OECD/UNDP – TAX INSPECTORS WITHOUT BORDERS. ANNUAL REPORT 2017/18. This Annual Report from Tax Inspectors Without Borders (TIWB) covers the period May 2017 to April 2018. TIWB’s practical and results-oriented approach to supporting domestic resource mobilisation is proving increasingly relevant in a fast moving international environment. TIWB is contributing to the United Nations’ Financing for Development agenda, and supporting progress towards attaining the Sustainable Development Goals (SDGs). It is also underpinning the Base Erosion and Profit Shifting (BEPS) actions, strengthening developing countries ability to effectively tax multinational enterprises (MNEs), while offering increased certainty and predictability to taxpayers. TIWB increasingly operates in close partnership with a diverse range of stakeholders and partners. Demand for TIWB is growing. There are 29 programmes currently operational and 7 have been completed, together exceeding the target of 35 programmes by April 2018 set by the TIWB Governing Board. Over 20 programmes are in the pipeline. New South-South opportunities are being identified, with India, Nigeria, and South Africa now offering expertise. These developments are, in part, due to increased active participation from Partner Administrations (those providing experts), with 11 countries deploying their serving tax officials and a United Nations Development Programme (UNDP) managed roster of 40 tax audit experts up and running. To date, USD 414 million in increased tax revenues is attributable to TIWB and TIWB-style support offered in partnership with the African Tax Administration Forum (ATAF) and the World Bank Group (WBG). TIWB represents excellent value for money with over USD 100 in additional tax revenues recovered for every USD 1 spent on operating costs. Whilst revenue impact is important, in the last year TIWB has gathered evidence of other long-term outcomes, including on skills transfer, organisational change and taxpayer compliance. The TIWB Secretariat has developed new tools to help with the measurement challenge. In 2017, an Experts’ Roundtable and a Stakeholders’ Workshop, involving stakeholders from 28 countries and 6 international and regional organisations, gathered lessons on how TIWB’s unique role could be strengthened and how the target of 100 tax expert deployments by 2020 should best be achieved. A mentorship programme was proposed. Other lessons include the finding that TIWB programmes with full access to taxpayer information have advantages over anonymised case reviews and can help with tax reforms by illuminating possible legislative shortcomings in international taxation. The importance of a whole-of-government approach by Partner Administrations, which could improve the efficiency of expert deployment processes with institutionalised funding arrangements, was also highlighted. The partnership between the Organisation for Economic Co-operation and Development (OECD) and UNDP, which delivers TIWB, is becoming stronger with an agreed division of labour. UNDP country offices are able to facilitate national-level discussions on domestic resource mobilisation (DRM), raise awareness and build national support for TIWB programmes. The TIWB Secretariat has launched its first e-newsletter and community of practice for its Experts. TIWB has also updated its multilingual website. The year ahead will see the TIWB Secretariat pursue the implementation of the 2016- 2019 Objectives (Annex A). Priorities will include cementing partnerships with regional tax organisations, expanding the scope of TIWB to new areas such as tax and crime, continuing to build South-South programmes and building a pool of industry expertise to assist developing countries address audit challenges in key business sectors. A major international conference on TIWB and possible future directions is being considered for 2019.
