Third party funded individual grant
Start date : 01.04.2020
End date : 31.12.2022
The obligation to pay taxes goes hand-in-hand with the question of compliance. In most countries, individuals must file tax returns to determine their tax liability. Recently, taxpayers are more and more confronted with electronic and prefilled tax returns instead of completing blank forms (e.g., in UK, Canada, Australia, Germany, France, Italy, Spain, Sweden, see OECD, 2017). With electronic tax returns we understand tax returns that are filed online and not in paper form. With prefilled tax returns we understand electronic tax returns in which income/deduction items are already prefilled with some data.
In our proposed studies, we will examine the following main research questions. First, how frequently are electronic and prefilled tax returns used and which individual characteristics determine this usage. Second, do prefilled tax returns simplify the filing of tax returns? Third, how do electronic and prefilled tax returns affect tax compliance behavior? Here, we will focus on both correctly and incorrectly prefilled income and deduction items. Fourth, how do incomplete information about true tax return items alter the influence of prefilled tax returns on compliance behavior? Finally, we will investigate how the use of electronic and prefilled tax returns influences tax compliance costs?
The OECD sees digital information processing as a central building block for a modern financial administration (e.g., OECD 2010, 2017). This is also supported by recent changes in legislation in Germany (see for example the passed law “Gesetz zur Modernisierung des Besteuerungsverfahrens” in 2016) that enabled the use of digital tax returns in terms of legal procedure. One major driver of these developments is expectation of reduced compliance costs of the taxpayers as well as reduced bureaucratic costs of the tax administration. While these consequences might be likely, but need to be confirmed, it remains an open question if and how digitalization of financial administration influences tax compliance behavior.
As a consequence of the ongoing digital transformation, taxpayers already now often start their tax declarations with prefilled forms. Customers who use tax software or even file their tax returns online (with e-filing services) find that electronic tax return programs usually carry over the previous year’s values to the subsequent year as an orientation aid (e.g., software Elster). Consequently, a current tax return is initially prefilled with last year’s numbers (e.g., salary, business income, expenses, deductions, tax credits). However, prefilled data are often incorrect, as data carried forward from the previous year do not fully reflect conditions of the current year. Furthermore, automatic data exchanges between the tax authority and employers, social insurance agencies and banks enable systems to create tax returns that are prefilled before they are sent to taxpayers. Although tax returns prefilled by tax authorities should be highly trustworthy, errors in data input and data transmission can occur. For example, in the UK, “experts estimate that one in ten returns prefilled using HMRC’s data will contain errors, which could lead to people paying too much or too little tax” (Telegraph, 2017). Moreover, innovative tools are using new techniques to produce prefilled tax returns merely based on scanning bills and receipts. Nevertheless, techniques such as optical character recognition are still associated with errors. As a consequence, research is needed on how taxpayers deal with correctly as well as incorrectly prefilled tax return items.