Tax Fraud and Selective Law Enforcement
| Date | 01 June 2020 |
| Published date | 01 June 2020 |
| Author | Rita Feria |
| DOI | http://doi.org/10.1111/jols.12221 |
JOURNAL OF LAW AND SOCIETY
VOLUME 47, NUMBER 2, JUNE 2020
ISSN: 0263-323X, pp. 240–70
Tax Fraud and Selective Law Enforcement
Rita de la Feria∗
This article presents a new conceptual framework for research into
tax fraud and law enforcement. Informed by research approaches
from across tax law, public economics, criminology, criminal justice,
economics of crime, and regulatory theory, it assesses the effectiveness,
and the legitimacy, of current approaches to combating tax fraud,
bringing new dimensions to previously identified trendsin crime control.
It argues that, whilst the last decade has witnessed a significant
intensification of measures that purportedly target tax fraud, preference
has been consistently given to enforcement measures that maximize
revenue gains rather than combat the fraud itself, even where the effect
is to aggravate the non-revenue costs of tax fraud. These developments
demonstrate a significant shift from tax fraud suppression to tax fraud
management. The article concludes that this shift not only undermines
tax equity and overall tax compliance, but also leads to selective tax
enforcement, thus representing a significant risk to the rule of law.
I. INTRODUCTION
Tax fraud is, by its very nature, difficult to measure. Although tax
administrations commonly present estimations of the levels of fraud, the
∗School of Law, The Liberty Building, University of Leeds, Leeds, LS2 9JT,
England
r.delaferia@leeds.ac.uk
This article was the subject of my Inaugural Lecture at the University of Leeds (February
2017). In the four years prior, and since then, parts therein were also presented at various
conferences and seminars around Europe and North America, as follows: Bilbao, Sofia,
Riga, Trier, Newcastle,Helsinki, Lisbon, Berlin, Milan, Warsaw, Munich, Vienna,Oxford,
Brussels, Montreal, and Toronto. I am grateful to the organizers and the participants at
these events for all of the comments received therein. Thank you also to Conor O’Reilly,
Bart Caluwe, Iain Campbell, Allison Christians, Stephen DaIy,Michael Devereux, Joachim
Englisch, Joan Loughrey,Jacques Malherbe, Max Schof ield,Ar tur Swistak, PeterWhelan,
and two anonymous reviewers for their helpful comments and suggestions. Finally,to Radu
Petrescu, for his initial research assistance. The usual disclaimer applies.
240
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution
and reproduction in any medium, providedthe original work is properly cited.
© 2020 The Authors. Journal of Law and Society published by John Wiley& Sons Ltd on behalf of Cardiff University (CU).
methods used are rarely made public, vary widely, and are often unsuitable.1
There is little doubt, however, over its significance, with EU estimates
reaching up to €1 trillion in revenue loss per year.2In countries such as the
UK that do publish official aggregate estimates of non-compliance – usually
referred to as the tax gap3– the estimated revenue lost to fraud runs into the
many billions of euros.4Although these measurements cannot be taken to be
fully accurate,5and the gap is a measure of non-compliance in general rather
than of revenue loss due to fraud and evasion specifically, these figures are
indicative of the scale of the problem. In addition to the official numbers,
recent tax scandals involving evidence of widespread tax fraud, such as the
Swiss Leaks6and the Panama Papers,7not only presented concrete evidence
of the extent of the problem8but equally increased public awareness of it.
Given its significance, it is unsurprising that in the period following the
economic and financial crisis in 2008/2009, when EU member states’ priority
was to ensure fiscal consolidation and public concerns over austerity measures
mounted, attention turned more intensively towards tax fraud.9This was
1IMF,Current Challenges in Revenue Mobilization: Improving Tax Compliance (2015)
IMF Staff Paper, at 10. See also N. Artavanis et al., ‘Measuring Income Tax Evasion
Using Bank Credit: Evidence from Greece’ (2016) 131 Q. J. of Economics 739; H.
G. Petersen et al., ‘Shadow Economy, Tax Evasion, and Transfer Fraud: Definition,
Measurement, and Data Problems’ (2010) 24 International Economic J. 421.
2 European Commission, ‘Huge Sums Are Being Lost due to Tax Evasion
and Avoidance’ (n.d.), at <https://ec.europa.eu/taxation_customs/fight-against-tax-
fraud-tax-evasion/a-huge- problem_en>.
3OECD,Tax Administration 2017: Comparative Information on OECD and Other
Advanced and Emerging Economies (2017) 181 et seq.
4 HMRC, Measuring Tax Gaps 2019 Edition: Tax Gap Estimates for 2017–2018
(2019), at <https://assets.publishing.service.gov.uk/government/uploads/system/
uploads/attachment_data/file/820979/Measuring_tax_gaps_2019_edition.pdf>.
5 Criticisms of the measurement are summarized in K. Yiallourou, ‘The Limitations of
the VAT Gap Measurement’ (2019) 28 EC Tax Rev. 196.
6 D. Leigh et al., ‘HSBC Files Show How Swiss Bank Helped Clients Dodge Taxes
and Hide Millions’ Guardian, 8 February 2015, at <https://www.theguardian.
com/business/2015/feb/08/hsbc-files- expose-swiss-bank-clients- dodge-taxes-hide-
millions>.
7 L. Harding, ‘What Are the Panama Papers? A Guide to History’s Biggest Data
Leak’ Guardian, 5 April 2016, at <https://www.theguardian.com/news/2016/apr/03/
what-you-need-to- know-about-the-panama- papers>. See also J. Londono-Velez and
J. Avila-Mahecha, ‘Can Wealth Taxation Work in Developing Countries? Quasi-
Experimental Evidence from Colombia’ (2018) working paper. Whilst the leak
revealed a range of potentially questionable tax practices, this article concentrates
solely on tax fraud rather than avoidance or planning, as these raise significantly
different legal questions.
8 A. Alstadserter et al., ‘Tax Evasion and Inequality’ (2017) NBER Working Paper
23772. See also G. Zucman, The Hidden Wealth of Nations: The Scourge of Tax
Havens (2015).
9 On the impact of the crisis on tax policy, see generally R. C. Christensen and M.
Hearson, ‘The New Politics of Global Tax Governance: Taking Stock a Decade
after the Financial Crisis’ (2019) 26 Rev. of International Political Economy 1068;
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© 2020 The Authors. Journal of Law and Society published by John Wiley& Sons Ltd on behalf of Cardiff University(CU).
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