OECD Taxation Working Papers N. 40 – Tax policies for inclusive growth in a changing world. This paper, Tax policies for inclusive growth in a changing world, has been prepared in support of Argentina’s G20 Presidency. While this paper is focused on taxation policy, it forms part of a broader contribution that the OECD has made in support of Argentina’s G20 presidency. Against a backdrop of increased inequality and persistently low productivity growth, this paper considers the challenges and opportunities confronting policy makers in a rapidly changing world as a result of globalisation, technological change and the changing world of work. The paper focusses on: · The impact of the tax system on the market distribution of income, by supporting employment, skills investments, and labour market formality. · How shifting tax mixes towards growth-friendly taxes can be combined with measures to improve progressivity, particularly through base-broadening and through removing inefficient and regressive tax expenditures. · Ways in which personal income taxes and social transfers can foster inclusive growth by raising the efficiency and equity of labour and capital income tax systems. · How tax policy can foster business dynamism and productivity, including through support for investment and innovation, and can raise efficiency by continuing to combat BEPS. · How tax capacity can be raised, and how tax administration can be strengthened, including through international co-operation The paper provides tax policy advice and recommendations to support governments in their pursuit of tax and transfer policies conducive to inclusive growth, while supporting innovation and increased productivity growth; preserving the revenueraising capacity of the tax system; and ensuring the sustainability of public spending. (Pierce O’Reilly).
OECD – Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures
OECD – Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures. 1. The purpose of these model mandatory disclosure rules is to provide tax administrations with information on CRS Avoidance Arrangements and Opaque Offshore Structures, including the users of those Arrangements and Structures and those involved with their supply. Information disclosed pursuant to the application of these model rules can be used both for compliance purposes and to inform future tax policy design. These rules should also have a deterrent effect against the design, marketing and use of arrangements covered by the rules. 2. The model rules require an Intermediary or user of a CRS Avoidance Arrangement or Opaque Offshore Structure to disclose certain information to its tax administration. Where such information relates to users that are resident in another jurisdiction it would be exchanged with the tax administration(s) of that jurisdiction in accordance with the terms of the applicable international legal instrument. 3. The mandatory disclosure rules do not affect the substantive provisions of a jurisdiction’s CRS Legislation or impact on any reporting outcomes under the CRS. Rather these rules are information gathering tools that seek to bolster the integrity of the CRS by deterring advisors and other intermediaries from promoting certain schemes. The rules seek to accomplish this by providing tax administrations and policy makers with information on schemes, their users and suppliers, for use in compliance activities, exchange with treaty partners and tax policy design. 4. Consistent with the concepts on mandatory disclosure articulated in the BEPS Action 12 Report the model rules are not limited to situations of non-compliance with the tax law (including the rules on CRS reporting). Thus, a disclosure under the rules does not necessarily imply a violation of any tax rule and will not always result in the tax administration taking compliance action in respect of a disclosed Arrangement. Equally, the fact that a tax administration does not respond to a disclosure does not imply any acceptance of the validity or tax treatment of the Arrangement by the tax administration. Jurisdictions implementing these model rules would need to take into account domestic specificities in their own CRS Legislation and the interaction of these model rules with existing anti-avoidance rules. OECD (2018).
OECD – REFORMS OF FISCAL RELATIONS IN BRAZIL: Main issues, challenges, and reforms. Ana Luisa Fernandes and Pricilla Santana (2018). 1. This document is submitted to delegates for information and discussion at the 14th annual meeting of the OECD Network on Fiscal Relations across Levels of Government. It supports the discussion of the roundtable session on fiscal federalism reforms, presenting proposed reforms of fiscal relations in Brazil. 2. Brazil is a three-tiered federation since the Federal Constitution of 1988 decentralised the political power and strengthened federalism, turning the municipalities into a member of the federation with administrative and political autonomy. The federal pact is based on the distribution of power and assignments among the levels of government established by the Constitution. Due to this division, Brazil is characterized by a relatively high degree of political and fiscal decentralisation compared to other countries (Ter-Minassian and de Mello, 2016). 3. Tax assignment in Brazil is clearly defined in the Constitution, and most of the transfers to subnational governments (SNGs) are made according to non-discretionary constitutional rules. On the other hand, there are competition and overlap in the division of some attributions, such as the provision of health and education services. 4. The purpose of this document is to introduce one of the main issues regarding fiscal relations in Brazil and discuss possible reforms. The second section gives an overview of the fiscal relations and their main difficulties and challenges. The third section presents the reforms that have been recently implemented or are being carried out to address the problems presented. Finally, in the fourth section, possible complementary reforms to the previous ones are discussed. (…) CONCLUSION. 58. Brazil is a federation with a relatively high degree of decentralisation. Its tax burden and indebtedness are also high compared to its peers; thus, there is not much room for tax revenue increases. A reform to improve the subnational governments’ finances should focus on reducing the budgetary rigidity by decreasing the mandatory expenditure and procyclical mechanisms, such as earmarked revenues. 59. Another important measure is to improve the accounting standardisation and enforce the Fiscal Responsibility Law. In this sense, progress has been made, such as the reformulation of the Fiscal Adjustment Program and the implementation of the Matrix of Accounting Balances. An important additional measure would be the construction of the Fiscal Management Board. Moreover, for a transparent and effective control of the indebtedness of the states, reforms have been made such as the revision of the analysis of payment capacity and the establishment of a limit for new loans with an objective rule based on the states’ fiscal scenario.
