1. Introduction
Transparency is one of the key factors underpinning the integrity of the tax system. It takes many forms. The Extractive Industries Transparency Initiative (EITI), and relevant laws in 55 implementing countries[1] aim to improve transparency and accountability in resource-rich countries by requiring extractive industries to disclose a company’s tax and other payments to each country. The European Union expands the transparency requirement to financial industries.[2] The Organization for Economic Cooperation and Development (OECD)/G20 Project on Base Erosion and Profit Shifting (BEPS) requires countries to adopt country-by-country (CbC) reporting[3] as a minimum standard and provides guidance regarding the design of the mandatory disclosure regime on aggressive or abusive tax planning schemes. The CbC reporting is limited to tax authorities and is not available to the public. Some EU Member States and civil society organizations (CSOs) have been arguing that the CbC reporting should be open to the public. The Global Forum on Transparency and Exchange of Information for Tax Purposes has been strengthening the standards on exchange of information (EOI), and automatic EOI started in 2017. Some countries have adopted public disclosure of tax return information of broader taxpayers beyond extractive and financial industries. This paper discusses the last type of transparency, that is, public disclosure of taxpayer information by tax authorities as a measure to improve tax compliance.
Disclosure of tax return information, such as an amount of tax liability, is both an old and a new issue. When the United States introduced its first income tax in 1861, the law permitted the public to examine the names of taxpayers and the amount of their tax liabilities.[4] After several law changes,[5] confidentiality became a general rule in the United States in 1976. In contrast, in countries like Finland, Norway and Sweden, tax return information has been publicly available for many years.
After the global financial crisis of 2008, the public has become more concerned about whether large businesses are paying their “fair share” of the tax burden. While tax information included in the publicly available financial statements of large corporations does not necessarily indicate an actual amount of tax paid,[6] several multinational corporations (MNCs) have been criticized for their tax payment behaviour after the amount of tax paid was revealed by investigative journalism.[7] With increasing public pressures on MNCs for more transparency on tax information, some countries tried to introduce a disclosure system, and in December 2015, the Australian Taxation Office (ATO) published income tax payable and other information on large corporations for the first time.
While the public disclosure of taxpayer information may have several policy purposes, the most central is to promote tax compliance. It is expected to deter taxpayers from underreporting their income and from tax evasion because taxpayers may be reluctant to underreport income if the public or their neighbours can observe income and expenditure details – and report discrepancies to the authorities.[8] For large corporations, a poor tax payment record may cause reputational risks and loss of their clients. On the other hand, disclosure of taxpayer information may undermine privacy, and in the case of companies, proprietary secrets. Thus, despite these potential benefits of disclosure, confidentiality of taxpayer information has long been a key principle to be observed in tax policy and tax administration, and in many countries tax laws include provisions to ensure confidentiality of taxpayer information.
There are other types of disclosure of taxpayer information. First, disclosing the name of taxpayers whose tax liabilities have been delinquent or who were indicted or convicted for tax fraud. This type of “name and shame” approach has been adopted by many countries and at a state government level in the United States. Second, there are countries that honour “good” taxpayers. For example, Japan, Korea, and other countries publish the names of taxpayers who have had good tax compliance records.[9] The European Parliament’s Economic and Monetary Affairs Committee recommended that the European Commission adopt a “Fair Tax Payer” label in December 2015, which shows that a company pays a fair share of taxes and reports tax matters in its annual financial report.
This paper provides tax policymakers, who may be considering introducing a public disclosure system in order to improve tax compliance, possible options and issues to be taken into account in deciding and designing the system. The paper discusses disclosures regarding both personal income tax and corporate income tax, and surveys existing systems.
The paper comprises five sections: introduction (section 1.), overview of current disclosure systems (section 2.), pros and cons of the systems (section 3.), empirical analysis of the effects of disclosure on tax compliance (section 4.), and issues to be considered in designing a public disclosure system (section 5.).
2. Overview of Current Disclosure Systems[10]
This section comprises three subsections: general disclosure (section 2.1.); targeted disclosure (section 2.2.); and honouring good taxpayers (section 2.3.).
2.1. General disclosure
This paper uses the term “general disclosure” for a system that discloses taxpayer information of those that meet certain criteria regardless of tax delinquency or conviction for tax fraud.[11] The scope of the taxpayers, information subject to disclosure, and measures of disclosure vary by country. Scandinavian countries disclose a wide scope of taxpayers and tax return information: for example, Norway discloses names, address, taxes and income of all taxpayers online. Other countries are more restrictive. The following countries (in alphabetical order) have general disclosure.[12]
Australia
The ATO published tax information regarding large corporations for the 2013/14 income tax year for the first time in December 2015.[13] Australian public and foreign owned corporate entities with a total annual income of AUD 100 million or more are subject to disclosure. In addition, Australian-owned resident private companies, with a total income of AUD 200 million or more are also subject to disclosure. Information disclosed in the report is on the entity’s name, total income, taxable income, and tax payable. The latest Corporate Transparency Report for the 2018/19 Income Year published information on 2,311 corporate entities in December 2020.[14]
Denmark
Tax information regarding corporations such as taxable income, utilized carried-over loss, and tax payable has been disclosed by the tax authorities since 2012.[15] Such information for 2015/18 is currently available at the website of the Danish tax administration (https://www.sktst.dk/aktuelt/skatteoplysninger-for-selskaber/). The excel sheet with tax payments of all companies in Denmark is also available.
Finland
The Finnish tax authorities publish tax information such as annual income and tax payable of all individuals on 1 November every year. Any person can obtain others’ tax information by a phone call or at the customer terminals at certain local tax offices. Local newspapers reported tax information of those attracting attention of the public every year. Tax information regarding corporations also has been published.[16]
France
The list of taxpayers (for personal income tax and corporate income tax) with name, address, taxable income, and tax liability was established in 2010[17] in each commune[18] and has been updated annually. The list is available for residents of the same commune only at a commune office, but the authorities can refuse access to the list if a resident wants to access the list for commercial reasons.
Norway
Norway has made taxpayer information public since 1863. This information was available only at a local tax office until 2001. In 2001, a national newspaper offered online access to tax information for all individual taxpayers, and was followed in this by other major newspapers. Individual taxpayers’ names, net income, and assessed taxes thus became available to the public online. Due to arguments about invasion of privacy, access to tax information has been restricted to discourage use by those with idle curiosity or nefarious motivation. Since 2011, the online publication is now available only through the tax authorities’ web site (www.skatteetaten.no).[19] The data is searchable by individuals’ names, zip codes and city. Any person can access the website, but a person who accesses the website needs to identify himself or herself, and there is a limit of 500 searches in one month.[20] Taxpayer information of all corporations is also publicly available.
