Authors: Athanasios Anastasiou, Charalambos Kalligosfyris, Eleni Kalamara, Zacharias Dermatis

Title: Evaluation of the factors affecting tax audits effectiveness. Evidence from EU tax administrations

Abstract

Tax audits are a powerful tool through which taxpayers' compliance with tax legislation is achieved. Conducting targeted tax audits allows detection of cases of tax evasion and concealment of income, which significantly affect the level of tax revenues. The results of tax audits are influenced by many factors such as the level of income, compliance history, industry and the competence of tax auditors . In addition, conducting tax audits entails significant consequences for taxpayers including increased legal support costs, financial penalties and a blow to the image of the company. For these reasons, the procedures and results of tax audits have attracted the interest and attention of researchers in recent years.

The purpose of this study is to evaluate the factors that influence the effectiveness of tax audits carried out by the tax administrations of the European Union economies and to draw useful conclusions regarding the development of an effective European tax audit strategy. More specifically, using data from 21 economies of the European Union, for the period 2016-2019, we analyze the causal relationships between the effectiveness of tax audits and various economic, institutional and tax-related factors. To analyze the long-run and short-run interdependence and causality relationships between these factors, cointegration theory was used and error correction models (ECM) were estimated.

The results of the research revealed the existence of significant causal relationships between the effectiveness of tax audits and factors related to the per capita income, Gross Domestic Product, the level of tax rates, tax capacity, time of tax compliance, the level of corruption, adherence to the rules of law and the quality of institutions in an economy. It was also found that the increased efficiency of tax audits significantly affects the per capita income, the quality of institutions, the political stability of a country and the tax buoyancy. In conclusion, the research results are a useful tool for policy makers to better understand the factors that affect the efficiency of tax audits and contribute to the design of an effective tax audits strategy.