Shaping Human Factors: why do different stakeholders see similar problems but offer different solutions regarding tax crimes?

In this article PROTAX partner, VICESSE, discusses different perspectives in understanding and offering solutions to countering tax crimes.

Focus groups and the benefit of cross-sectoral collaborations

The charm of bringing experts with different professional backgrounds, roles and duties together to discuss problems of tax crimes in a focus group setting is that it creates a colourful and complex picture of underlying worldviews and rationalities. The spectrum of tax crimes as seen through the eyes of a tax consultant raises questions that suggest answers, a member of the law enforcement might not consider. The easy explanation here would be that one group tries to minimize their clients’ taxes while the other is interested in maximising state revenues, based on applicable tax laws.

However, as the focus groups have aptly demonstrated, the constellation is a bit more complicated. Both sides, private and public sector, share an interest in getting their job done properly with integrity which entails preventing illegal tax practices. Both complain about similar obstacles; about difficulties in managing cross-border cases, following trans-national flows and organising information exchange, limited resources, and/or working with incompatible national legal frameworks.

All participants of the focus groups suffer from a lack of consolidated European frameworks of tax legislation, leaving regulatory gaps and loop holes, producing grey areas inviting creative to criminal solutions by corporate tax payers or high net-worth individuals some of whom are well known public figures and role models.

Different perspectives lead to different solutions

When it comes to the deliberation of feasible solutions for the bulk of agreed-upon problems, both sides entertain different ideas. While the tax consultants perceive of their clients as amoral rational actors, calculating gains and risks, the public-sector representatives assume that tax laws, once enter into force, should guide corporate or individual practice and that law enforcement should locate, prosecute and sanction the presumably few rotten immoral apples who refrain from paying their share.

Hence, the administrative tax authorities, the financial crime units, the customs officers or revenue agents, always see a resource problem, asking for more staff, better equipment as well as hard- and software to fulfil their duties and find the wrongdoers. For them, there is the universal law, evenly applicable to all and there are law-breakers.

However, at the same time, if co-operation is honoured pre-trial, a deferred prosecution agreement may be available or, even if adjudication is engaged, a guilty plea might pay off whereby a wrongdoer can get away with a minor fine.

Tax consultants think about solutions to tax crimes on the basis of their experience with clients and a first-hand knowledge of the business world. They know that each market transaction is a bet on the future, that risks are always involved and that typically profits will increase with risks. This mindset or actor model contrasts with the legal fiction of norm-guided human behaviour underlying the logic of the law and also tax law.

From a juridical public sector perspective, legal regulations are endowed with a magic internal force guiding citizens’ conduct and those who break the norm need to be labelled as criminals and sanctioned. However, any tax crime that goes undetected is not a crime, but a profitable move. Thus, while the supporters of a strictly enforced legal regulation may be right from a moral and rule of law point of view, a smarter strategy, taking into account the reasoning of corporate tax payers might be more efficient.

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