Exeter leads research into tax compliance strategies

The EU-funded FairTax project saw eight research groups explore how fair and sustainable taxation and social policy reforms can increase economic stability.

A research group from the University of Exeter focused on “cooperative compliance” programmes in the UK and the Netherlands.

Cooperative compliance, which first emerged around 2005, describes a relationship between a revenue body and business taxpayers based on trust and cooperation, rather than on audits and penalties.

Another group of researchers, based at Linköping University in Sweden, looked at the same issue in four Nordic countries, and the collaboration between the two groups uncovered some revealing country comparisons.

The Exeter team found that the UK’s policy of compulsory cooperative compliance for all large businesses has advantages over voluntary schemes, such as that used in the Netherlands.

“By making the system compulsory for all large businesses, there is no need for an application process to enter the scheme or ongoing monitoring against eligibility criteria. It also means that all such business are dealt with in the same way,” said Lynne Oats, Professor of Taxation and Accounting and Deputy Director of Tax Administration Research Centre (TARC) at the University of Exeter Business School.

However, the two research groups found that the success of cooperative compliance is very much context dependent, and it is difficult to transfer such policies from one country to another as such initiatives have to be adapted to national policies, institutions and levels of trust.

Professor Oats said: “Cooperative compliance arrangements began to emerge in a number of countries around 2005 in response to growing concerns that large businesses were ‘getting away’ with not paying the right amount of tax.

“Their popularity has grown, and it is now recognised that collecting tax from large businesses works best when there is greater transparency and trust. How this is put into practice varies from country to country.

“In the post COVID-19 world, cooperative compliance relationships can be expected to come under increasing strain and it will be even more important to modify how they work to suit each country’s context and particular challenges.”

Funded by the European Union’s Horizon 2020 research and innovation programme, FairTax was led by Umeå University in Sweden and featured 11 universities across nine different countries. Its findings are available here.