OECD Working Papers on Fiscal Federalism N. 21. Decentralisation in a Globalised World – Consequences and Opportunities. Globalisation accompanied by the growing importance of information technology and knowledge-based production pose challenging problems for federations. We summarise the difficulties that traditional decentralised federations face in addressing problems of competitiveness, innovation and inequality brought on by globalisation. Adapting to these challenges involves rethinking the roles of various levels of government and rebalancing them appropriately. On the one hand, responding to inequality enhances the policy role of the federal government. On the other hand, state and local governments must respond to the imperative of providing education and business services to equip citizens and firms to compete in the knowledge economy. Perhaps most important, large urban governments are best placed to provide the physical and social capital to support innovation hubs. A key challenge for fiscal federalism is to facilitate the decentralisation of responsibilities to urban governments. This entails new thinking about revenue decentralisation, policy harmonisation and the structure of intergovernmental transfers so that cities can implement their policies effectively and accountably. Boadway, R. and S. Dougherty (2018).
OECD – MODEL PROTOCOL FOR THE PURPOSE OF ALLOWING THE AUTOMATIC AND SPONTANEOUS EXCHANGE OF INFORMATION UNDER A TIEA
OECD – MODEL PROTOCOL FOR THE PURPOSE OF ALLOWING THE AUTOMATIC AND SPONTANEOUS EXCHANGE OF INFORMATION UNDER A TIEA. Background. At present, both Article 6 and 7 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the “Multilateral Convention”), as well as Article 26 of the OECD Model Tax Convention foresee the possibility of automatically and spontaneously exchanging information between Contracting Parties. However, the current Model TIEA, which was published in April 2002, does not provide for such forms of exchange. As the Multilateral Convention is now the most comprehensive and wide-ranging legal instrument for internationally exchanging information, it is expected that jurisdictions would in most cases choose to put in place the exchange of information, including under the Standard for Automatic Exchange of Financial Account Information in Tax Matters (the “Standard”), on the basis of the Multilateral Convention. There may, however, be instances where jurisdictions wish to implement the automatic and the spontaneous exchange of information on the basis of a TIEA (e.g. the exchange of information with dependent and associated territories or where a developing jurisdiction and a developed jurisdiction wish to put in place the automatic exchange of information). As the current Model TIEA does not provide for such forms of exchange, and most of the TIEAs currently in place reflect this approach, appropriate model wording for allowing the automatic and/or spontaneous exchange of information under a TIEA in these instances is herewith made available.
Recent policy discussion has highlighted the variety of ways in which the world of work is changing. One development prevalent in some countries has been an increase certain forms of non-standard work. Is this beneficial, representing increased flexibility in the workforce, or detrimental, representing a deterioration in job quality driven by automation, globalisation and the market power of large employers? These changes also raise crucial issues for tax systems. Differences in tax treatment across employment forms may create tax arbitrage opportunities. This paper investigates the potential for such opportunities for eight countries. It models the labour income taxation, inclusive of social contributions, of standard employees and then of self-employed workers (with applicable tax rules detailed in the paper’s annex). The aim is to understand whether countries’ tax systems treat different employment forms differently, before approaching the broader question of whether differential treatment has merit when evaluated against tax design principles.
