Audits Scare Businesses into Paying Tax

August 1, 2017 International Tax Cooperation

Tax auditWASHINGTON D.C. – Business can be scared into paying more tax, simply by being shown the likelihood of being audited.

Statistical information about the possibility and repercussions of audits can scare businesses into paying more tax, according to the results of new research published by the National Bureau of Economic Research.

The results were derived by a team of researchers who worked with the Internal Revenue Service of Uruguay to send letters to more than 20 000 companies across the country.

The companies received letters either providing generic information about taxes and audits, or a letter containing information about the statistical probability of being audited, and the likely penalties from the audit.

The researchers found that the letters presenting statistical information about the likelihood of audit led to a significant increase in tax payments.

The positive effect on tax payments was not restricted only to companies which are likely to get audited, as tax payments rose even among companies which were informed that a tax audit was not particularly likely for them.