OECD – EXPLANATORY STATEMENT TO THE MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY RELATED MEASURES TO PREVENT BASE EROSION AND PROFIT SHIFTING
OECD – EXPLANATORY STATEMENT TO THE MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY RELATED MEASURES TO PREVENT BASE EROSION AND PROFIT SHIFTING. 1. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the Convention) is one of the outcomes of the OECD/G20 Project to tackle Base Erosion and Profit Shifting (the “BEPS Project”) i.e. tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. 2. The BEPS Action Plan was developed by the OECD Committee on Fiscal Affairs (CFA) and endorsed by the G20 Leaders in September 2013. It identified 15 actions to address base erosion and profit shifting (BEPS) in a comprehensive manner, and set out deadlines to implement those actions. Action 15 of the BEPS Action Plan provided for an analysis of the possible development of a multilateral instrument to implement tax treaty related BEPS measures “to enable jurisdictions that wish to do so to implement measures developed in the course of the work on BEPS and amend bilateral tax treaties”. 3. After two years of work, the CFA, including all OECD and G20 countries working on an equal footing, produced the Final BEPS Package, which was endorsed by the OECD Council and the G20 Leaders in November 2015. The Final BEPS Package, in the form of reports on each of the 15 actions accompanied by an Explanatory Statement, gives countries and economies the tools they need to ensure that profits are taxed where economic activities generating the profits are performed and where value is created, while at the same time giving businesses greater certainty by reducing disputes over the application of international tax rules and standardising compliance requirements. It was agreed that a number of the BEPS measures are minimum standards, meaning that countries have agreed that the standard must be implemented. 4. Implementation of the Final BEPS Package will require changes to model tax conventions, as well as to the bilateral tax treaties based on those model conventions. The sheer number of bilateral treaties (more than 3000) would make bilateral updates to the treaty network burdensome and time-consuming, limiting the effectiveness of multilateral efforts.
OECD – MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY RELATED MEASURES TO PREVENT BASE EROSION AND PROFIT SHIFTING
OECD – MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY RELATED MEASURES TO PREVENT BASE EROSION AND PROFIT SHIFTING. The Parties to this Convention, Recognising that governments lose substantial corporate tax revenue because of aggressive international tax planning that has the effect of artificially shifting profits to locations where they are subject to non-taxation or reduced taxation; Mindful that base erosion and profit shifting (hereinafter referred to as “BEPS”) is a pressing issue not only for industrialised countries but also for emerging economies and developing countries; Recognising the importance of ensuring that profits are taxed where substantive economic activities generating the profits are carried out and where value is created; Welcoming the package of measures developed under the OECD/G20 BEPS project (hereinafter referred to as the “OECD/G20 BEPS package”); Noting that the OECD/G20 BEPS package included tax treaty-related measures to address certain hybrid mismatch arrangements, prevent treaty abuse, address artificial avoidance of permanent establishment status, and improve dispute resolution; Conscious of the need to ensure swift, co-ordinated and consistent implementation of the treatyrelated BEPS measures in a multilateral context; Noting the need to ensure that existing agreements for the avoidance of double taxation on income are interpreted to eliminate double taxation with respect to the taxes covered by those agreements without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in those agreements for the indirect benefit of residents of third jurisdictions); Recognising the need for an effective mechanism to implement agreed changes in a synchronised and efficient manner across the network of existing agreements for the avoidance of double taxation on income without the need to bilaterally renegotiate each such agreement; Have agreed as follows: (…).
