When the taxman gets crafty

                                                                                               

                                                                                      “Knowledge is power”

                                                                                       Sir Francis Bacon  († 1616)

I don’t know if Sir Francis Bacon was ever involved in a tax inspection, but his quote describes the situation of any Tax Agency in a developed country. Basically, all those huge (and usually quite ugly) public buildings and relentless workers are put together to gather and analyze information from citizens.

 Most of the information is provided by the citizens, and then verified by the Tax Agency: the classical image of a Tax Agency worker, going through piles of papers and documents on his desk. The most boring and unimaginative job to many.

However, it is not always like this.

 Some other times, the taxman has to hit the streets, or make up a new and unexpected way to get the precious information. This is highly feared by non-complying taxpayers, and regarded as something funny by most of the rest.

Here is a short list of some examples around the world:

-  The Spanish Tax Agency has a specific model for electric consumption. It is requested to electric companies about individuals, and aims mostly at non declared real estate rents. (link)

- The Israel Tax Agency calls a citizen who travels overseas ten times a year, but reports a minimum wage (link)

- IRS using Google Maps to spy on taxpayers (link)

- Sweden’s telecos hand over spying powers to tax authority (link)

- Campaign to raise awareness of tax compliancy for kids in Italy (link)

- Italian tax authority checking phone bills (link)

- British HMRC spying on Facebook and Twitter and also examining school soirées to find out whether children attend public or private school (link)

- Israel tax authority to request information to cabbie app, in order to obtain information about the number of customers they have (link)

- Italian Police stopping luxurious cars, and sending their owners’ data to Tax Agency to check if they had declared enough income (link)

As we can see, this kind of procedures are on the rise. In fact, if Tax Agencies had more technical and staff resources, they would be much more common. It also helps the fact that these days, penny-pinching governments won’t miss the chance to collect money no matter how, as well as the current tendency where fraudsters are badly considered by the average taxpayer (see ‘’tax shaming’’)

However, it is not going to be that easy for Tax Agencies. Eventually, most of this procedures end up in court, where the judge will decide if, for instance, any individual right has been violated, and as a consequence, many of them are dismissed. Every case is different: they range from absurd law and intimacy violation, to brilliant and effective law-abiding methods to catch infractors. Going off the beaten track of the audit procedure is tough; it is easy to make mistakes, and the taxman will have to be cautious, specially in terms of evidence. Also, it costs a lot of money and effort to carry them.

 To my mind, the key factor here is not what you collect from one or two fraudsters, but the fear and constant awareness created among the population. The idea of getting hit out of nowhere by the taxman in case you break the law. Something like a Tax Agency State, that will gently yet insistently remind you - via mass media- what will happen to you if you misbehave.

That wouldn’t be necessary to be mentioned, but sometimes, over-zealously taxmen create havoc in compliant taxpayers, something which deeply harms the idea of fairness.