Pakistan
The Federal Board of Revenue (FBR) started publishing the total amount of tax paid by all companies and individuals on the FBR’s website[21] in 2014. The FBR website includes the “Parliamentarians Tax Directory” that is a list of all parliamentarians with a National Identity Card number with the amount of tax they paid.[22]
Philippines
The Department of Finance publishes details on the 500 taxpayers who paid the most tax.[23] The latest report was for the taxable year 2019.[24]
Sweden
Tax returns of all corporations and individuals have been public since 1903. Copies of the “Taxation Calendar", which lists the earnings of those with middle to high incomes, are printed and sold to the public.[25]
2.2. Targeted disclosure
“Targeted disclosure” means the disclosure of taxpayer information on those who have been delinquent in tax payments or who are indicted or for whom other criminal procedures are initiated. The scope of delinquent taxpayers that are subject to disclosure varies by country. Online is common as a mode of disclosure. The following countries have at least some measure of disclosure.[26]
Canada
The Canada Revenue Agency (CRA) also issues press releases on convicted tax fraud cases. It also issues press releases at different stages of an investigation, for example, when information relating to the laying of criminal charges becomes available to the public through court records, to warn Canadians of potential fraud schemes.[27]
Czech Republic
The Czech VAT law has been revised in 2012 so that the tax administration can publish the list of “unreliable” VAT payers on its website.[28] These include those that regularly miss their VAT filing, do not respond to inquiries from tax authorities, have delinquent VAT exceeding CZK 0.5 million[29] for three months, are regularly issued with tax assessments, or use virtual addresses.[30] Customers who purchase goods or service from an unreliable VAT payer will be liable for VAT unpaid by the supplier – thus this disclosure actually carries potential economic consequences.[31]
Finland
The Finnish tax authorities publish tax debt information on individual and corporate taxpayers if VAT, payroll withholding, or employer contributions are unpaid at the due date printed on the reminder letter and total at least EUR 15,000. The tax authorities do not publish the tax debt information on their website, but the information (the “Public Protest List”) is published by newspapers and in the Official Gazette.[32]
Greece
The Greek tax authorities published a list of 4,000 top “tax dodgers” in 2012.[33] Four thousand people owed the government EUR 15 billion, which accounts for a quarter of the total taxes in arrears.[34]
Bangalore (India)
According to news reports,[35] the city government of Bangalore, in southern India, sends drumbeaters to offices and homes of property owners who have been delinquent on property taxes and have not responded to payment notices sent by the city. A band of drummers beats a drum and dances in front of an office or home of tax delinquent with a big banner, which carries the delinquent taxpayer’s name. The drumbeaters are accompanied by revenue officials who can instantly settle the arrears. This approach started in 2011 and was also adopted by other cities in India.[36] The City of Patna sends a group of singers to a tax delinquent’s office.[37]
Portugal
The Portuguese tax authorities started publishing a list of delinquent taxpayers (individuals and corporations) with the amount of delinquent tax on their website[38] in 2006. The authorities publish the name and taxpayer identification number of individual taxpayers with delinquent tax of more than EUR 7,500 and corporations with more than EUR 10,000. The amount of delinquent tax is not published, but the list is classified by a range of the amount of delinquent tax.
United Kingdom
The UK tax authorities (HM Revenue and Customs) (HMRC) has started publishing the list of “deliberate tax defaulters” since 2010 on its website.[39] Section 94 of the Finance Act of 2009 allows HMRC to publish information about a deliberate tax defaulter where HMRC have carried out an investigation, and the person has been charged one or more penalties for deliberate defaults, and those penalties involve tax of more than GBP 25,000. The published information includes the name and address of defaulters, the amount of penalty and the total amount of tax on which penalties are based. The published information is withdrawn after 12 months. The list does not include taxpayers who were convicted for tax fraud. Where tax criminals have been successfully prosecuted, HMRC provides details of the tax fraud and those convicted in a press release.
United States
The Department of Justice (DOJ) frequently issues a press release when a tax offender is indicted, convicted or sentenced by the court.[40] The number of press releases issued by the DOJ in 2020 was 163.[41] The press releases summarize the fraud[42] committed by the offender.
States in the United States
As of 2020, 19 states[43] in the United States published the name of taxpayers who have delinquent tax payments.[44] For example, California publishes a list of the 500 largest tax delinquencies in excess of USD 100,000 twice a year on the website of the Franchise Tax Board (FTB) and updates the list when names are removed.[45] The Franchise Tax Board mails the taxpayer a letter at least 30 days before placing the taxpayer on the list.[46] The list includes the names, addresses, amount owed, and taxpayers’ occupational and professional licences.
Many states reported an immediate decline of delinquent taxes. It should be noted, however, in these states, other measures such as suspension of drivers’ licences and other professional licences or amnesty might have affected tax collection from tax delinquents, and an increase in tax collection does not necessarily result solely from public disclosure.
2.3. Honouring “good taxpayers”
The following countries are those which, to the author’s knowledge, honour good taxpayers. The criteria for selecting good taxpayers vary by country. As mentioned in section 2.1., the Philippines disclosed the top 500 taxpayers who paid the most including corporations and individuals. This also honours taxpayers.
Japan
The National Tax Agency (NTA) annually honours hundreds of taxpayers who contributed to enhancement of tax morale and promotion of the self-assessment system.[47]
Honoured taxpayers are mostly those who volunteered to work as heads of non-profit organizations[48] that cooperate with the NTA for improving tax compliance for a long time. These organizations, for example, hold explanatory meetings on tax law changes or events in “Think About Tax Week".[49] However, it is widely understood by the public that keeping a track record of good compliance in his or her tax payment is a prerequisite to be honoured. There is no merit other than being publicly honoured. However, some of those who had been honoured by the Minister of Finance were conferred a decoration from the Emperor several years later.
Korea (Rep.)
The National Tax Service (NTS) annually honours individual taxpayers and corporations that “faithfully” paid their taxes as the “model taxpayers” of the year. The model taxpayers include celebrities. Each year two celebrities from the group of model taxpayers are chosen to be honourary ambassadors of the NTS. For example, a singer and an actor received a presidential award from the government and were appointed as the honourary ambassadors in 2020. The model taxpayers are exempt from tax inspections for the next three years, and they can receive expedited treatment at immigration checkpoints in airports.[50]
Pakistan
The FBR started issuing “Taxpayers Privileges and Honour Cards (TPHCs)"[51] to the top 100 taxpayers in each of four categories, salaried individuals, non-salaried (self-employed) individuals, association of persons (partnerships), and companies in 2014.[52] The Prime Minister hands the TPHCs to the top taxpayers at the Prime Minister’s office on the Pakistan Day.[53] The TPHC is valid for one year. Besides being invited to ceremonies hosted by the Prime Minister, the TPHC holders are entitled to privileges such as VIP lounges in the airports, fast track clearance at immigration counters, gratis passports, and increased baggage allowance.
Uganda
The Uganda Revenue Authority (URA) started URA Taxpayer Awards in 2005. In the Taxpayer Appreciation Season in 2020 (October to December), the URA publicly honoured the top 100 compliant taxpayers who were selected from the URA database based on consistency and voluntary compliance with tax obligations. The recipients will receive preferential treatment or service in handling their tax affairs such fast clearance at customs.[54]
European Parliament – A proposal
As a new way to honour good taxpayers, the European Parliament made a recommendation on a new European “Fair Tax Payer” label in December 2015.[55] The Fair Tax Payer label is only awarded to those companies that have engaged in good tax practices and met the eligibility criteria, which are beyond what is required by EU and national tax law. It is expected that companies will be motivated by the label to make paying a fair share of taxes an essential part of corporate social responsibility, and to report on their stance on taxation in their annual report.[56] Regarding the eligibility criteria for the label, the group advocating the “Fair Tax Mark"[57] in the United Kingdom, which was referred to in the EU Parliament report, assess a level of transparency and effective tax rate of a company. To be eligible for the Mark, a company needs to make a full set of accounts available to the public, pay a corporate income tax at a rate that is reasonably close to the UK headline rate,[58] and meet other criteria. SSE[59] is the first FTSE 100[60] company that was awarded the Fair Tax Mark in October 2014.[61]
3. Pros and Cons of Public Disclosure of Taxpayer Information
Policy discussions on whether to disclose taxpayer information have been conducted since the introduction of the first income tax in the United States in the 19th century. In recent years, when scandals over corporate and accounting practices such as those of Enron emerged in the early 2000s, disclosure of tax returns was considered mainly a measure to curb corporate fraud.
Amid fiscal austerity measures and mounting needs for more revenue after the global financial crisis emerged in 2008, mass media reports revealing that some MNEs are paying a small amount of taxes compared with their business activities in both advanced and developing countries led to public outrage. The disclosure of taxpayer information thus has now received the spotlight as a measure to improve tax compliance.
