This report contains two parts. Part I reports on the activities and achievements in the OECD’s international tax agenda. Part II reports on the activities and achievements of the Global Forum on Transparency and Exchange of Information for Tax Purposes. Since its inception in 2008, the G20 has developed a very ambitious tax agenda to improve tax cooperation and transparency and ensure that companies pay their taxes where they carry on their activities. The constant efforts of the G20 over the past 10 years have dramatically changed the environment, improving the efficiency and fairness of international tax. The results of these efforts are now showing and they are big. 10 years ago, bank secrecy and opaque structures were used and abused by too many taxpayers across the world to hide their assets and income from tax administrations. Thanks to the efforts of the G20, bank secrecy for tax purposes no longer exists and all financial centres are now engaged in the automatic exchange of financial information (through the OECD’s Common Reporting Standard – CRS). In 2008, only 40 exchange of information agreements between secretive jurisdictions and other countries had been put in place. Today, more than 4500 exchange of information agreements are in force with 90 jurisdictions implementing the CRS in 2018). As a result 47 million offshore accounts – with a total value of around 4.9 Trillion euros – have been exchanged for the first time. This level of transparency in tax matters is unprecedented and ensures that those assets will never escape detection. A small number of jurisdictions have yet to fulfil their commitments to exchange automatically by 2018 at the latest and they are urged to do so without further delay. Beyond these impressive numbers, our action has had a very concrete impact.
OECD Taxation Working Papers N. 38 – CORPORATE EFFECTIVE TAX RATES: MODEL DESCRIPTION AND RESULTS FROM 36 OECD AND NON-OECD COUNTRIES
OECD Taxation Working Papers N. 38 – CORPORATE EFFECTIVE TAX RATES: MODEL DESCRIPTION AND RESULTS FROM 36 OECD AND NON-OECD COUNTRIES. This paper presents the new OECD model for the calculation of forward-looking effective tax rates and provides first empirical results based on an OECD survey, conducted in 2016, collecting comparable crosscountry information on corporate tax provisions from 36 OECD and Selected Partner Economies. The empirical results discussed in this paper highlight that an accurate assessment of investment incentives across countries needs to build on a consistent methodological framework capable of covering not only corporate statutory tax rates but also many different rules that affect the tax base such as fiscal depreciation and other deductions or allowances. The OECD corporate effective tax rate model described in this paper provides such a framework; it builds on the theoretical model developed by Devereux and Griffith (1999, 2003) and currently covers 10 asset categories and 36 different corporate tax systems. Empirical results are based on two different macroeconomic scenarios, showing that effective average and marginal tax rates vary widely across asset categories, countries and sources of finance. In addition to the cross-country comparative analysis presented below, the OECD model also enables researchers to conduct further cross-country and within-country analyses of the incentive effects of corporate and personal income taxation. The appendix describes in detail how the OECD model can be used for policy analysis. It includes several examples and illustrates how country-specific policy evaluations can be conducted. (Tibor Hanappi).
OECD Environment Working Papers N. 70 – ENVIRONMENTAL AND RELATED SOCIAL COSTS OF THE TAX TREATMENT OF COMPANY CARS AND COMMUTING EXPENSES
OECD Environment Working Papers N. 70 – ENVIRONMENTAL AND RELATED SOCIAL COSTS OF THE TAX TREATMENT OF COMPANY CARS AND COMMUTING EXPENSES. This paper builds upon a recent OECD paper on the personal tax treatment of company cars and commuting expenses in OECD member-countries and aims to arrive at a better understanding of the environmental and related social costs of the tax treatment described therein. The paper begins with an analysis of the larger transport market, which is the primary storehouse of evidence on the nature and extent of the environmental impacts of the various transport modes, the relative importance of the proximate and underlying determinants of these impacts, and the elasticities and functional relationships at work. Non-linearities in the relevant elasticities and functional relationships mean that the tax treatment of company cars may have a greater or lesser impact than is suggested by the size of the company car market. And distortions in relative prices between competing modes in the larger transport market mean that subsidies can have very different impacts depending on the mode in question. The further analysis of the interaction of the current tax treatment of company cars and commuting expenses with the transport market yields several findings. The current under-taxation of company cars is likely to result in a disproportionately large increase in total distance driven, composed of both an increase in the number of cars in use and an increase in distance driven per car. In turn, this is likely to result in disproportionately large impacts on most relevant environmental and related social costs. And a favourable tax treatment of commuting expenses generally, and of employer-paid parking in particular, is likely to impact on the choice of transport mode in favour of the car relative to public transport and non-motorised modes. In turn, this is likely to impact on most relevant environmental and related social costs. An Annex to this paper provides, for the OECD group of countries as a whole, some indicative estimates of the main relevant impacts of the under-taxation of company cars as well as an indicative estimate of its overall social cost. The largest quantified cost elements are additional congestion costs; additional local air pollution costs; and additional traffic accident costs. The overall social cost attributable to the current under-taxation of company cars is estimated at circa EUR 116 billion per year. (Rana Roy).