OECD Taxation Working Papers N. 32: LEGAL TAX LIABILITY, LEGAL REMITTANCE RESPONSIBILITY AND TAX INCIDENCE
OECD Taxation Working Papers N. 32: LEGAL TAX LIABILITY, LEGAL REMITTANCE RESPONSIBILITY AND TAX INCIDENCE. THREE DIMENSIONS OF BUSINESS TAXATION. This paper examines the role of businesses in the tax system. In addition to being directly taxed, businesses act as withholding agents and remitters of tax on behalf of others. Yet the share of tax revenue that businesses remit to governments outside of direct tax liabilities is under-studied. This paper develops two measures of the contribution of businesses to the tax system: (i) legal tax liability and (ii) legal remittance responsibility. Legal tax liability is defined as the sum of taxes that are imposed on businesses directly (e.g., corporate income tax), whereas legal remittance responsibility is the sum of taxes that businesses remit on behalf of others in the economy (e.g., tax on the wages of employees, sales and value-added taxes). This paper considers both measures for 24 OECD countries using data from the OECD’s Revenue Statistics database and additional information gathered from OECD member countries. Care should be taken in interpreting both measures, which should be understood against the backdrop of the issue of economic incidence. Economic incidence refers to the fact that the burden of a tax is not necessarily borne by the person on whom the tax is imposed under legal statute. For example, a tax imposed on capital owners may either be absorbed or shifted onto others in the economy, such as consumers or workers. Economic incidence will vary according to many factors, such as type of tax, country, and labour and product market structures. Recognising the importance of this issue for policymakers, the paper reviews the empirical literature on the economic incidence of taxation and summarises the estimates by tax category. Some of the key findings of the paper include: · Businesses play an important role in the tax system, both as taxpayers and as remitters of tax on behalf of others. Governments often rely upon businesses to remit taxes imposed on others for reasons of administrative ease – arising from the economies of scale of taxing fewer large entities – and improved tax compliance. · The results show that businesses remit an important share of tax revenue to governments. This takes two forms: legal tax liabilities imposed directly on businesses (which account for 33.5% of total tax revenue in 2014, on average, across the 24 OECD countries analysed) and taxes remitted on behalf of others (45.3% of total tax revenue, on average, across the same set of countries). · While businesses benefit in certain ways through their involvement in the tax collection process (e.g., the cash flow benefit), their remittance responsibilities also entail compliance costs. The analysis of businesses’ overall role in remitting taxes to governments should include not just their legal tax liabilities, but also the compliance costs incurred on account of their legal remittance responsibilities. · However, consideration of both the legal tax liabilities and legal remittance responsibilities of businesses does not necessarily provide evidence of who actually bears the burden of these taxes. In this regard, these two measures of the contribution of businesses to the tax system should take account of the crucial issue of economic incidence. · This paper finds that the majority of empirical studies of economic incidence focus on the corporate income tax, where a wide-ranging review of the literature finds that it is likely that at least 30% of the corporate income tax is shifted onto labour. · While there has been much research undertaken on the economic incidence of the corporate income tax, this paper calls for additional future empirical work on the economic incidence of other taxes. The paper highlights two additional issues. First, though there is little empirical evidence available concerning the economic incidence of compliance costs, the channels through which tax burdens are passed on to others in the economy likely also apply to compliance costs. Finally, there is recent evidence that economic incidence may vary depending upon which entity is assigned responsibility for remitting a tax. More empirical research is needed in both of these areas. Milanez, A. (2017).
OECD – ITALY’S TAX ADMINISTRATION. A Review of Institutional and Governance Aspects. 1. Italy is currently undertaking a series of critically important reforms to improve its long-term growth prospects. The current Government has set out its ambitious reform agenda across many policy areas including education, civil justice, public administration and taxation. Certain reforms have already been made, others are under way and more are in the pipeline. Expectations of effective and decisive government actions are high, in particular regarding the tax system. 2. In this context, and following a request of the Italian Minister of Economy and Finance Pier Carlo Padoan, the OECD Centre for Tax Policy and Administration has carried out a review of the organisational structure and institutional arrangements of Italy’s tax administration, with a focus on the Agenzia delle Entrate (the Revenue Agency) and the Agenzia delle Dogane e dei Monopoli (the Customs Agency). The review also highlights certain critical issues related to tax compliance and collection which emerged in the course of the work. 3. Several meetings were held with the Italian authorities, namely the Minister of Economy and Finance and the heads and senior managers of the Italian institutions involved in tax administration. Meetings were also held with labour unions, stakeholders and experts in tax matters, including small and medium sized enterprises (SMEs) and their consultants, to gather a broad range of views on Italy’s tax administration (see Annex A for the list of authorities, stakeholders and experts met). 4. A draft of this report was provided to the Italian authorities in January 2016 to check the factual descriptions’ accuracy and finalised shortly afterwards.