3.1. Arguments supporting public disclosure
Disclosures improve tax compliance
Proponents of publicity in the United States in mid-19th century argued that the publicity is necessary to ensure compliance with tax laws because making tax and income information subject to scrutiny by taxpayers’ neighbours and friends helps ensure compliance and prevent collusion between taxpayers and tax collectors.[62] The arguments were based on the minimal tax administration capacity then. Thus, these arguments may still be particularly relevant in developing countries with a low level of capacity of tax administration. Public disclosure would be a cheaper measure to improve tax compliance compared with traditional compliance activities by tax authorities.
In 1934, the US Congress discussed whether to introduce the “pink slip", which includes the taxpayers’ name, address, gross income, amount of deductions, net income, and tax liability, to be submitted by taxpayers with their tax returns and published. The proponents of the pink slip argued that in addition to deterrent effects on wealthy taxpayers, making tax information public would help congress close loopholes that permitted tax avoidance. This, however, was the last attempt to disclose taxpayer information at the federal government level in the United States.[63]
The question then is whether the above arguments are still valid in the 21st century. Lenter et al. (2003) argued that disclosure of corporate income tax return information might reduce outright evasion and aggressive tax avoidance because corporate officials might be concerned that the company’s low tax payment could yield an adverse public reaction.[64] For example, the company’s reputation would be damaged, eventually affecting sales.[65] Thus, the negative public reaction could increase projected costs of aggressive tax planning for a company. Numerous press reports worldwide on leaked information regarding individuals who are included in the Panama Papers or the Paradise Papers may also indicate a high level of public attention and pressure on the tax behaviour of wealthy individuals and elected officials. As mentioned in section 2., many states in the United States which publicly disclosed the list of tax delinquents reported an immediate decline of delinquent taxes.
As the public scrutiny of corporate taxation, in particular the taxes paid by MNEs, has increased after the global financial crisis, taxes are becoming part of corporate social responsibility reporting. More large corporations have increased tax disclosures voluntarily.[66] For example, the Global Reporting Initiative (GRI)[67] launched its first tax transparency standard, GRI 207, in 2019, by which companies voluntarily report their international tax structures and information including financial, economic and tax-related information for each jurisdiction in which the organization operates. As early adopters, Philips,[68] BP,[69] Ørsted,[70] Allianz[71] and Newmont[72] started using GRI 207.[73] According to the Financial Accountability and Corporate Transparency Coalition, Unilever, BHP Billiton, Rio Tinto, and Shell also started publishing their country-by-country tax information.[74] In Australia, a voluntary code for the increased public disclosure of tax information by businesses, particularly large multinationals, was developed by the Board of Tax, which is a non-statutory advisory body, and endorsed by the government in May 2016.[75]
When Japan was publicly disclosing taxpayer information for both corporations and individuals, there were many anecdotal reports of keen taxpayers, mainly business owners, seeking to maintain their reputation as successful entrepreneurs and good taxpayers. However, there have been only a few empirical studies on how disclosure of taxpayer information affects tax compliance quantitatively (discussed in section 4.), mainly because necessary data for such studies are limited.
Prevent corruption/Increase accountability of tax administration
Disclosure of tax information could prevent corruption by tax inspectors even if only a name and tax liability are to be disclosed. The origin of public disclosure in Finland was to avoid abuses in a discretionary system to decide income tax liability in which a taxpayer and local tax authorities negotiated in deciding tax liability.[76] Thus, public disclosure could underpin the integrity of tax administration. It could also enable tax authorities to detect favourable tax rulings in other countries that can be regarded as State aid.[77] In the United States, proponents of public disclosure argue that public disclosure would be useful in making the Internal Revenue Service accountable for its enforcement of tax laws[78] (Thorndike (2009) and Kornhauser (2005)). The public disclosure of tax return information could also improve accountability of politicians.[79]
Facilitate tax policy discussions
If taxes paid by large corporations or individual taxpayers regarded as wealthy are low, those corporations or wealthy individuals may be viewed as engaging in improper tax avoidance schemes, or the tax rules regarded as unreasonably favouring them.[80] The public outcry against some multinational corporations in the United Kingdom was ignited by news reports on how much (or how little) multinational corporations were paying in 2014. Financial statements of large corporations are not sufficient to calculate the amount of tax paid.
In some developing countries, in which salaries of politicians are tax exempt by tax laws, the disclosure will reveal such a fact to the public in a clear format. This could pressure politicians to change unfair tax rules. In countries where generous tax incentives are granted to large corporations, disclosure of tax information could facilitate discussions on how to rationalize tax incentives. At least the disclosure could supplement the tax expenditure budget. Corporations enjoying tax holidays may argue they are complying with laws and cannot be blamed for anything. They may be right, and they can explain this to the public. Then, the public would press politicians to consider whether tax incentives achieve projected benefits vis-à-vis their fiscal costs.
Complement CbC reporting
As mentioned in section 1., the European Union is currently discussing whether EU Member States should require MNEs to make their CbC reporting available not only to tax authorities but also to the public.[81] Regardless of the outcome of the EU discussions, the public disclosure of tax information of subsidiaries of multinational corporations could complement CbC reporting requirements[82] as tax authorities could verify the accuracy of CbC reporting. Should the CbC reporting become public, a wider range of stakeholders including investors, CSO and academia can also verify the accuracy of the public CbC reporting.
Improve the functioning of the financial markets
Amid accounting scandals of Enron, WorldCom and other public companies in the early 2000s, a growing concern was that companies were overstating their revenues for financial accounting purposes while understating their income for tax purposes. Senator Charles Grassley, then the ranking member of Senate Finance Committee, asked the US Treasury and the Securities and Exchange Commission to consider whether corporate governance would be improved if corporations’ tax returns were available to the SEC and the public.[83] The arguments then were that if corporate tax returns were public, interested individuals could compare the contents of returns with the information reported in the financial statements and could catch inaccuracies in financial reporting;[84] if companies know that investors and interested parties will scrutinize tax return information with financial statements, it would encourage companies to provide fuller financial information.[85][86] Peer pressure on book-tax gaps[87] could contribute to prevention of both accounting fraud and tax evasion.
3.2. Arguments against public disclosure
Disclosures violate privacy and confidentiality
Since the introduction of the income tax and disclosure of tax information in the 19th century in the United States, there has been opposition to disclosure because it will violate taxpayer’s privacy. Opponents of disclosure argued that disclosure gave hucksters access to the names of wealthy taxpayers to target for scams and compromise business secrecy[88] and other threats.
Opponents of public disclosure argued, for example, that wealthy individuals encountered threats of scams and other crimes when Japan published names, addresses and the amount of tax paid of wealthy individuals. There were many anecdotal episodes that wealthy taxpayers encountered threats of arson or kidnapping, and harassment, such as persistent soliciting phone calls or letters asking for donations to charities or offering expensive merchandise, and pressures on subcontractors to reduce selling prices. Mass media reported that some individual taxpayers underreported their income and later filed modified returns to avoid potential threats and harassment caused by public disclosure because a modified return of personal income tax was not subject to the public disclosure.[89] There is a court case in which the judge exempted a taxpayer from a penalty tax for underreporting because that underreporting had a legitimate reason in underreporting the tax so as to avoid disclosure.
It should be noted, however, that in the United States, tax return information of exempt organizations[90] is generally subject to public inspection[91] and information on owners of real properties and the amount of real property taxes is open to the public on municipalities’ websites.
