H26 - Tax Evasion and AvoidanceReturn

VAT is one of the most important sources of the public revenues in the EU Member States; therefore, it is crucial to determine the factors of VAT collection. So far, only a few researchers analyzed the influence of individual economic sectors on the indicators of VAT collection, namely Compliance and Policy gaps. Therefore, the authors used the autoregressive distributed lag (ARDL) and Error Correction (EC) models to study the relationship between eleven economic sectors, the VAT Compliance Gap and the VAT Policy Gap, which were selected as the dependent variables. The research focused on twenty-five EU member states, and the examined time period was from 2005 to 2020. The results showed that the Compliance Gap is affected increasingly by the Construction and Arts sectors and decreasingly by the Agriculture and Manufacturing sectors. The Policy Gap was increasingly affected by the Real Estate, Public Administration, and Financial Services sectors. These findings established which economic sectors should receive 'special attention' from tax administrations in the EU countries to tackle tax evasion, and which are the most critical in making strategic decisions regarding tax legislation.

Multinational enterprises apply aggressive tax planning (ATP) to optimize global tax liability usually by combining parameters of different tax systems in both national jurisdictions and double tax treaties. At a macroeconomic level, the implementation of various optimization schemes affects the given values of the balance of payments. By conducting econometric analysis, the present paper examines the extent to which selected optimization schemes can be traced in the Czech Republic's balance of payments. The results show that payments for counselling services and royalties flow mostly to locations with low corporate tax rates, which may suggest an attempt to shift the tax base. Moreover, dividend and interest yields tend to move to countries with high foreign direct investments (FDIs) and balanced ratios between FDIs received and made, indicating that they are only conduit (transit) countries through which profits are transferred to another destination.

The public debate on taxation of domestic small and medium enterprises (SMEs) versus large and multinational enterprises (MNEs) is highly relevant nowadays. Using confidential tax return data instead of financial statement data, the results indicate that domestic SMEs face on average a 1.6 and 4.8 percentage-point higher effective tax burden compared to large domestic and large MNEs respectively. This suggests that tax incentives for SMEs are inadequate to compensate for the tax advantages of large and internationally operating companies. Furthermore, we show that the use of information built exclusively upon accounting data could bias the results.

Multinational enterprises (MNE) allocate valuable intangible assets and strategic functions to the strategy units (usually parent companies) for that allows them to impropriate the majority of the profits there and protect those assets from subsidiaries' risks. The subsidiaries are frequently routine units. Subsequently, the routine units receive low reward, as they perform only routine functions. The OECD transfer pricing guidelines support that practice to the detriment of go-vernment budgets and public by considering the routine units as the low-risk ones. This paper reviews the relevant literature and shows that the traditional view of risk and profit allocation between strategy and routine units is inconsistent with their relative risks, resp. with relative risks of MNE's subsidiary and independent company. The long-term perspective of MNEs' members' downside risks provides correct information for transfer pricing regulation and fiscal authorities. Results of this paper enable proposal of the transfer pricing risk analysis targets and tools.

Tax evasion can have important consequences for the macroeconomic and social balance of a country, as well as for its monetary and fiscal development. A limited number of studies dealing with the consequences for fiscal imbalance are present, but their objectives vary a lot. This analysis has been conducted with the purpose to empirically assess the impact of the tax evasion changes on the public debt in the 28 EU countries. The research considers the dynamics of public debt during the period of 21 years. The research is based on a probabilistic sensitivity analysis approach that was conducted individually for four clusters using @Risk of Palisade Decision Tools Package. The analysis showed a negative correlation between the tax evasion and the public debt, where the growth of the tax evasion is connected with the decrease of the public debt in a given country. The extent of the effect varies depending on the country, or more precisely on the groups of countries and is conditioned by other macroeconomic variables.

This paper explains the term "VAT gap", and briefly describes the calculation methods used in existing literature quantifying the VAT gap in various countries of the world. The VAT gap is calculated as the difference between the theoretical VAT liability ascertained from the national accounts and the VAT revenues accrued by the financial authorities. Although VAT gap is not caused by tax evasion only, it could serve as its indicator. Further, it provides a review of scientific papers and various studies that analyse factors influencing the size of the VAT gap, and summarizes the results of these empirical studies. The main purpose of this article is to perform a regression analysis of potential variables explaining the VAT gap in 24 EU Member States in two selected years (2002 and 2006) for which data on the VAT gap was available. Two factors common for both examined years affecting the VAT gap in the surveyed countries were found, being the final consumption of households and non-profit organizations in each state, with a positive impact on the VAT gap, and the share of VAT in GDP, reducing the VAT gap. Other identified variables that would explain the size of the VAT gap were the share of the shadow economy and the standard VAT rate, with a positive impact, and GDP per capita, the share in intracommunity trade, final consumption of restaurant and hotel services, and the number of VAT rates, having a negative impact on the VAT gap.