OECD ECONOMIC POLICY PAPER N. 16 – THE ECONOMIC CONSEQUENCES OF BREXIT: A TAXING DECISION. The Economic Consequences of Brexit: A Taxing Decision Membership of the European Union has contributed to the economic prosperity of the United Kingdom. Uncertainty about the outcome of the referendum has already started to weaken growth in the United Kingdom. A UK exit (Brexit) would be a major negative shock to the UK economy, with economic fallout in the rest of the OECD, particularly other European countries. In some respects, Brexit would be akin to a tax on GDP, imposing a persistent and rising cost on the economy that would not be incurred if the UK remained in the EU. The shock would be transmitted through several channels that would change depending on the time horizon. In the near term, the UK economy would be hit by tighter financial conditions and weaker confidence and, after formal exit from the European Union, higher trade barriers and an early impact of restrictions on labour mobility. By 2020, GDP would be over 3% smaller than otherwise (with continued EU membership), equivalent to a cost per household of GBP 2200 (in today’s prices). In the longer term, structural impacts would take hold through the channels of capital, immigration and lower technical progress. In particular, labour productivity would be held back by a drop in foreign direct investment and a smaller pool of skills. The extent of foregone GDP would increase over time. By 2030, in a central scenario GDP would be over 5% lower than otherwise – with the cost of Brexit equivalent to GBP 3200 per household (in today’s prices). The effects would be larger in a more pessimistic scenario and remain negative even in the optimistic scenario. Brexit would also hold back GDP in other European economies, particularly in the near term resulting from heightened uncertainty would create about the future of Europe. In contrast, continued UK membership in the European Union and further reforms of the Single Market would enhance living standards on both sides of the Channel. April 2016.
SIMPLIFIED REGISTRATION AND COLLECTION MECHANISMS FOR TAXPAYERS THAT ARE NOT LOCATED IN THE JURISDICTION OF TAXATION. A REVIEW AND ASSESSMENT. This paper discusses how the key challenge for jurisdictions seeking to exercise their taxing rights over taxpayers that are not located in the jurisdiction of taxation can be addressed by the use of simplified registration and collection mechanisms. The problem considered by this report – how to collect tax from taxpayers that are not located in the jurisdiction of taxation – is a problem encountered by any tax regime where the jurisdiction asserts taxing rights over a tax base but this jurisdiction has limited power to compel the taxpayer to remit the tax. Although the experience of jurisdictions in addressing this problem has involved primarily consumption taxes, in particular value added taxes (VAT) and retail sales taxes (RST), that experience (and the lessons that can be learned from it) is applicable as well to other tax regimes, whether involving direct or indirect taxes, that confront the same problem. This paper considers two principal approaches to addressing the problem: · Jurisdictions may seek to enlist some other participant involved in the transaction or activity that generates the tax base over which it asserts taxing rights, and over whom it does have enforcement authority to collect the tax or otherwise satisfy the taxpayer’s compliance obligation (e.g., withholding taxes). To this regard, it is shown that, although customers and intermediaries can, in some circumstances, play an important role in the collection of the tax (for example the business customer located in the taxing jurisdiction in the context of a business-to-business transaction or e-commerce marketplaces in the context of business-to-final consumer digital sales), they may be much less efficient in other contexts. Indeed, according to the OECD work (the International VAT/GST Guidelines and the BEPS Action 1 Report Addressing the Challenges of the Digital Economy), customer collection is generally regarded as an inappropriate approach to indirect tax collection in the business-to-consumer (B2C) context given its low level of compliance and its associated costs of enforcement. For analogous reasons, it is also generally recognised that withholding taxes (for example on payment as part of options to address the broader direct tax challenges of the digital economy) are not an effective mechanism for tax collection in the B2C context. · As an alternative, jurisdictions may adopt a taxpayer registration and collection mechanism, and, in light of the absence of enforcement authority over the taxpayer, may seek to make compliance sufficiently easy or attractive to induce taxpayers to comply with their tax obligations. The paper then reviews the simplified registration and collection regimes that jurisdictions have implemented or are about to implement. It is generally recognised that this alternative