Opponents of disclosure of tax information of corporations argue that disclosure will compromise business secrets.[92] This argument may be valid for full disclosure of a corporate tax return. However, if disclosure is limited to a few items such as income and tax liability, the argument is not persuasive because such information would not reveal business secrets.[93]
Create confusion or mislead
Opponents of disclosure argue that given the complexities of tax rules and many differences between accounting and tax rules, disclosure of tax return information may cause confusion among the public, with misinformed and inexpert analysis of a corporation’s tax position leading to unfounded loss of faith in the corporation. This concern could be mitigated by further disclosure by corporations.[94] Corporations could explain this to the public as far as they consider their tax payment is lawful.
Discourage foreign direct investment
Disclosure of tax information of corporations would make corporations feel pressured to volunteer to pay tax because the public regards the company as not paying a fair share of tax even if the company is not doing anything unlawful. Explaining to the public the company’s tax liability or book-tax difference would impose additional business costs. If a neighbouring country, which is competing in attracting foreign direct investment, does not adopt a public disclosure system, MNCs that want to avoid being scrutinized by the public may prefer to choose the neighbouring country without public disclosure in relation to their direct investment.
Undermine tax compliance
Disclosure could increase pressure on corporate tax managers to reduce their companies’ tax bills.[95] It is conceivable that shareholders increase pressure to reduce the effective tax rate of a company as a result of comparing with the published tax information of peer companies. Blank (2013 and 2016) indicated that public disclosure of certain corporate tax return information with ex post tax enforcement would enable tax advisors to reverse engineer enforcement strategies of tax authorities.[96] However, as stated above, a company’s low tax payment may negatively affect customers’ trust that the company is a good corporate citizen.[97] More institutional investors are focusing on how a company meets corporate social responsibility on a worldwide basis. Limiting the disclosed information could mitigate concerns about benchmarking or reverse engineering.[98]
For individuals, public disclosure of tax fraud cases may make ordinary taxpayers think tax evasion is rampant and that tax cheating is a social norm.[99]
Increase frivolous disputes
It is common procedure in some states in the United States that tax delinquents are not published if disputes are ongoing. While this is an important safeguard, those who just want to prolong public disclosure could abuse it. Measures that prevent frivolous disputes should be considered.
Increase the gap in happiness and life-satisfaction between richer and poorer individuals
Perez-Truglia (2020) found that in Norway the higher transparency increased the gap in happiness between richer and poorer individuals by 29%, and it increased the life satisfaction gap by 21%, using survey data from 1985-2013.
4. Empirical Studies on Disclosure’s Effects on Tax Compliance
There are only a few studies that analyse the effects of disclosure on tax compliance quantitatively, owing to the scarcity of data. The first five studies show that public disclosure has positive effects on tax compliance or delinquencies. Studies on Japan show mixed findings.
4.1. Norway
As stated above, in Norway, tax information has been publicly available since the 19th century at local tax offices, but in 2001 tax information became available online. Bo, Slemrod, and Thoresen conducted a survey[100] on how a significant change in the mode of public disclosure affected reported income. They found that reported income of business owners increased by approximately 3% compared to the average income of 2001-2004 with that of 1997-2000. Among business owners, the average income of a group of doctors, lawyers, engineers and other professions increased by more than 4%. On the other hand, the average income of a group of taxi drivers and restaurant owners showed no change. Bo et al. observed that while reputation is important for the lawyer group, there is no effect in businesses such as taxi drivers and restaurant owners where tax evasion is considered more common.[101]
4.2. United States
Perez-Truglia and Trojano (2015) analysed how public disclosure of tax delinquents affected tax delinquency. They sent letters to 34,344 individuals who were publicly listed as tax delinquents in Kansas, Kentucky, and Wisconsin. The median subject owed USD 5,500. The letters’ contents were identical, except for a few differences. For example, one type indicated that the recipient was an individual in the area randomly chosen to receive information on the online list of tax delinquents (“low visibility letter”). Another type indicated that other individuals in the recipient’s area, who are not publicly listed,[102] were also chosen to receive information on the online list (“high visibility letter”). Perez-Truglia and Trojano found that recipients of the high visibility letters increased the probability of leaving the list from 10% to 12% in five weeks after mail delivery. They also found that while the effect of the shaming penalty was significant for individuals who owed less than USD 2,500, it was not significant for higher debts.
4.3. Pakistan
Slemrod et al. (2019) found that after Pakistan started public disclosure of all taxpayers in 2014, the tax paid by individuals who were more exposed to the programme because their names are relatively unique[103] went up by about 9% on average.[104] The tax filing rate by Members of Parliament surged by around 60%, from around 30% to more than 90%.[105]
4.4. European Union
Johansen and Larsen (2016) analysed how the EU Directive[106] requiring extractive companies to publish their tax payment on a country-by-country basis affected firms’ value. They estimated stock price responses of extractive companies’ shares to the four major legislative events[107] and found that the adoption of country-by-country reporting rules for European extractive companies was associated with negative abnormal returns of 5-10% cumulated over the four legislative events.[108] Johansen and Larsen considered this finding suggests that tax evasion creates significant rents for extractive firms and that financial transparency potentially curbed these rents.
4.5. United Kingdom
Dyreng et al. (2015) analysed how the public pressure led by a CSO[109] on the UK large companies to increase subsidiary disclosure required by the Companies Act of 2006 affected the companies’ behaviour. The Companies Act requires firms to disclose the name and location of all subsidiaries, regardless of size or materiality. However, the CSO found nearly half of the companies in the FTSE 100 companies are not complying with this requirement in 2010 and started publicly pressuring non- compliant companies. Most of the non-compliant companies became compliant within 2 years of the CSO’s campaign. One of findings by Dyreng et al. was the effective tax rate of the non-compliant companies increased by 2.7% relative to the effective tax rates of compliant firms.[110]
4.6. Japan
Japan introduced public disclosure[111] of tax information in 1950, as recommended in the Shoup Mission Report.[112] The system aimed to prevent tax evasion by increasing the possibility that tax evasion would be discovered by third parties. The NTA published tax information on high-income taxpayers (both corporations and individuals). The thresholds for disclosure have been revised several times. The thresholds just before the abolition of the disclosure system in 2005[113] were taxable income exceeding JPY 40 million (USD 369,711) for corporations,[114] and income tax liability exceeding JPY 10 million (USD 92,428) for individual taxpayers. The thresholds were high, and the number of taxpayers subject to public disclosure accounted for a small percentage of the total taxpayers. For example, for taxable year 2004, which is the last year for public disclosure, only 1.0%[115] of total individual taxpayers who filed tax returns[116] and 2.5%[117] of total corporations[118] were subject to public disclosure. When the protection of privacy became an important political issue, the law was changed to abolish the public disclosure.[119]
If it were possible to compare data on taxable income or tax liability before and after the abolition of the public disclosure system, it could indicate how public disclosure affected taxpayers’ behaviour and tax compliance. However, the following two studies had to use publicly available data only as the NTA did not publish data on the changes in taxable income nor tax liability of taxpayers that were subject to the public disclosure even on an aggregate basis after the abolition of the system.
Hasegawa, Hoopes, Ishida and Slemrod (2013) analysed the effects of public disclosure on tax compliance by using publicly disclosed financial statements and a sample of proprietary micro-level firm data set that covers both public and private firms.[120] They found no evidence that corporations decreased their taxable income after the abolition of public disclosure.[121] However, they found that a non-trivial number of both individual and corporate taxpayers whose tax liability or taxable income was close to the disclosure threshold underreported income to avoid disclosure. They determine the level of under-estimation around the threshold income level by comparing the distribution of taxable income grossed up from reported tax liabilities with a distribution of imputed taxable income. The estimated taxable income is obtained from a Pareto distribution.[122] The comparison of the two sets of taxable income distributed around the threshold income level suggests fewer tax returns reported above the disclosure threshold in the empirical distribution than implied by the estimated distribution of taxable income.[123] This finding corresponds to anecdotal episodes, mentioned in section 3.2., indicating that some individual taxpayers underreported their income to avoid disclosure and later filed modified returns to avoid potential threat and harassment caused by public disclosure.