OECD TAX AND DEVELOPMENT. PRINCIPLES TO ENHANCE THE TRANSPARENCY AND GOVERNANCE OF TAX INCENTIVES FOR INVESTMENT IN DEVELOPING COUNTRIES
OECD TAX AND DEVELOPMENT. PRINCIPLES TO ENHANCE THE TRANSPARENCY AND GOVERNANCE OF TAX INCENTIVES FOR INVESTMENT IN DEVELOPING COUNTRIES. Many countries, developed and developing alike, offer various incentives in the hope of attracting investors and fostering economic growth. Yet there is strong evidence that calls into question the effectiveness of some tax incentives for investment, including in particular tax free zones and tax holidays. Indeed, ineffective tax incentives are no compensation for or alternative to a poor investment climate and may actually damage a developing country’s revenue base, eroding resources for the real drivers of investment decisions – infrastructure, education and security. There is a significant regional competitiveness dimension too, as governments may perceive a threat of investors choosing neighbouring countries, triggering ‘a race to the bottom’ that make countries in a region collectively worse off.
OECD Taxation Working Papers N. 28 – DISTINGUISHING BETWEEN “NORMAL” AND “EXCESS” RETURNS FOR TAX POLICY
OECD Taxation Working Papers N. 28 – DISTINGUISHING BETWEEN “NORMAL” AND “EXCESS” RETURNS FOR TAX POLICY. This paper explores the practical challenges tax policy analysts face when trying to apply differential taxation to “normal” and “excess” returns. The distinction between these two elements is being increasingly used in tax policy. The problem is that there is no clear definition for a “normal” return. While it is often equated to a risk-free return, or the return available on a ten-year government bond, many commentators agree that it should incorporate a risk element. The typical rationale for applying differential taxation stems from the desire to achieve neutral taxation, i.e. minimise the real economic responses of taxpayers due to the wedge taxation imposes between before-tax and after-tax returns. A set of important questions are raised for tax policy analysts to consider. Two crucial factors that make the distinction challenging are heterogeneity and uncertainty. Given the potential for unintended consequences, this is an important issue that warrants more discussion and thought. Reynolds, H. and T. Neubig (2016).
OECD Taxation Working Papers N. 39 – SIMPLIFIED REGISTRATION AND COLLECTION MECHANISMS FOR TAXPAYERS THAT ARE NOT LOCATED IN THE JURISDICTION OF TAXATION: A REVIEW AND ASSESSMENT
OECD Taxation Working Papers N. 39 – SIMPLIFIED REGISTRATION AND COLLECTION MECHANISMS FOR TAXPAYERS THAT ARE NOT LOCATED IN THE JURISDICTION OF TAXATION: A REVIEW AND ASSESSMENT. This paper reviews and evaluates the efficacy of simplified tax registration and collection mechanisms for securing compliance of taxpayers over which the jurisdiction with taxing rights has limited or no authority to effectively enforce a tax collection or other compliance obligation. Although the experience of jurisdictions in addressing this problem has involved primarily consumption taxes, that experience, and the lessons that can be learned from it, are applicable as well to other tax regimes that confront the same problem. Many jurisdictions have implemented (and are in the process of implementing) simplified registration and collection regimes in the business-to-consumer (B2C) context for taxpayers that are not located in the jurisdiction of taxation. Although the evidence regarding the performance of the simplified regimes adopted by jurisdictions is still quite limited, the best available evidence at present (in the European Union) indicates that simplified regimes can work well in practice and a high level of compliance can be achieved 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. It also indicates that the adoption of thresholds may be na appropriate solution to avoid imposing a disproportionate administrative burden with respect to the collection of tax from small and micro-businesses in light of the relatively modest amount of revenues at stake and that a good communications strategy is essential to the success of a simplified regime (including appropriate lead time for implementation). In sum, simplified registration and collection regimes represent an effective approach to securing tax compliance when the jurisdiction has limited or no authority effectively to enforce a tax collection or other compliance obligation upon a taxpayer. Hellerstein, W., S. Buydens and D. Koulouri (2018).
