Shining a light on tax evasion and avoidance
Tax evasion costs European countries billions of Euros a year, which has a detrimental impact on wider society and undermines public faith in the tax system as a whole. We spoke to Annette Alstadsæter, Ronald Davies, and Hector Ulloa about the work “Skatteforsk – Centre for Tax Research” is doing uncovering the facts around tax evasion, to then inform policy design.
The extent of tax evasion is by nature difficult to accurately assess – after all, tax cheaters prefer to keep their activities hidden – but it is estimated to cost European countries many billions of Euros a year in lost revenue, widening social inequalities and undermining public faith in the tax system as a whole. The team at Skatteforsk, a new tax research centre based at the Norwegian University of Life Sciences, is working to quantify the hidden economy, which could then help inform the design of tax policy. “The first thing we want to do is essentially draw up a map; what is the extent of tax evasion? How do people respond to tax laws and changes? From that, we can then learn more about how we should design the tax system,” outlines Annette Alstadsæter, Director of Skatteforsk. Researchers are analysing large volumes of data, including both documents leaked into the public domain and also pseudoanonymised administrative data on Norwegian firms and individuals. “We’re interested in looking for patterns in the data that are indicative of certain kinds of behaviour,” says Ronald Davies, Research Director at Skatteforsk.
Tax avoidance and tax evasion
A distinction needs to be drawn here between tax avoidance, which is legal, and tax evasion, which isn’t. An individual may legally reduce their inheritance tax liabilities by disposing of their assets later in life for example, but concealing personal wealth is illegal, something that some wealthy people attempt by under-reporting their wealth and using it abroad. “In the past you could do that pretty easily, but that has changed now, with extensive information exchange. More than 100 countries now exchange information automatically about the bank accounts of their respective tax residents,” says Alstadsæter. There are however still a lot of loopholes and differences between national tax codes, and those with the resources to pay for specialist advice can exploit the grey area between tax evasion and avoidance. “A lot of money can be made by utilising these loopholes and inconsistencies,” continues Alstadsæter. “We have found that big firms are increasingly spending on tax advice, and they’re doing much of it in-house.”
The Skatteforsk team is now combing through the available data, looking to identify cases where tax loopholes are being exploited, with the ultimate aim of helping to eliminate them. Tax evasion is very much a global issue, and while plenty of cross-border transactions are entirely legitimate, Davies says that others may be more questionable, an issue that he and his colleagues are investigating. “How do you tease those out and look for red flags? That’s one of the big challenges in tax policy,” he outlines. The Skatteforsk team collaborates with researchers across the world in this work, bringing together a variety of perspectives. “As economists, we’re trained to think about how people behave, but we also work with legal experts, as well as people with really strong data or theory skills and knowledge of particular datasets,” says Davies. “We’re looking to take all of this data and put it together in a more holistic sense, as no one single tool is going to detect all cases of tax evasion.”
This research has already yielded some important results, shining a light on the tax
affairs and financial dealings of both major firms and wealthy individuals. The Skatteforsk team played a significant role in uncovering the extent of foreign property ownership in Dubai for example, which has attracted a lot of media interest. “We’ve had lots of requests for information from journalists in developing countries, as we’ve found that some elites from these nations own property in Dubai. These journalists want to learn more, so that they can hold governments and members of the elite accountable,” outlines Alstadsæter.
The Skatteforsk team also recently launched the Atlas of the Offshore World (https://atlasoffshore.world/) and the Global Tax Evasion Report together with the EU Tax Observatory, demonstrating their commitment to heightening public awareness of the issue.
“The Global Tax Evasion Report shows how trends in tax evasion are developing over time,” says Alstadsæter.
bit of a leaky bucket to some extent, as every time we plug a hole, a new one develops.” This research feeds into the wider goal of maintaining public faith in the tax system and avoiding the corrosive perception that some people or companies are paying less than they should. Alongside their research into tax evasion and avoidance, the Skattteforsk team are also working to highlight its practical impact. “We’re looking at how tax evasion and avoidance affects employment and wages for example. Who in a company gets higher wages when taxes are being avoided?”
says Davies. The scope of the centre’s research is expanding further, as researchers seek to understand the indirect effects of tax changes. “We are also looking into the impact of taxes on inequality and sustainability. How can we reduce emissions and encourage the shift towards a more sustainable economy?” outlines Alstadsæter. “Who is paying for the
“What is the extent of tax evasion? How do people respond to tax laws and changes? We can then learn more about how we should design the tax system.”
Proposing solutions
The goal at Skatteforsk is not just to highlight problems, but also to propose solutions and effectively build a bridge between tax theory and practice. This is about more than simplifying the tax code, as the tax system is not just a means of raising revenue, but also of incentivising certain kinds of behaviour which may leave loopholes that can be exploited. “A government might want to subsidise research and development for example, or encourage investment in green technologies, so then the system becomes fairly complicated,” points out Davies. A large part of the solution lies in ensuring that tax law is very precisely worded, which is an ongoing challenge. “We’re trying to think about how we develop tax policy for the real world, particularly relating to the issues of tax evasion and avoidance,” continues Davies. “It’s always going to be a
shift towards a more sustainable economy?
There are variations between countries in how much they are investing in this area, but you may also find big inequalities within countries.”
The shift towards net zero requires collective effort, which may be undermined if wealthy people shift a lot of their money to tax havens. The Skatteforsk team can play an important role in this respect, shining a continuous light on the issues around tax evasion and avoidance, not just waiting for them to explode into the public consciousness. “Skatteforsk can really fill a gap in society. Our centre has the goal of bringing important information about tax affairs to public attention, and not just waiting for the publication of the next ‘Panama papers’,” says Hector Ulloa, Outreach Director at Skatteforsk.
Sk ATTefoRSk –
CenTRe foR TA x ReSeARCH
ReAL TAx PoLICY foR THe ReAL WoRLD
Project objectives
The purpose of Skatteforsk is to provide policy relevant, cutting edge taxation research At its heart is the recognition of the need for facts to inform both public debate and policy design. In taxation, where evasive behaviour actively seeks to conceal those facts, this need is particularly acute. This is the void that the Centre and its global network that includes academia, government, and the private sector, seeks to fill.
Project funding
Established as a research network by Annette Alstadsæter in 2017, “Skatteforsk” received a grant from the Research Council of Norway in December 2022 to establish a formal research centre (via grant number 341289) with corresponding administrative structures. It was officially inaugurated in March 2023.
Project Partners
Skatteforsk – Centre for Tax Research now has more than 70 members, of which 11 are hired full or part-time at the Norwegian University of Life Sciences, where the center is hosted by the School of Economics and Business.
Contact Details
Professor Annette Alstadsæter
Project Director
Skatteforsk – Centre for Tax Research
School of Economics and Business Norwegian University of Life Sciences 1432, Ås
e: skatteforsk@nmbu.no
W: https://skatteforsk.no
Annette Alstadsæter is Professor at School of Economics and Business, Norwegian University of Life Sciences, Director of SKATTEFORSK - Center for Tax Research, and Program Director for the Atlas of the Offshore World at the EU Tax Observatory.
Ronald Davies is a Professor of Economics at University College Dublin and Research Director of Skatteforsk.
Hector Ulloa is Outreach Director of Skatteforsk and joined the team in July 2023.