For corporations, the NTA started to publish the aggregate number of corporations for which taxable income is JPY40 million and more[124] from taxable years after the abolition of the disclosure. The Table shows a sizable increase in the ratio of the number of corporations whose taxable income exceeded the thresholds of the disclosure system abolished in 2005 to the total number of corporations for 2006 and 2007.[125] This corresponds to the finding of Hasegawa et al. However, given the relatively steady recovery of the Japanese economy[126] and relevant tax law changes from 2003 to 2007, it may not be appropriate to consider that the abolition of the disclosure system solely accounts for the increase.
The changes in the number of corporations that were subject to public disclosure
The changes in the number of corporations that were subject to public disclosure
| Taxable year | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|---|
| (A) Total corporations | 2,790,489 | 2,809,691 | 2,830,691 | 2,853,438 | 2,647,369 | 2,623,245 | 2,621,710 |
| (B) Corporations of which taxable income exceeds JPY40 million | 71,999 | 71,076 | 68,824 | 81,159 | 82,102 | 69,246 | 59,152 |
| B/A | 2.58 | 2.53 | 2.43 | 2.84 | 3.10 | 2.64 | 2.26 |
The changes in the number of corporations that were subject to public disclosure
| Taxable year | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|---|
| (A) Total corporations | 2,790,489 | 2,809,691 | 2,830,691 | 2,853,438 | 2,647,369 | 2,623,245 | 2,621,710 |
| (B) Corporations of which taxable income exceeds JPY40 million | 71,999 | 71,076 | 68,824 | 81,159 | 82,102 | 69,246 | 59,152 |
| B/A | 2.58 | 2.53 | 2.43 | 2.84 | 3.10 | 2.64 | 2.26 |
5. Issues to Be Considered in Designing Public Disclosure
5.1. Public disclosure
Whether and how public disclosure could improve tax compliance depends on various factors:[127]
– Tax system: If the existing tax laws have provisions that are prone to abuse or have many loopholes, the deterrent effects of the disclosure system may be reduced. However, given the difficulties in reforming the tax system in the short term in many countries, public disclosure could still be a practical option.
– Tax administration: The public disclosure system could best complement the tax authorities’ effort to improve tax compliance and collect delinquent taxes where tax authorities have the ability to collect taxes fairly and efficiently. However, peer pressure by public disclosure could still contribute to improving tax compliance when the tax administration’s capacity is limited.
– Social or cultural factors: For example, if kidnapping or racketeering is rampant, disclosure of taxpayer information – in particular, of individuals’ personal information – may invite criminal activities. Society’s perception of taxes and government would also affect public disclosure’s effectiveness. A country’s non-tax laws including the constitution may limit policy options in public disclosures.
Should a country decide to introduce a public disclosure system after considering the above factors, the disclosure system should not be initiated by just changing administrative procedures unless the existing laws explicitly allow tax authorities to publicly disclose taxpayer information.[128] Since the confidentiality of tax information provided by taxpayers to tax authorities is a key principle that many tax authorities strictly observe, the law should be changed to allow tax authorities to disclose taxpayer information based on clear criteria and should relate only to future returns; otherwise, such disclosure would undermine taxpayers’ trust in the tax administration. The safeguard (due process) that enables a taxpayer to check the contents of the disclosure in advance and take all possible measures to avoid the disclosure should be strictly observed.
General disclosure vs targeted disclosure
Disclosing the names of those who are convicted for tax evasion does not disclose confidential information as the jurisprudence make a decision that becomes a public record. If collection of tax arrears requires the court’s approval, the fact of tax delinquency is a public record.[129] In addition those convicted of a felony may deserve to be socially blamed as the court found them guilty beyond a reasonable doubt. On the other hand, general disclosure would face more intense resistance and require thorough discussions with stakeholders and the public, though it could have more substantial economic impact, including on revenue. If a country has neighbouring countries that are in a similar economic condition and active in attracting FDI, a regional approach on public disclosure may be necessary to alleviate concern on negative impact on FDIs. A country could introduce both general disclosure and targeted disclosure.
How to design general disclosure
If a country decides to introduce general disclosure, the following issues should be considered in designing the disclosure system: the need for thresholds, what should be disclosed, whether to include individual taxpayers in addition to corporations, whether to include pass-through entities, and whether to distinguish between public corporations and private corporations.
Thresholds
While Norway and other Scandinavian countries disclose information on all taxpayers regardless of their income or tax liability, Australia discloses information regarding large corporations only. It would be politically challenging to introduce public disclosure, certainly without thresholds, unless a country has a cultural and historical background that support public disclosure, as in the Scandinavian countries. On revenue grounds, tax authorities’ primary focus should be directed to large corporations and wealthy individuals. Low-income earners’ potential impacts on revenue collection would be limited. Administrative costs of public disclosure would also be significant if there are no thresholds. On the other hand, as discussed above, the (revenue/ capital) thresholds would induce taxpayers who could reach the threshold to take actions to avoid reaching the threshold and this would impose negative effects on tax compliance and cause extra costs to tax administration.[130]
Scope of tax information to be disclosed
The United States made tax returns available to the public when it disclosed tax information in the 19th century. As discussed in section 3., the disclosure of tax returns may cause concern that companies’ proprietary information and other secrets could be breached. It also may enable a tax adviser to use information for benchmarking of tax planning. For the largest corporations, tax returns may run to thousands of pages. While it is possible to disclose voluminous tax returns on the Internet, such detailed disclosure may not be necessary to improve tax compliance. Though it is subject to a country’s decision, just disclosing taxable income and tax liability with the taxpayer’s name could at least help the public identify the book-tax gap for companies, and imbalance of reported income with lifestyle for individuals. Such limited disclosure could mitigate concerns that proprietary secrets could be compromised. MNEs which consider that limited disclosure risks misleading investors or other stakeholders can voluntarily disclose broader information,[131] as have those that have started disclosing country-by-country tax information following GRI 207 as mentioned in section 3. In case only limited information should be disclosed, whether to make taxpayers file another form such as a pink slip may need careful consideration: to ease the burden on taxpayers, the tax authorities could compile data for the disclosure form tax returns instead of requiring the taxpayers to prepare a pink slip.
Whether to include individual taxpayers for public disclosure
The magnitude of the potential impact on revenue caused by tax avoidance/tax evasion by large corporations and that by wealthy individuals may differ. While it is important to protect privacy of individuals as well as proprietary information of corporations, potential resistance to disclosure would likely be more intense for individuals. As stated in section 3., individuals’ concern for kidnapping and other criminal activities or harassment should be well taken into account. On the other hand, wealthy individuals can use tax advisors and tax avoidance schemes in the same way as corporations. In developing countries, the size of business owned by a sole proprietor is often similar to that of corporations. The public may be more concerned with whether wealthy individuals are fulfilling their duties as taxpayers than with whether corporations are doing so. Showing that those in public offices or celebrities or owners of big businesses are paying their fair share of taxes can underpin the integrity of the tax system. Applying a high threshold to individual taxpayers could be an option to limit potential side effects. Excluding specific addresses of individual taxpayers from the public disclosure may reduce risks of extortion or kidnapping.