OECD – COMPILATION OF COMMENTS. PUBLIC COMMENTS ON THE DISCUSSION DRAFT ON WHAT IS DRIVING TAX MORALE?
OECD – COMPILATION OF COMMENTS. PUBLIC COMMENTS ON THE DISCUSSION DRAFT ON WHAT IS DRIVING TAX MORALE? These comments have been prepared by the BEPS Monitoring Group (BMG). The BMG is a network of experts on various aspects of international tax, set up by a number of civil society organizations which research and campaign for tax justice including the Global Alliance for Tax Justice, Red de Justicia Fiscal de America Latina y el Caribe, Tax Justice Network, Christian Aid, Action Aid, Oxfam, and Tax Research UK. These comments have not been approved in advance by these organizations, which do not necessarily accept every detail or specific point made here, but they support the work of the BMG and endorse its general perspectives. They have been drafted by Sol Picciotto, with contributions from Jeffery Kadet, Tovony Randriamanalina and Attiya Waris. We appreciate the opportunity to provide these comments and are happy for them to be published. Introduction. This discussion draft (the DD) updates previous OECD research of 2013 on tax morale in individuals and, additionally presents a new business section, using data from a survey of multinational enterprises (MNEs) conducted in 2016 to discuss business tax morale in developing countries. Our concern is international corporate taxation especially in relation to developing countries. In our view, the inclusion of the data from the 2016 survey of business into the work on tax morale of individuals is unhelpful and makes the draft report incoherent. In addition, there are surprising omissions from the report, particularly the lack of any discussion of the attitudes to tax of key groups such as wealthy people and tax advisers. Our comments will focus mainly on the second chapter on business, and especially its policy recommendations. More generally, however, it is of key importance in our view to understand that the motivation to pay tax is not ‘intrinsic’, at least in the sense of some kind of innate motivation of individuals. Tax is at the heart of the social contract or solidarity of citizens of a state, and there is plenty of evidence that its legitimacy, and hence the willingness of citizens to pay it, rests on notions of tax fairness. We are surprised that these issues are largely ignored in this DD, and will comment further on them below. 15 MAY 2019.
United Nations Practical Manual on Transfer Pricing for Developing Countries (2017). This second edition of the United Nations Practical Manual on Transfer Pricing for Developing Countries (the Manual) is intended to draw upon the experience of the first edition (2013) including feedback on that version, but it is also intended to reflect developments in the area of transfer pricing analysis and administration since that time. At the Ninth Session of the United Nations Committee of Experts on International Cooperation in Tax Matters in October 2013, a Subcommittee was formed with the task, among others, of updating this Manual. The mandate of the reconstituted Subcommittee on Article 9 (Associated Enterprises): Transfer Pricing in relation to this Manual was as follows: Update and enhancement of the United Nations Practical Manual on Transfer Pricing for Developing Countries, The Subcommittee as a Whole is mandated to update the United Nations Practical Manual on Transfer Pricing for Developing Countries, based on the following principles: ¾ That it reflects the operation of Article 9 of the United Nations Model Convention, and the Arm’s Length Principle embodied in it, and is consistent with relevant Commentaries of the U.N. Model; ¾ That it reflects the realities for developing countries, at their relevant stages of capacity development; ¾ That special attention should be paid to the experience of developing countries; and ¾ That it draws upon the work being done in other fora. In carrying out its mandate, the Subcommittee shall in particular consider comments and proposals for amendments to the Manual and provide draft additional chapters on intra-group services and management fees and intangibles, as well as a draft annex on available technical assistance and capacity building resources such as may assist developing countries. The Subcommittee shall give due consideration to the outcome of the OECD/Group of Twenty (G20) Action Plan on Base Erosion and Profit Shifting as concerns transfer pricing and the Manual shall reflect the special situation of less developed economies. The Subcommittee shall report on its progress at the annual sessions of the Committee and provide its final updated draft Manual for discussion and adoption at the twelfth annual session of the Committee in 2016. The Committee at its twelfth session recognized that the Subcommittee’s mandate had been met and approved the proposed update to the Manual. The Manual is improved, and made more responsive to issues of current country concern and also more in tune with rapid developments in this area, including those relating to the OECD/ G20 Action Plan on Base Erosion and Profit Shifting mentioned in the Subcommittee mandate. It was decided by the Subcommittee, and agreed by the Committee, that the Manual was not the best place for a draft annex on available technical