Crypto tax evasion is ‘pervasive’

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One of the many things about Norway that amazes people is that tax returns are public. For economists, that means there’s a treasure trove of data to play with.

Tom Meling, Magne Mostad, and Vestre did just that for a paper just published by the National Bureau of Economic Research, which cross-references tax returns with data they obtained from cryptocurrency exchanges through authorities.

Throw in surveys of cryptocurrency holdings and Norwegian tax enforcement data, and you have the raw material to investigate whether allegations of mass tax evasion by crypto people were true. And here it is:

We found that crypto tax non-compliance is pervasive, even among investors trading on exchanges that share identifiable trading data with tax authorities.

What exactly is “pervasive”? The newspaper estimates that 88% of all Norwegian cryptocurrency holders do not declare their hopium to the tax authorities.

Judging by Norway’s self-reported crypto holders, the paper estimates that 6 percent of the Norwegian population (about 5.4 million in 2022, when the study period ended) were “crypto tax non-compliant”. If the researchers refer only to the adult population, we are talking about 250,000 people.

In another startling finding, the paper notes that “crypto tax noncompliance is concentrated among young, male, and urban individuals.” Really shocking stuff.

However, failure to disclose holdings is clearly different from outright tax evasion, even though both are illegal. Many people will hold such modest amounts, or simply be so underwater in their “investments”, that they actually owe no tax.

Estimating the extent of unpaid taxes is difficult, given that the information is apparently not disclosed to the authorities, surveys do not indicate the average size of Norwegian cryptocurrency holdings, and overseas crypto exchanges – where most Norwegians trade – also do not trade. disclose any information.

But researchers have had a stab at it and don’t think it’s very significant.

Taking a partial identification approach, we construct lower and upper bounds of $200 and $1,087 for the average amount of tax evasion for all crypto tax defaulters.

In other words, while a large number of crypto investors fail to declare their cryptos, each owes a modest amount of tax. This finding suggests that tax enforcement strategies in the crypto context need to be well-targeted or cheap for the benefits to outweigh the costs.

Which is true, but focusing on the average amount of tax evasion probably obscures the aggregate scale.

Assuming the 6 percent figure is just the adult population and taking the lower estimate, the cumulative missing taxes amount to more than $50 million, or about NOK 530 million in 2022. At the upper end, the missing taxes would be 272 million dollars or Nrk2. .8 billion.

Which is troubling in the context of the Norwegian government’s NKr 721 billion 2022 fiscal takeover, but even at the lower end it would be enough to pay for at least six new kindergartens.

And if you extrapolate the results to more significant countries, then we are talking about serious money. No wonder Elizabeth Warren and Bernie Sanders want the IRS strengthened.