Whether to limit disclosure to public companies
Public companies are generally required to disclose their financial statements, which include “provision for income taxes", enabling the public to estimate the company’s tax liability.[132] However, as the Enron case demonstrated, there is a huge discrepancy between tax expense in the financial statement and actual tax liability.[133] Public disclosure of tax information could make book-tax differences transparent, and it could prevent accounting fraud and tax evasion/tax avoidance. For private companies, the book-tax- difference is a less important issue for investor disclosure purposes because such companies have no public investors. However, there are large private companies in both advanced and developing countries. In developing countries, many large corporations are subsidiaries of MNCs, for which the need to prevent companies from adopting aggressive tax planning does not differ between public companies and private ones.[134]
5.2. Honouring taxpayers
Paying the right amount of taxes as required by tax laws is an axiomatic obligation and may not need to be praised. However, amid rampant tax avoidance, to keep paying at relatively a high effective tax rate without adopting aggressive tax schemes despite pressures from shareholders[135] should, in the eyes of many, deserve public honour.[136] Publicly honouring taxpayers who paid a huge amount of taxes and keep good tax compliance records could be a viable policy option to improve tax compliance with few costs to the tax authorities and few side effects. Whether to provide honoured taxpayers with a privilege for not being subject to tax audits for a certain period should be carefully considered. It could induce the honoured taxpayers to evade taxes and undermine the integrity of the tax system. Publicly acknowledging as good taxpayers could boost morale of the good taxpayers so that they continue good practice. If the honouring system allows taxpayers to opt out the honour, it could mitigate a concern of breaching privacy.
As a variation of the honouring system, a “Fair Taxpayer” label or certificate could impose pressure on large corporations when they decide on tax strategies. Especially, those which sell consumer goods or provide service directly to consumers could find consumers’ behaviour influenced by the presence or absence of the label. If a company is confident about its tax planning as fully legitimate, it retains the option of explaining to the public why it does not have the label. Taxpayers should not be forced to pay taxes more than tax law requires.
5.3. Summary
The public disclosure of taxpayer information is not a primary measure to improve tax compliance, and cannot fix the flaws in the existing tax laws. But it may be able to complement other mainstream compliance activities. A country needs to consider several factors discussed in this article in deciding whether to adopt public disclosure. Targeted disclosure regarding tax delinquents or coveted tax criminals may encounter less resistance from the public. Unless the existing law clearly provides when tax administrations can disclose taxpayer information, the introduction of the public disclosure system should be based on law changes, and the system should be carefully designed so that side effects are minimized.
In conclusion, honouring good taxpayers, if the system is properly designed, may be a feasible option to improve tax compliance with fewer side effects than public disclosure.
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R.W. Wood, With $3.3 Billion Owed, Should Tax-Delinquent Federal Employees—Including IRS—Be Fired?, Forbes (2014), available at http://www.forbes.com/sites/robertwood/2014/05/23/with-3-3-billion-owed-should-tax-delinquent-federal-employees-including-irs-be-fired/#3e56bf7c58c2 (accessed 12 Oct. 2021).
World Bank, Only 43% of Countries Disclose Public Officials’ Financial Assets, Says World Bank, (Washington 2012), available at http://www.worldbank.org/en/news/press-release/2012/11/08/only-fourty-three-percent-countries-disclose-public-officials-financial-assets-says-world-bank (accessed 12 Oct. 2021).
O. Wright, David Cameron rules out ’naming and shaming’ multinationals who fail to pay their ’fair share’ of tax, The Independent (2012), available at http://www.independent.co.uk/news/uk/politics/david-cameron-rules-out-naming-and-shaming-multinationals-who-fail-to-pay-their-fair-share-of-tax-8375801.html (accessed 12 Oct. 2021).
L.M. Zarlenga, Federal Contractor Tax Delinquencies and Felony Convictions Addressed in New Interim Rule Regarding Debarment and Suspension, Steptoe and Johnson LLP (2016), http://www.steptoe.com/publications-11014.html (accessed 12 Oct. 2021).
Advisor, Fiscal Affairs Department, International Monetary Fund.
The author would like to thank Professor Ronald Pearlman of Georgetown University Law Center, and Mr Michael Keen and Ms Victoria Perry (both former Deputy Directors of Fiscal Affairs Department, International Monetary Fund (IMF),) for their useful comments and encouragement. The author also benefited from suggestions by colleagues at IMF. The views expressed herein are those of the author and should not be attributed to the IMF, its Executive Board, or its management.
See https://eiti.org/countries (accessed 12 Oct. 2021). The United States enacted sec. 1504 of the Wall Street Reform and the Consumer Protection Act (the Dodd-Frank law) requiring public companies that extract oil, natural gas or minerals abroad to disclose in an annual report any payments made to a foreign government or the US federal government and joined the EITI in 2014. However, the rule was terminated by the Congressional Review Act signed by President Trump on 14 February 2017 and the United States. withdrew from the EITI as an implementing country on 2 November 2017.
Directive 2013/36/EU.
The ultimate parent company of a multinational corporation (MNC) group with consolidated group revenue exceeding EUR 750 million in the prior fiscal year is required to provide a CbC report to the tax authority in the country where it is resident. The CbC report includes information on the MNC’s related-party and third-party revenue, profit before tax, income tax, capital, accumulated earnings, employees, tangible assets and main business activities, by tax jurisdiction. The tax authority of a country in which the ultimate parent is a resident needs to provide a CbC report to the tax authorities in other jurisdictions where the MNC group has entities or PEs, under automatic exchange of information mechanism in bilateral or multilateral treaties.
Sec. 49 Revenue Act of 1861, Act of 5 Aug. 1861, Chap. XLV, 12 Stat. 292.
Disclosure was prohibited in 1870, then reintroduced in 1909 in a restricted way, expanded in 1924, restricted again in 1926. The disclosure of a “pink slip,” which included the taxpayer’s name, address, gross income, amount of deductions, net income, and tax liability was introduced in 1934 and repealed in 1935. See Lenter et al. (2003).
Deferred income tax liabilities can be included in the long-term liabilities section of the balance sheet. Expenses related to taxes are used in the profit or loss statement to determine the net income after taxes. Thus, a financial statement allows the public to estimate a company’s income tax liabilities. But the estimated tax liabilities do not necessarily correspond to the actual amount of tax paid because the Generally Accepted Accounting Principles (GAAP) regarding measurement and disclosure of a company’s income taxes have flexibility and gaps. (McGill and Outslay (2002), p. 1127).
For example, the Financial Times of 24 July 2014 reported, “Google pays £21.6m tax in UL, where revenues are £5.6bn".
Bo et al. (2014), p. 4.
In some countries, tax authorities issue a certificate of tax payment upon a taxpayer’s request. While not covered in this paper, this public certification of tax is another type of public disclosure. If the certification is widely required in business transactions, the public disclosure may function as a substitute with lesser costs.
Countries mentioned in this section are examples for which the author has references. There may be other countries that are adopting similar disclosure systems.
As stated in sec. 3.2., tax return information of tax-exempt organizations is disclosed regardless of its size in the United States. This paper does not categorize such disclosure as “general disclosure” because it is limited to a certain type of taxpayer. In addition, many local governments such as counties in the United States make real property tax information publicly available online. This paper does not categorize such disclosure as “general disclosure” because it does not relate to income taxation.
The United Kingdom introduced a new rule in 2016 (The Finance Act 2016) that requires all large businesses to publish their UK tax strategies on their website. The businesses are not required to publish their taxable income or amount of tax paid. See https://www.gov.uk/guidance/large-businesses-publish-your-tax-strategy (accessed 12 Oct. 2021).
The Tax Laws Amendment Act 2013.
See https://data.gov.au/data/dataset/corporate-transparency (accessed 12 Oct. 2021). The first report for the 2013/14 Income Year published information on 1,539 corporate entities.
PWC (2013), p. 35.
PWC (2013), p. 35. The New York Times also reported on the public disclosure of tax information of individuals on 1 November 2018. See https://www.nytimes.com/2018/11/01/world/europe/finland-national-jealousy-day.html (accessed 12 Oct. 2021).
Livre des Procédures Fiscales L111.
France has about 36,000 communes including cities and villages.
Bo et al. (2014), pp. 4-5.