assistance and capacity building resources such as may assist developing countries, as mentioned in the mandate. This was considered better addressed by a webpage updated and managed by the UN Secretariat. The changes in this edition of the Manual include: ¾ A revised format and a rearrangement of some parts of the Manual for clarity and ease of understanding, including a reorganization into four parts as follows: h Part A relates to transfer pricing in a global environment; h Part B contains guidance on design principles and policy considerations; this Part covers the substantive guidance on the arm’s length principle, with Chapter B.1. providing an overview, while Chapters B.2. to B.7. provide detailed discussion on the key topics. Chapter B.8. then demonstrates how some countries have established a legal framework to apply these principles; h Part C addresses practical implementation of a transfer pricing regime in developing countries; and h Part D contains country practices, similarly to Chapter 10 of the previous edition of the Manual. A new statement of Mexican country practices is included and other statements are updated; ¾ A new chapter on intra-group services; ¾ A new chapter on cost contribution arrangements; ¾ A new chapter on the treatment of intangibles; ¾ Significant updating of other chapters; and ¾ An index to make the contents more easily accessible The Foreword to the First Edition of this Manual, which is included below, remains relevant as to its substance. In particular, its recognition that: “While consensus has been sought as far as possible, it was considered most in accord with a practical manual to include some elements where consensus could not be reached, and it follows that specific views expressed in this Manual should not be ascribed to any particular persons involved in its drafting. [Part D]1 is different from other chapters in its conception, however. It represents an outline of particular country administrative practices as described in some detail by representatives from those countries, and it was not considered feasible or appropriate to seek a consensus on how such country practices were described.
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 Taxation Working Papers N. 37 – UNINTENDED TECHNOLOGY-BIAS IN CORPORATE INCOME TAXATION: THE CASE OF ELECTRICITY GENERATION IN THE LOW-CARBON TRANSITION
OECD Taxation Working Papers N. 37 – UNINTENDED TECHNOLOGY-BIAS IN CORPORATE INCOME TAXATION: THE CASE OF ELECTRICITY GENERATION IN THE LOW-CARBON TRANSITION. This paper shows that corporate income tax (CIT) provisions can lead to different effective tax rates for different technologies producing the same output but having different cost structures, under otherwise identical CIT provisions. The paper develops a framework for analysing the sources of the differences in effective tax rates and adapts existing models to calculate and compare forward-looking average effective tax rates for carbon-neutral and carbon-intensive electricity generation technologies. Considering CIT provisions for cost recovery in 36 OECD and partner economies, it finds that most tax systems calibrate the treatment of capital costs in a way that produces technology-neutral results when investments are debt-financed. This is because most tax systems offset the fact that deductions for capital costs are based on nominal (rather than real) capital costs by allowing deductibility for the full nominal (rather than real) cost of debt. In contrast, when an investment is equity-financed, the capital cost deduction may effectively be seen to be inadequate in the typical circumstance where the cost of equity is not deductible. As a consequence, immediate deductibility of variable costs but not of capital costs implies that average effective tax rates are relatively high for capital-cost-intensive electricity generation when investment is financed via equity. Since low carbon electricity generation tends to be relatively capital-intensive, this result can be seen as a form of unintentional misalignment of the CIT system with decarbonisation objectives. Whether or not there is an overall bias against carbon-neutral technologies in the CIT system, abstracting from technology-specific tax incentives, depends on several other parameters, such as countryspecific fiscal depreciation schedules and the sources of finance. (…) This paper has benefited from support, comments and suggestions provided by Nils Axel Braathen, David Bradbury and Giorgia Maffini at the OECD and by Delegates of the Joint Meetings of Tax and Environment Experts and of Working Party No. 2 on Tax Policy Analysis and Tax Statistics. The authors would like to thank the following experts for their very insightful feedback on earlier versions of the paper: Matt Benge (New Zealand Inland Revenue), Edith Brashares (U.S. Department of the Treasury), Graeme Davis (Department of the Treasury, Australia), Marc Séguin (Department of Finance, Canada), Øystein Bieltvedt Skeie (Ministry of Finance, Norway), Christian Thomann (Ministriy of Finance, Sweden) and Christian Valenduc (Ministry of Finance, Belgium). The paper is part of a broader set of OECD projects on tax policy, the environment and technology choice in a low-carbon transition. (Luisa Dressler, Tibor Hanappi and Kurt van Dender).