The digital transformation of the economy calls into question whether the international tax rules, which have largely been in place for most of the past 100 years, remain fit for purpose in the modern global economy. While good progress has been made in tackling base erosion and profit shifting (BEPS) through the BEPS Project, some of the more fundamental tax challenges posed by digitalisation have remained unaddressed. Through the BEPS Project and more recently, through the Inclusive Framework on BEPS, discussions on how to address the tax challenges that arise from digitalisation have been ongoing. Recent international efforts to address these issues have highlighted the divergent positions of many jurisdictions. While the introduction of unilateral measures in a number of countries has underscored the urgency of the issue and the need to re-assess some of the key international tax principles, these divergent positions have made a consensusbased solution difficult to achieve. In a significant advance, the 128 members of the Inclusive Framework have recently agreed a policy note – “Addressing the Tax Challenges Arising from Digitalisation” (OECD, 2019a) – that identifies concrete proposals in two pillars to explore and which could form the basis of a global, consensus-based solution. These pillars involve the re-allocation of taxing rights among jurisdictions and the need to address remaining BEPS issues. This policy note will be the basis for detailed analysis over the next 18 months as the Inclusive Framework works towards delivering a solution to the G20 by the end of 2020. In November 2015, two years after the G20 Leaders endorsed the ambitious Action Plan on BEPS, the BEPS package of 15 Actions to tackle tax avoidance was agreed by all OECD and G20 countries and endorsed by G20 Leaders. It was designed to stop countries and companies from competing on the basis of a lack of transparency, artificially locating profit where there is little or no economic activity, or the exploitation of loopholes or differences in countries’ tax systems. The work on tax and digitalisation has been a key aspect of the BEPS Project since its inception. Published as part of the BEPS package in October 2015, the Action 1 Report found that, as a result of the pervasive nature of digitalisation, it would be difficult, if not impossible, to ring-fence the “digital economy” from the rest of the economy for tax purposes. In other words, countries agreed that there was no such thing as a “digital economy”, but rather that the economy itself had become digitalised and that this trend was likely to continue. Following a mandate by G20 Finance Ministers in March 2017, the Inclusive Framework, working through its Task Force on the Digital Economy (TFDE) published Tax Challenges Arising from Digitalisation – Interim Report 2018: Inclusive Framework on BEPS (the Interim Report). The Interim Report provided an in-depth analysis of value creation across new and changing business models in the context of digitalisation and the tax challenges they presented. These challenges included risks remaining after BEPS for highly mobile income -producing factors which still can be shifted into low-tax environments. While members of the Inclusive Framework did not converge on the conclusions to be drawn from this analysis, they committed to continue working together towards a final report in 2020 aimed at providing a consensus-based long-term solution, with an update in 2019. Conscious of the significance and urgency of the issue, the TFDE has intensified its work since the delivery of the Interim Report. Drawing on the analysis included in the Action 1 Report as well as the Interim Report, and informed by recent discussions of the TFDE on a “without prejudice” basis, a number of concrete proposals have been outlined in “Addressing the Tax Challenges Arising from Digitalisation” (OECD, 2019a). The Inclusive Framework will continue to explore these proposals, including through a public consultation process, with the aim of developing a detailed work programme to guide the Inclusive Framework’s efforts to agree a global, long-term solution by the end of 2020.
OECD – MODEL MANDATORY DISCLOSURE RULES FOR CRS AVOIDANCE ARRANGEMENTS AND OPAQUE OFFSHORE STRUCTURES
OECD – MODEL MANDATORY DISCLOSURE RULES FOR CRS AVOIDANCE ARRANGEMENTS AND OPAQUE OFFSHORE STRUCTURES. Foreword: On 15 July 2014 the OECD published the Standard for Automatic Exchange of Financial Account Information in Tax Matters, also known as the Common Reporting Standard or CRS. Since then 102 jurisdictions have committed to its implementation in time to commence exchanges in 2017 or 2018. With exchanges under the CRS having now commenced amongst almost 50 jurisdictions there has been a major shift in international tax transparency and the ability of jurisdictions to tackle offshore tax evasion. At the same time, information from academic studies and media leaks, combined with more recent information collected through compliance activities of a number of tax administrations, as well as the results from the OECD’s disclosure initiative demonstrate that professional advisers and other intermediaries continue to design, market or assist in the implementation of offshore structures and arrangements that can be used by non-compliant taxpayers to circumvent the correct reporting of relevant information to the tax administration of their jurisdiction of residence, including under the CRS. It is against this background that the Bari Declaration, issued by the G7 Finance Ministers on 13 May 2017, called on the OECD to start “discussing possible ways to address arrangements designed to circumvent reporting under the Common Reporting Standard or aimed at providing beneficial owners with the shelter of non-transparent structures.” The Declaration states that these discussions should include consideration of “model mandatory disclosure rules inspired by the approach taken for avoidance arrangements outlined within the BEPS Action 12 Report.” The Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures contained in this report were approved by the Committee of Fiscal Affairs (CFA) on 8 March 2018. This approval does not entail endorsement as a minimum standard. The design of the model rules draws extensively on the best practice recommendations in the BEPS Action 12 Report while being specifically targeted at these types of arrangements and structures.