PWC (2013), p. 36.
See http://www.fbr.gov.pk/ActiveTaxpayersList.aspx (accessed 12 Oct. 2021).
Slemrod et al. (2019).
Including both corporations and individuals.
See https://www.dof.gov.ph/download/top-500-aitr-filers-for-return-period-2019/?wpdmdl=26193 (accessed 12 Oct. 2021).
PWC (2013), p. 36.
The newspaper reported that the Uganda Revenue Authority published a (shame) list of all tax defaulters irrespective of a delinquent amount. See https://eagle.co.ug/2019/06/27/ura-releases-shame-list-of-tax-defaulters-big-names-included.html (accessed 12 Oct. 2021). However, the author cannot find the relevant press release on the URA’s website.
See https://www.canada.ca/en/revenue-agency/news/newsroom/criminal-investigations-actions-charges-convictions.html (accessed 12 Oct. 2021).
See http://adisreg.mfcr.cz/cgi-bin/adis/idph/int_dp_prij.cgi?ZPRAC=FDPHI2&poc_dic=2 (accessed 12 Oct. 2021).
Approximately USD 23,500 as of 19 February 2021.
The definition of an unreliable VAT payer has been expanded in 2014.
PricewaterhouseCoopers (2012) and (2014).
See https://www.vero.fi/en/individuals/payments/financial-difficulties/public-disclosure-of-tax-debt-informati/ (accessed 12 Oct. 2021).
Papachristou (2012). The authorities published the names of 57 doctors who evaded tax in 2010. The publication of the list of 4,000 was made after changing the privacy law.
European Commission (2011), p. 13.
See http://www.bbc.com/news/world-south-asia-15059592 and http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=10755678 (both accessed 12 Oct. 2021).
The author could not verify if this name and shame approach is still taken.
See http://news.bbc.co.uk/2/hi/south_asia/6134032.stm (accessed 12 Oct. 2021).
See https://static.portaldasfinancas.gov.pt/app/devedores_static/de-devedores.html (accessed 12 Oct. 2021).
See https://www.gov.uk/government/publications/publishing-details-of-deliberate-tax-defaulters-pddd (accessed 12 Oct. 2021).
The press release was also issued when the case was filed.
See https://www.justice.gov/tax/tax-division-press-releases?f%5B0%5D=field_pr_date%3A2020 (accessed 12 Oct. 2021).
The fraud cases include identity theft cases and other tax-related cases.
Wilford (2020). As of June 1999, only four states and District of Columbia had a public disclosure system for tax delinquents (United States Government Accountability Office (GAO) (1999)). In 2014, 29 states published the names of delinquent taxpayers (Koren (2014)).
Non-filers are also subject to public disclosure after the tax authority makes an estimated assessment and normal billing and collection procedures are taken (GAO (1999), at 4).
See https://www.ftb.ca.gov/about-ftb/newsroom/top-500-past-due-balances/index.html (accessed 12 Oct. 2021). Connecticut was the first state to publish delinquent taxpayers, “Top 100 Delinquent Delinquencies", online in 1997. The list of these delinquent taxpayers is no longer available online, but a list of all delinquent taxpayers who have not paid state taxes for a period greater than 90 days after all appeal rights have expired is available for public inspection at the office of the Department of Revenue Services in Hartford, Connecticut (see https://portal.ct.gov/DRS/DRS-Commissioner/Top-100/Top-100-Delinquencies (accessed 12 Oct. 2021)). Among the 29 states that publish information of delinquent taxpayers, only the State of Connecticut does not publish the information on its website. (Wilford (2020)).
The letter gives the taxpayer at least 30 days to avoid being placed on the list.
Some of those who were honoured at a district level are honoured again at the regional level later if they continued their contribution to improving tax compliance. A small percentage of those who were honoured at a regional taxation bureau were selected for a special honour later by the Commissioner of National Tax Agency and the Minister of Finance. In 2020, 50 individuals were honoured by the Minister of Finance, and 85 individuals were honoured by Commissioner of the NTA.
There are “Blue Return Taxpayers’ Associations", “Corporation Associations", “Indirect Tax Associations", “Savings-for-tax Associations” and “Tax Payment Associations". For further details, see National Tax Agency Report 2020, p. 35, available at https://www.nta.go.jp/english/Report_pdf/2020.htm (accessed 12 Oct. 2021).
The week of 11 to 17 November. The NTA holds various events in the week.
Sullivan (2015) and (2020).
Sec. 181B Income Tax Ordinance 2001.
Slemrod et al. (2019), and Keen & Slemrod (2021).
23 March.
The Kampala Observer (4 Sept. 2012).
ECON/8/02436. This recommendation is one of those on transparency, coordination and convergence to corporate tax policies in the European Union.
The Confédération Fiscale Européenne submitted an opinion statement indicating concerns on the label to the European Parliament in May 2016.
See http://www.fairtaxmark.net/ (accessed 12 Oct. 2021).
The Fair Tax Mark also recognizes that there are legitimate reasons why a business may pay no or little tax in one or more years and will not penalize the business as long as the business can explain why it is paying less than expected. See https://fairtaxmark.net/wp-content/uploads/2019/05/Criteria-MNC-2019-0022-FTM.pdf, p. 17 (accessed 12 Oct. 2021).
A UK energy company. It paid GBP 430 million of business taxes in the United Kingdom in 2013/14. Id.
The Financial Times Stock Exchange 100 Index.
As of February 2021, the website of the Fair Tax Mark shows 64 accredited organizations.
Lenter et al. (2003), p. 7.
Lenter et al. (2003), pp. 11-12.
Lenter et al. (2003), p. 31. He also indicated that to the extent the disclosure of tax return information led to improved financial reporting, it may facilitate enforcement of tax rules (p. 33). It may also make corporate officials cautious in making an extreme profit allocation among countries.
This effect would likely be more pronounced for companies that directly sell goods or service to consumers.
Deloitte (2016).
GRI is an international organization that promotes transparency on issues such as environmental impact, corruption and human rights. The GRI issued GRI Sustainability Reporting Standards that are designed to be used by businesses and other organizations to report concerning their impacts on the economy, the environment and society. See https://www.globalreporting.org/about-gri/ (accessed 12 Oct. 2021).
See https://www.results.philips.com/ (accessed 12 Oct. 2021).
See https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/sustainability/bp-gri-reporting-index-2019.pdf (accessed 12 Oct. 2021).
See https://orsted.com/sustainability2020 (accessed 12 Oct. 2021).
See https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/responsibility/documents/Allianz_Tax_Transparency_Report_2019-EN.pdf (accessed 12 Oct. 2021).
See https://www.newmont.com/sustainability/sustainability-reporting/ (accessed 12 Oct. 2021).
See https://www.globalreporting.org/about-gri/news-center/momentum-gathering-behind-public-country-by-country-tax-reporting/ (accessed 12 Oct. 2021).
Freymeyer (2019). Shell’s Tax Contribution Report 2019 is available at https://reports.shell.com/tax-contribution-report/2019/ (accessed 12 Oct. 2021).
Some 70 groups, including banks and mining companies, signed up to the code, which comprises a set of principles and minimum standards to guide medium-sized and large businesses on public disclosure of tax information. Recommended disclosures include accounting to tax differences, tax strategy details and international related-party dealing information, see http://taxboard.gov.au/consultation/voluntary-tax-transparency-code/ and https://www.ato.gov.au/Business/Large-business/In-detail/Tax-transparency/Voluntary-Tax-Transparency-Code/ (both accessed 12 Oct. 2021).
Tax Justice Network blog (11 July 2009), available at http://taxjustice.blogspot.com/2009/07/paying-taxes-is-public-in-finland.html (accessed 12 Oct. 2021).
