What Determines Information Sharing for Income Tax Purposes: The Swedish Case

Abstract

The sharing of information between national tax authorities for income tax purposes has recently become a central topic in international tax policy discussions. Tax authorities share tax information with a view to stem tax evasion on residents’ cross-border income under the residence principle, which prescribes taxation of residents’ worldwide income. Little is known about the nature of the determinants of tax information sharing, let alone countries’ experiences with information sharing. Most countries treat data on the use of information sharing with considerable confidentiality. Using a unique dataset on tax information sharing between the Swedish tax authorities and tax authorities of both industrialized and transition countries, we describe the Swedish experience and investigate the determinants of tax information sharing. Our benchmark sample presents data for the year between 1993 and 2000 for 45 countries. The information sharing process is modeled by a unilateral gravity model, where the dependent variable measures the degree to which Sweden’s partner country has provided tax information. To explain any additional heterogeneity above and beyond the basic gravity pattern, we include additional control variables, time dummies, and several variables of interest. We find that the height of a country’s domestic income tax rate and the lowness of the non-resident withholding tax rate increase its willingness to provide spontaneous tax information.

The authors would like to thank Jan Mattsen of the National Tax Board of Sweden for making available the data on tax information sharing.

Please note that prof. Jenny E. Ligthart has passed away.

Appendices

Data Appendix

Spontaneous information intensity Number of cases in which the Swedish tax authority received income tax information spontaneously from country i in year t. Source: One-off investigation by the National Tax Board of Sweden.

Spontaneous information dummy A dummy variable taking on a value of unity if the Swedish tax authority received income tax information spontaneously from country i in year t and zero otherwise. Source: One-off investigation by the National Tax Board of Sweden.

Domestic Income Tax Rate (in percent) Country i’s top tax on residents on interest from savings deposits in year t. The top rate applies if the tax is progressive. Wealth taxes are included by calculating an equivalent tax on interest income assuming an interest rate of 4 %. Representative taxes levied at lower levels of government are taken into account as determined by the OECD data source. For non-OECD countries with sub-national taxes, the location of the capital determines the representative sub-national government tax. Sources: For single-level income tax regimes, statutory personal income tax rates are from the OECD tax database (Tables I.5–I.7), available at http://www.oecd.org/ctp/taxdatabase, the World Bank’s World Development Indicators available at http://econ.worldbank.org, the World Tax Database of the Office of Tax Policy Research, available at http://www.bus.umich.edu/otpr/otpr/introduction.htm, and from data provided on request by Huizinga and Nicodeme (2004). In case of dual income tax systems and wealth taxes, statutory tax rates are taken from Huizinga and Nicodeme (2004) and following sources of the International Bureau of Fiscal Documentation (IBFD): Global Tax Surveys, Europe: Individual Taxation, Europe: Private Investment Income, European Tax Surveys, Central/Eastern Europe: Taxation and Investment, Africa: Taxation and Investment, Middle East: Taxation and Investment, Canada: Taxation and Investment, Caribbean: Taxation and Investment, Latin America: Taxation and Investment, Latin American Tax Surveys, Asia-Pacific: Taxation and Investment and the Tax News Service, available at http://www.ibfd.org/portal.

Non-resident withholding tax rate (in percent) Country i’s withholding tax on (Swedish) non-residents’ interest from savings deposits in year t. Where in a particular case, a treaty rate is higher than the domestic rate, the latter is applicable. Under Swedish law, no tax is withheld on interest, even where a treaty allows such tax. Sources: Huizinga and Nicodeme (2004) and following sources of the International Bureau of Fiscal Documentation (IBFD): Global Tax Surveys, Europe: Individual Taxation, Europe: Private Investment Income, European Tax Surveys, Central/Eastern Europe: Taxation and Investment, Africa: Taxation and Investment, Middle East: Taxation and Investment, Canada: Taxation and Investment, Caribbean: Taxation and Investment, Latin America: Taxation and Investment, Latin American Tax Surveys, Asia-Pacific: Taxation and Investment, and the Tax News Service, which are available at http://www.ibfd.org. The IBFD tax treaty database, also available at http://www.ibfd.org, allows taking treaty withholding tax rates into account that potentially undercut a country’s general level of withholding tax rates.

Expenditure-to-GDP ratio (in percent) Country i’s consolidated general government expenditures divided by gross domestic product (in current prices) in year t. Sources: The International Monetary Fund’s International Financial Statistics, available at http://www.imf.org/external/data.htm. Alternatively, if a country’s time series on expenditures is missing, we use the World Bank’s World Development Indicators, available at http://econ.worldbank.org.

Deposits abroad ratio Country i’s total deposits held abroad divided by the sum of time and demand deposits. Source: Foreign deposits are taken from Table 7b of the Bank of International Settlement’s Locational Banking Statistics, available at http://www.bis.org/statistics/bankstats.htm, where US dollars have been converted to local currency using the exchange rates from the World Bank’s World Development Indicators, available at http://econ.worldbank.org. Time deposits and demand deposits are taken from the International Monetary Fund’s International Financial Statistics, available at http://www.imf.org/external/data.htm.

Auditors per tax payer (in logarithms) Country i’snumber of audits conducted per tax payer in the year 2004. Source: Number of audits: Table 27 of OECD (2007) and number of registered taxpayers: Table 30 of OECD (2007).

Bank reporting dummy A one indicates that there is mandatory (automatic) reporting by domestic financial institutions to the domestic tax administration. Source: Table 12 of OECD (2007).

Bank secrecy dummy A one indicates that country i features bank secrecy reinforced by statute. A zero indicates the contrary. Source: Column 3 of Table B1 of OECD (2006).

Gross domestic product per capita (in billions of US dollars and constant prices) Country i’s gross domestic product in year t in millions (in constant prices, base year 2000). Source: The World Bank’s World Development Indicators, available at http://econ.worldbank.org.

Distance (in logarithms) Distance in kilometers between the Swedish capital Stockholm and country i’s capital. Sources: http://distancecalculator.globefeed.com.

Surface area Country i’s surface area in thousands of square kilometers. Sources: CEPII dataset, available at http://www.cepii.fr/anglaisgraph/bdd/distances.htm.

Landlocked dummy A one indicates that country i has no coastline, a zero, otherwise. Sources: CEPII dataset, available at http://www.cepii.fr/anglaisgraph/bdd/distances.htm.

EU Treaty dummy A one indicates that country i signed a Mutual Assistance EU Treaty and zero otherwise (Binding for all member states). Source: data available at http://ec.europa.eu/taxation_customs/taxation/tax_cooperation/mutual_assistance/direct_tax_directive/index_en.htm.

OECD Treaty dummy A one indicates that country i has ratified the OECD Mutual Assistance Treaty and zero otherwise. Source: data available at http://www.oecd.org.

Table Appendix

Table 3.2 Robustness analysis for spontaneous information inflow

Table 3.3 Tobit regression results for tax treaties

Table 3.4 Reciprocity in information sharing

Table 3.5 OLS estimation results

Table 3.6 Correlation matrix

Table 3.7 Tax information received by Sweden

Table 3.8 Information on direct taxes provided by Sweden, 1993–2000