Chapter 2: Survey on the Shadow Economy and Undeclared Work in OECD Countries
* Lars P. Feld and Friedrich Schneider 2.1 INTRODUCTION Fighting tax evasion and the shadow economy has been an important policy goal in OECD countries during recent decades. One notable example is Germany. When the so-called ‘Black Activities’ Act’ or more exactly the ‘Law to intensify the fight against black activities and accompanying tax evasion’ (SchwarzArbG, Bundesrats-Drucksache 155/04a) was passed in 2004, this was but the preliminary peak of the German government’s efforts to deter tax non-compliance. It was followed by a raid by German investigators against dishonest taxpayers in Liechtenstein in 2008 (the Zumwinkel Affair) and the most recent pressure on Switzerland to extend administrative and legal cooperation to tax evasion (in addition to tax fraud). In all these cases, deterrence appears to be the policy instrument of choice. Regarding the shadow economy, for example, the German ‘Black Activities’ Act’ establishes a uniform law for illegal activities, which were part of the criminal tax code, of social security legislation or immigration laws before, and thus facilitates deterrence. Moreover, it increases punishment by focusing on employers. Misdemeanors for offences against declaration duties are defined and fined up to €300 000. A fine for resistance against or neglect of audit duties up to €50 000 is enacted and illegal employment of foreigners can be sentenced by penalty or prison from one to up to six years depending on the severity of the offence and circumstances. Finally, the ‘Black Activities’ Act’ aims at an increase in the probability of detection by extending the...
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