Inadequate tools to combat systematic undeclared work

The Swedish National Audit Office has examined the Swedish Tax Agency’s measures to combat undeclared work. The overall conclusion is that there are several shortcomings in how the Agency prioritises measures, the effectiveness of the measures and how monitoring is performed.

This is manifest, for example, in efforts to tackle complex and systematic forms of undeclared work. In addition to performing well-targeted checks to find undeclared work, the Swedish Tax Agency needs to be able to prove the extent to which it has occurred and who was involved, and be able to take measures that reduce the risk of errors recurring or being committed by others.

“In this area, our assessment is that the Swedish Tax Agency’s tools and powers are inadequate. The Agency’s means need to improve in this area,” says Auditor General Christina Gellerbrant Hagberg.

At the same time, many of the reforms implemented to bolster the Swedish Tax Agency’s ability to counteract undeclared work have so far not had the desired effect. For example, inspections of companies’ staff ledgers rarely lead to in-depth investigations. Introducing data at the individual level in employers’ monthly tax returns has not had the intended effect either.

At an overall level, the Swedish Tax Agency has a sound model for identifying and evaluating risks of undeclared work. Nevertheless, the Agency uses other factors to a greater extent – such as resource allocation in previous years – in planning its compliance measures. It is the assessment of the Swedish National Audit Office that this diminishes the means for effective operations.

Besides, when new risks are identified, it may take a long time before they have any impact on choice of measures. This is clear when it comes to checks on foreign companies with established operations in Sweden; despite the Swedish Tax Agency having identified a high risk of undeclared work in this sector, few checks have been performed among these companies.

“To combat undeclared work more effectively, the Swedish Tax Agency needs to improve the collection of information for risk analysis and reinforce the link between risk analysis and choice of measures,” says Bengt Lewin, project leader for the audit.

The audit also shows that the Swedish Tax Agency’s monitoring system does not enable measuring the extent to which the controls identify and remedy undeclared work. Besides, the outcome of preventive measures – such as preventing unscrupulous actors from being granted corporation taxation status and employer registration – are difficult to monitor.

The Swedish Tax Agency therefore does not currently know whether its controls of undeclared work are effective, or whether a different set of measures could lead to better results.