is more appropriate in the B2C context. Many jurisdictions have implemented (and are in the process of implementing) simplified registration and collection regimes in the B2C context for taxpayers that are not located in the jurisdiction of taxation in the VAT and RST area. Although the evidence regarding the performance of the simplified regimes adopted by jurisdictions is still quite limited, because these regimes generally have only become operational on a widespread basis recently, the best available evidence shows that these simplified regimes work well in practice. According to the most significant experience i.e. the experience in the European Union, a high level of compliance can be achieved and substantial levels of revenue can be collected since there is a concentration of the overwhelming proportion of the revenues at stake in a relatively small proportion of large businesses and since the compliance burden has been reduced as far as possible. Against that background, it is highly likely that an even greater number of jurisdictions will embrace simplified collection regimes in the future, especially in light of the growth of the digital economy and more particularly, B2C digital transactions1 . In the VAT area, simplified registration and collection mechanisms issues are dealt with in the International VAT/GST Guidelines and the Report on Mechanisms for the Effective Collection of VAT/GST. This paper also notes that compliance costs for small and micro-businesses can be relatively high compared to the proportion of revenues collected from such businesses and that the adoption of thresholds may be an appropriate solution to avoid imposing such a disproportionate administrative burden in light of the relatively modest amount of revenues at stake. It also points out that a good communications strategy is essential to the success of a simplified regime (including appropriate lead-time for implementation). The exchange of information and international administrative co-operation should also play a significant role in both encouraging taxpayers to comply and detecting non-compliance. (OECD, 2018, Walter Hellerstein, Stéphane Buydens, Dimitra Koulour).
Countries have used recent tax reforms to lower taxes on businesses and individuals, with a view to boosting investment, consumption and labour market participation, continuing a trend that started a couple of years ago, according to a new report from the OECD.
OECD – COUNTRY-BY-COUNTRY REPORTING. HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT. Next year will be the first time that tax authorities around the world will receive information on large MNE groups with operations in their country, breaking down a group’s revenue, profits, tax and other attributes by tax jurisdiction. This information has never previously been available to tax authorities and represents a great opportunity for tax authorities to understand the structure of a group’s business in a way that has not been possible before. Country-by-Country Reporting (CbC Reporting) is one of the four minimum standards of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project to which over 100 countries have committed, covering the tax residence jurisdictions of nearly all large MNE groups. And the pace of implementation of CbC Reporting is impressive. As of today, more than 55 jurisdictions have already implemented an obligation for relevant MNEs to file CbC Reports. Jurisdictions have also moved quickly to ensure that CbCRs can be exchanged between tax administrations. To date, 65 jurisdictions have signed the Multilateral Competent Authority Agreement and some jurisdictions have entered into bilateral Competent Authority Agreements to operationalise the exchange of CbCRs with specific jurisdictions. With nine months to go until the first CbC Reports are exchanged, over 1 000 exchange relationships between pairs of jurisdictions have already been created.
OECD – INTERNATIONAL COMPLIANCE ASSURANCE PROGRAMME. PILOT HANDBOOK. WORKING DOCUMENT. Introduction to the ICAP pilot 1. The International Compliance Assurance Programme (ICAP) is a programme for a multilateral cooperative risk assessment and assurance process. It is designed to be a swift and coordinated approach to providing multinational groups (MNE groups) willing to engage actively, openly and in a fully transparent manner with increased tax certainty with respect to certain of their activities and transactions, while identifying areas requiring further attention. ICAP does not provide an MNE group with legal certainty as may be achieved, for example, through an advance pricing agreement, but gives assurance where tax administrations participating in the programme consider a risk to be low. 2. This handbook contains information on a pilot for ICAP, which commences in January 2018 including tax administrations from eight jurisdictions (the participating tax administrations): Australia, Canada, Italy, Japan, the Netherlands, Spain, the United Kingdom and the United States.