What Determines Information Sharing for Income Tax Purposes: The Swedish Case

Abstract

The sharing of information between national tax authorities for income tax purposes has recently become a central topic in international tax policy discussions. Tax authorities share tax information with a view to stem tax evasion on residents’ cross-border income under the residence principle, which prescribes taxation of residents’ worldwide income. Little is known about the nature of the determinants of tax information sharing, let alone countries’ experiences with information sharing. Most countries treat data on the use of information sharing with considerable confidentiality. Using a unique dataset on tax information sharing between the Swedish tax authorities and tax authorities of both industrialized and transition countries, we describe the Swedish experience and investigate the determinants of tax information sharing. Our benchmark sample presents data for the year between 1993 and 2000 for 45 countries. The information sharing process is modeled by a unilateral gravity model, where the dependent variable measures the degree to which Sweden’s partner country has provided tax information. To explain any additional heterogeneity above and beyond the basic gravity pattern, we include additional control variables, time dummies, and several variables of interest. We find that the height of a country’s domestic income tax rate and the lowness of the non-resident withholding tax rate increase its willingness to provide spontaneous tax information.