IMF/OECD – UPDATE ON TAX CERTAINTY – IMF/OECD Report for the G20 Finance Ministers and Central Bank Governors. July 2018. 1. In response to the call from G20 Leaders, the OECD secretariat and IMF staff produced a comprehensive report on tax certainty (OECD/IMF Report on Tax Certainty, the “2017 Report”). This report identified the sources of uncertainty in tax matters and the various tools that taxpayers and governments could use to reduce it from the perspective of businesses and tax administrations in G20 and OECD countries. The G20 has asked for an update of the 2017 Report to be delivered in 2018. 2. The 2017 report highlighted that tax uncertainty creates a risk of discouraging investment. The OECD survey, for example, suggests that businesses find tax certainty in corporate tax and VAT important for investment and location decisions. The major drivers of tax uncertainty for businesses relate to uncertain tax administration practices, inconsistent approaches of different tax authorities in applying international tax standards, and issues associated with dispute resolution mechanisms. To enhance tax certainty, the report identifies a set of concrete and practical approaches and solutions. These include improving the clarity of legislation, increasing predictability and consistency of tax administration practices, effective dispute prevention, and robust dispute resolution mechanisms. While the 2017 report focused on tax certainty in G20 and OECD countries, it was recognized that it is important also for developing countries, even though the tools to enhance tax certainty in those countries would need to be assessed against their weaker enforcement and lower implementation capacities. 3. This update discusses what has happened since the 2017 report. It elaborates first on developments in OECD and G20 countries. Progress is reported on, for example, implementation of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project and developments in dispute resolution, such as mutual agreement procedures (MAP) and arbitration. The update also reports on new initiatives, such as the OECD initiatives to mitigate uncertainty in tax treaties, the IMF initiative to address international taxation issues in its surveillance, developments in the treaty relief and compliance enhancement (TRACE) project, and the Forum on Tax Administration (FTA) initiative to improve risk assessment and audit processes. Finally, some initiatives are discussed that were not explicitly mentioned in the 2017 report, but which do matter for tax certainty, such as exchange of information, country-by-country reporting and OECD International VAT/GST Guidelines. 4. The importance of tax certainty for developing countries is reflected in some of the more granular data obtained from the OECD business survey of 2017. Moreover, a workshop in Tanzania in 2017 highlighted the importance of tax certainty for governments in developing countries. Several initiatives are discussed in this update that aim, among others, to enhance tax certainty in developing countries, such as toolkits by the Platform for Collaboration on Tax, Medium-Term Revenue Strategies, the wide array of IMF technical assistance in revenue mobilization (tax policy design, legal drafting, and tax administration), progress made with the tax administration diagnostic assessment tool (TADAT) and the joint OECD/UNDP program on Tax Inspectors Without Borders (TIWB). Introduction 5. The work conducted by the IMF and OECD in 2017 on tax certainty (the “2017 Report”) reflects the concerns of taxpayers and governments in G20 and OECD countries on the issue, especially in the context of international taxation. These concerns come amid the spread and emergence of new business models and increased internationalization of business activities; heightened concern with aggressive tax planning; some fragmented and unilateral policy decisions; certain court decisions; and updates to the international tax rules, such as through the G20/OECD Base Erosion and Profit Shifting (BEPS) Project. 6. The 2017 report explores various dimensions of tax certainty, such as the nature of tax uncertainty, its main sources, and the effects on business decisions. It also outlines a set of concrete and practical approaches to help policymakers and tax administrations shape a more certain tax environment. These include issues in tax policy and legislation, such as development of a robust principles-based tax law design coupled with measures to improve clarity and reduce complexity. In tax administration, it discusses timely issuance of rulings and technical interpretations, proactive taxpayer engagement and education to improve understanding of the legislation and its requirements. In the international tax context, the 2017 report outlines approaches to enhance tax certainty through dispute prevention (such as cooperative compliance programs, advance pricing agreements (APAs), and simultaneous and joint audits), robust and effective international dispute resolution mechanisms such as mutual agreement procedures (MAP) and arbitration, and consistent implementation of international standards and guidance. 7. The present report provides an update of the 2017 report in two dimensions: first, it reports on developments in the approaches in G20/OECD countries to enhance tax certainty. The update partly mirrors the approaches that were identified in the 2017 report, such as progress on implementation of the BEPS action items, and progress in dispute prevention and dispute resolution. Other and new initiatives are also discussed, such as tax transparency initiatives and initiatives related to IMF surveillance on international taxation. 8. A second component of this update relates to the issue of tax certainty in developing countries. The 2017 report focused on tax certainty in G20 and OECD countries. Yet, it did recognize that tax certainty is important for developing countries as well, even though the approaches to enhance it might differ due to weaker enforcement and implementation. This report first identifies some of the distinct issues related to tax certainty in developing countries, based on specific results from the 2017 OECD survey (see also appendix A) and a workshop conducted in Tanzania. It then elaborates on initiatives that, among others, contribute to enhancing tax certainty in developing countries, such as toolkits developed by the Platform for Collaboration on Tax, Medium-Term Revenue Strategies, the wide array of IMF technical assistance in revenue mobilization, the tax administration diagnostic assessment tool (TADAT) and the joint OECD/UNDP program on tax inspectors without borders (TIWB).
