Legal Aspects of Behaviourally Informed Strategies to Enhance Tax Compliance

Abstract

Revenue authorities nowadays use different kinds of behaviourally informed strategies – functioning as ‘tax nudges’ – to raise voluntary compliance. This paper begins with setting out the background of promoting voluntary compliance by employing behaviourally informed tools. Because these tax nudges are being operated in a legal environment, various legal questions arise. It is argued that the use of behaviourally informed instruments needs to be in accordance with general legal principles, such as the principle of honouring legitimate expectations and the principle of equality. The importance of these legal principles is demonstrated by analysing concrete examples, such as the pre-filled tax return and horizontal monitoring. It is argued that those legal questions should be thought through and worked out – preferably before being implemented – within a legal framework in which (legal) principles are of a fundamental nature. This paper’s focus is on the behaviourally informed tools as designed and used by the Netherlands Tax and Customs Administration.

Keywords: nudging, behavioural insights, legal framework, compliance, voluntary compliance, tax, legal principles, legitimate expectations, equality, pre-filled tax return, horizontal monitoring