If automatic exchange of information on tax rulings functions well, the need for public disclosure for this purpose may be reduced.
The publicity would prevent tax officials from showing favouritism to wealthy taxpayers. (Kornhauser (2005)).
Besides an example of the public disclosure of tax information of Members of Parliament (MPs) in Pakistan in sec. 4., Japan’s “Act on Disclosure of Diet Members’ Assets with a View to Establish Political Ethics” requires all MPs (both House of Representatives and House of Councilors) to report their income every year and their assets every time they were elected as MP to Chairman of respective House and the Houses are required to make the information reported by MPs publicly available.
Lenter et al. (2003), p. 34 and Thorndike (2009).
The OECD started publishing the aggregate data of CbC reporting in 2018.
OECD/G20, Transfer Pricing Documentation and Country-by-Country Reporting – Action 13: 2015 Final Report (OECD 2015), Primary Sources IBFD.
Lenter et al. (2003), p. 1.
Lenter et al. (2003), p. 24.
Lenter et al. (2003), p. 25.
The US government did not change the policy on disclosure of tax return information. Instead of making tax return information available to the public, the United States strengthened disclosure requirements on companies’ tax positions. The Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN48) in 2006.
The US Department of Treasury calculated that the ratio of pretax book income to taxable income in 1996 was 1.86. The US Department of Treasury, “the Problem of Corporate Tax Shelters: Discussion, Analysis and Legislative Proposals 32” (1999).
Lenter et al. (2003), p. 10.
Hasegawa et al. (2013), at 9.
Certain annual returns and applications for exemption.
Internal Revenue Code §6104. The public can search tax information of tax-exempt organizations at the IRS website, https://apps.irs.gov/app/eos/ (accessed 12 Oct. 2021).
The opponent argued that the nature, sources and character of a company’s revenues and expenses; details about a company’s legal structures; sales, licensing, and leasing revenues by legal entity and jurisdiction; advertising and other selling expenses; and the nature and location of a company’s manufacturing costs by functional type would give competitors useful information (Lenter et al. (2003), p. 36).
Lenter et al. (2003), p. 37.
Readers may need a certain degree of expertise in taxation and accounting to comprehend.
Lenter et al. (2003), p. 33.
Taxpayers and tax advisors can detect tax authorities’ strategies for detecting and challenging abusive tax position and obtain a certain degree of certainty on whether their use of specific transfer pricing structures or tax avoidance products causes tax authorities to audit. Blank (2014), pp. 39-41 and Blank (2016). pp. 23-33.
Lenter et al. (2013), p. 31.
Lenter et al. (2013), p. 31.
Kornhauser (2005), p. 2.
Bo et al. (2014), pp. 26-28.
Bo et al. (2014), p. 28.
These individuals who are not publicly listed may not be aware of the online list until they receive the letter.
Many Pakistanis have common names and tend to consider their names grant virtual anonymity to them. The disclosure programme did not mean much relative to those with unique names. Slemrod et al. (2019), pp. 10-11.
Slemrod et al. (2019), p. 22.
Slemrod et al. (2019), pp. 26-27.
Directive 2013/34/EU.
During March 2011 to October 2013.
Johansen & Larsen (2016), p. 122.
ActionAid International.
Dyreng et al. (2015), p. 5. They also found that the proportion of non-compliant companies’ subsidiaries in low or no tax jurisdictions decreased relative to complying companies.
Some 500 District Taxation Offices of the National Tax Agency posted the list of high-income taxpayers in their jurisdiction on a billboard of the office within three months after a return was filed. Thus, aggregate numbers or ranking of high-income earners, which were reported by the mass media, were based on data collected by private companies.
Report on Japanese Taxation by the Shoup Mission (1949), available at http://www.rsl.waikei.jp/shoup/shoup00.html (accessed 12 Oct. 2021).
The Personal Information Protection Law was enacted in 2005.
Based on the average exchange rate in 2004.
75,640.
7,441,000. Under the Japanese personal income tax system, employment income earners are not required to file a tax return in principle because employers calculate the final tax liability of each employee and make necessary adjustments at the end of taxable year, which is the calendar year. In 2004, the number of employment income earners was 71,601,000.
71,076.
2,809,691.
The Privacy Protection Law went into effect in 2003.
Ministry of Finance of Japan Financial Statements Statistics of Corporations by Industry.
Hasegawa et al. (2013), p. 30.
Pareto distribution is commonly used in wealth and income distribution studies in order to estimate the allocation of wealth and income among individuals. In the upper tail of income distribution Pareto distribution provides a good fit where the taxpayers bunch up closer to the lower end of the bracket and the numbers of taxpayers declines quickly as incomes increase. For example, see Moriguchi & Saez (2010) on estimating the distribution of higher income groups using Pareto distribution.
Hasegawa et al. (2013), p. 12.
As the threshold for public disclosure was taxable income exceeding JPY 40 million, the statistics of the NTA do not correspond to the threshold precisely.
The ratio declined in 2008.
Real GDP growth was 1.69% for 2003; 2.36% for 2014; 1.30% for 2015; 1.69% for 2016; and 2.19% for 2017.
Tax morale underpins tax compliance. Luttmer & Singhal (2014) indicated that tax morale operates through a variety of underlying channels; the extent of tax evasion can be affected by policies beyond the probabilities and magnitude of standard tax enforcement actions (p. 17).
As stated in sec. 2., 19 states in the United States disclose the name and other information of tax delinquents. Legal authority for disclosure varies by state. For example, Connecticut’s law explicitly requires tax officials to maintain, and make available for public inspection, a list of delinquent taxpayers. On the other hand, New Jersey’s confidentiality laws provide that taxpayer records shall be confidential and may not be disclosed, and New Jersey has no special law provisions that require or allow tax officials to disclose information on delinquent taxpayers. However, the law allows tax officials to file a certificate of debt in court against a taxpayer, and the certificate becomes a public record once it enters a judgment docket. Thus, the tax authority can disclose information on delinquent taxpayers (GAO (1999), at 5).
Wilford (2020) noted that there are significant differences in the accessibility of, and purpose behind, tax delinquents lists and tax liens records. Because information on tax delinquents is not in the public record, disclosure of tax delinquents may require cautious consideration, especially where a tax authority can self-execute collection activities such as seizure of assets without a court’s approval because information on tax delinquents is not a public record.
An action to circumvent disclosure by filing a return with underreported income and submitting a modified return with correct income could be prevented by making the ex post change in taxable income subject to public disclosure. Japan’s public disclosure system (abolished) on corporations covered the modified tax return submitted by a taxpayer after the due date for filing if the increase in taxable income exceeds JPY40 million. However, further consideration should be made in deciding whether tax information filed after the due date or tax authority’s assessment should be subject to the disclosure. Although it depends on the scope of information that is subject to the disclosure, information relating to tax audits may allow tax advisor reverse engineering enforcement strategies.
Such voluntary disclosure would help readers with sufficient expertise on taxation and/or accounting understand the MNE’s tax strategy and reasons for the book-tax-gap.
IMF’s Fiscal Transparency Code (available at https://www.imf.org/en/Topics/fiscal-policies/fiscal-transparency#Fiscal%20Transparency%20Code (accessed 12 Oct. 2021)) also requires the government to regularly publish comprehensive information on the financial performance of state-owned enterprises, including profits and losses and taxes including tax arrears.
McGill & Outslay (2002).
Identification of low effective tax rates for private companies (as compared to headline rates) can also justify public disclosure.
Maximizing shareholder value has been a widely accepted norm of corporate behaviour. However, more investors started using environmental, social, and governance (ESG) criteria in screening potential investments, and shareholders are not the only stakeholders of a company.
Honouring taxpayers has been proposed in other situations. Bankman (2004) argued the need for compensating compliance costs if tax audits result in no change in the filed tax return.