Tax Compliance Dancing

Lotta Björklund Larsen,Benedicte Brøgger

doi:10.3167/jla.2021.050104

Abstract

Taxation is central to the financing of most states, and monitoring that taxpayers comply with laws and regulations is a correspondingly important government activity. Governments have many ways to design tax systems, and no two national tax systems are the same. Hence, compliance strategies differ and so do outcomes. Complying with tax laws, beyond the fiscal aim of contributing revenue to a state, is multifaceted in a globalized world. Tax administrations struggle to control large multinational enterprises’ (MNEs) tax planning, avoidance and general evasion, whereas MNEs grapple with the problem of having to comply with widely divergent national tax systems. As a response, tax administrations, through membership organisations such as the OECD, invent forms of collaboration between tax administrations and MNEs—all with the goal of increasing tax compliance. One way they do this is through the co-operative compliance model. Here, we compare two compliance projects, based on this model, in Norway and Sweden to shed more light on what tax compliance is in practice. We elaborate on Valerie Braithwaite’s seminal concept of tax compliance as a ‘dance’ between tax administrations and taxpayers. In so doing we underline the significance of paying attention to conceptions of time and space as critical elements of creating compliance in practice between tax administrations and MNEs.

Highlights

Taxation is central to the financing of most states, and monitoring that taxpayers comply with laws and regulations is a correspondingly important government activity
ISSN 1758-9584 (Online) wu Lotta Björklund Larsen and Benedicte Brøgger complied with high tax rates during the Second World War (Sparrow 2008); merchants in Chad comply for the right to trade (Roitman 2005); and Nordic citizens are instilled with the call of duty to contribute to the welfare state (Sejersted 2011)
We know of no other co-operative compliance programme that has been publicly challenged to the same extent and that has triggered a number of mechanisms that no one in the Swedish tax administration, Skatteverket, foresaw

Summary

Introduction

Taxation is central to the financing of most states, and monitoring that taxpayers comply with laws and regulations is a correspondingly important government activity. Tax administrations struggle to control large multinational enterprises’ (MNEs) tax planning, avoidance and general evasion, whereas MNEs grapple with the problem of having to comply with widely divergent national tax systems. Tax administrations, through membership organisations such as the OECD, invent forms of collaboration between tax administrations and MNEs—all with the goal of increasing tax compliance One way they do this is through the co-operative compliance model. With the advent of globalisation and market liberalisation from the 1990s onwards, the responses of governments and MNEs revealed a disconnectedness between national tax systems States adapted their tax regimes and empowered their national tax administrations. The routine work of preparing files, controlling content and interpreting results to determine tax rates takes considerable time and effort by MNEs, consultants and tax administrations This mutually dependent administrative work is here referred to as ‘tax compliance dancing’.

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Methods

Conclusion