Special Report

Countries Losing the Most Revenue to Tax Loopholes and Fraud

Death is certain, but what about taxes? Not always. There are many ways to whittle down those due on corporate and individual income, legal or not. By one estimate, the United States loses the equivalent of three-quarters of its federal budget deficit to unpaid taxes every year.

Tax abuse comes in two main forms: evasion and avoidance. The U.S. Internal Revenue Service defines tax evasion as a deliberate underpayment of taxes, a crime that can lead to hefty fines and even prison time. This differs from tax avoidance, the practice of legally exploiting loopholes in the tax code.

In 2020, the Internal Revenue Service issued nearly 34 million income tax penalties totaling $14.1 billion  against individual and estate and trust income taxes. The largest number of censures involved failure to pay, followed by not paying enough or late payment of estimated tax. Other penalty types include delinquency, bounced checks, and inaccuracies. Interestingly, outright tax fraud made up the smallest share of the volume of IRS penalties, at just 1,330 totaling $113 million in fines.

For corporate tax evasion, the IRS issued 587,511 penalties totaling $1.43 billion in 2020, including 57 incidents of tax fraud that incurred $7.9 million in penalties. (These are 19 big companies that paid almost nothing – or nothing at all – in taxes in 2021.)  

To identify the countries losing the most to tax abuse, 24/7 Wall St. reviewed The World’s Biggest Tax Offenders, a report published by the financial software company Tipalti. The rank is based on the losses to tax abuse as a percentage of total tax revenue collected. These percentages range from 4.15% to 22.26%. 

Click here to see the countries losing the most to tax abuse

When it comes to tax abuse, the United States isn’t on the top list of countries losing the most, even among developed nations. For example, Germany and the United Kingdom have higher rates of tax abuse as a percentage of total tax revenue collected. Other countries with a high rate of tax abuse include Singapore and Colombia – but the worst of all is Ireland.  (These are the countries collecting the most taxes.)

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