax countries, while violating their sovereignty, towards revising their policies and adhering to a higher rate of taxation and tax policy standards developed without their input or consent. Public shaming is an inefficient and misleading effort to coerce multinational companies to terminate tax planning strategies. FATCA has triggered a development into global information exchange which raises questions as to the protection of civil liberties. Although, the subject measures are not judged positively, this does not diminish the indispensable role of tax law enforcement as a constituent component of the equilibrium model. Policymakers are advised to ensure that tax law enforcement measures meet the equilibrium test, i.e., the required proportionality, because that would not only enhance voluntary compliance but encourage taxpayers to include ethical considerations when deciding on tax planning; and it may lead to a synergetic relationship between taxpayers and tax agencies.