Tax Evasion
Tax evasion involves the illicit concealment of income or assets to avoid paying taxes, often through offshore tax havens and aggressive tax avoidance strategies. Forensic finance plays a crucial role in uncovering these activities by analyzing hidden assets and financial transactions, revealing that a significant portion of global wealth is held in tax havens, which distorts national economic statistics and can exacerbate wealth inequality.
Overview
The literature on tax evasion and hidden assets heavily employs forensic methods to explore the extent of illicit financial practices. Slemrod (2019) surveys tax evasion and enforcement, revealing that about 8% of global wealth is held in tax havens, which significantly distorts national wealth statistics and exaggerates developed countries' net debt levels. Offshore havens are utilized by both corporations and individuals, with Zucman (2014) noting their widespread use. Studies like Leenders et al. (2023) show that over 10% of wealthy households in the Netherlands engage in tax evasion, and Londoño-Vélez and Ávila-Mahecha (2021) find even higher rates in developing countries, such as 40% among Colombia's wealthiest households.
Forensic analysis has also revealed the scale of hidden assets and the impact of tax havens on global economics. Alstadsæter, Johannesen, and Zucman (2018) estimate that offshore holdings amount to 10% of global GDP, with even higher rates in some Latin American and Arab Gulf countries. Andersen, Johannesen, and Røkers (2022) find that foreign aid disbursements are often followed by inflows to offshore havens, indicating that economic and political elites capture a significant share of aid. The Panama Papers leak and other data sources have exposed extensive tax evasion among the wealthiest, with Scandinavian data showing that the top 0.01% evade around 25% of their taxes, and public companies linked to these leaks suffering stock market losses.
Efforts to combat tax evasion and aggressive tax avoidance are critical for improving tax compliance and reducing economic inequality. Tax shelters and aggressive strategies are employed to minimize tax liabilities, with Graham and Tucker (2006) highlighting the large scale of such shelters relative to firm assets. Tørsløv, Wier, and Zucman (2023) estimate that multinational firms shift 36% of their profits to tax havens, and Saez and Zucman (2019) argue that tax avoidance exacerbates wealth inequality. Enhanced tax enforcement and information exchange agreements can mitigate evasion, as shown by Pomeranz (2015), who finds that third-party information significantly increases tax compliance in Chile.