OECD Taxation Working Papers – Taxation and the future of work. How tax systems influence choice of employment form
Recent policy discussion has highlighted the variety of ways in which the world of work is changing. One development prevalent in some countries has been an increase certain forms of non-standard work. Is this beneficial, representing increased flexibility in the workforce, or detrimental, representing a deterioration in job quality driven by automation, globalisation and the market power of large employers? These changes also raise crucial issues for tax systems. Differences in tax treatment across employment forms may create tax arbitrage opportunities. This paper investigates the potential for such opportunities for eight countries. It models the labour income taxation, inclusive of social contributions, of standard employees and then of self-employed workers (with applicable tax rules detailed in the paper’s annex). The aim is to understand whether countries’ tax systems treat different employment forms differently, before approaching the broader question of whether differential treatment has merit when evaluated against tax design principles. This is OECD Tax Policy Working Paper No. 41. The annex to this paper is Tax Policy Working Paper No. 42, accessible here: DOI: https://doi.org/10.1787/6b20cce5-en. Recent policy discussion has highlighted the variety of ways in which the world of work is changing. In this regard, one recent development has been that many countries have seen increases in forms of non-standard work. This raises questions over whether such trends have been beneficial, representing increased flexibility and adaptability in the workforce, or detrimental, representing a deterioration in job quality driven by automation, globalisation, labour market deregulation and the increasing market power of large employers. These changes also raise crucial issues for tax systems. Labour taxes (i.e., personal income tax and social security contributions) are the largest tax category in an overwhelming majority of OECD countries. Tax differentials across employment types therefore have the potential to produce significant labour market effects, along with significant tax revenue consequences. This raises questions of the extent to which increases in some forms of nonstandard work are driven by tax considerations. Moreover, it raises questions of whether tax systems need to adapt to increases in non-standard work in OECD countries and, if so, how. Building on the OECD’s Taxing Wages framework, this paper analyses the labour (and, where relevant, capital) income taxation, inclusive of social contributions and non-tax compulsory payments, of different employment forms for a set of eight countries. The key question of interest is whether the tax treatment of self-employment differs from that of standard employment, as tax treatment differentials between these two groups may create tax arbitrage opportunities. This paper assesses whether differential treatment has merit when evaluated against accepted notions of good tax design. The main results are as follows: • Firms that contract labour from self-employed workers instead of hiring standard employees generally face lower tax burdens on a per-worker basis. In countries where this tax treatment differential is large (e.g., the Netherlands, the United Kingdom), the tax system may be a driver of increased self-employment. • The contract type that minimises the tax cost of labour may vary with the wage and other factors, such as bargaining power. For each country, the paper shows results for individuals earning a low wage through to those earning 250 percent of the average wage. In general, firms that contract labour from self-employed workers face a lower tax burden across the wage spectrum. • Firms may have the ability to further reduce their tax burdens by deducting labourrelated costs and other labour-related corporate income tax provisions from the corporate income tax base. As they can vary by employment form, deductibility rules are an important factor to consider in assessing which contract types tax systems may be incentivising.
OECD Taxation Working Papers N. 19: Taxation of Dividend, Interest, and Capital Gain Income. This paper provides an overview of the differing ways in which capital income is taxed across the OECD. It provides an analytical framework which summarises the statutory tax treatment of dividend income, interest income and capital gains on shares and real property across the OECD, considering where appropriate the interaction of corporate and personal tax systems. It describes the different approaches to the tax treatment of these income types at progressive stages of taxation and concludes the discussion of each income type by summarising the different systems in diagrammatic form. For each income type, the paper presents worked calculations of the maximum combined statutory tax rates in each OECD country, under the tax treatment and rates applying as at 1 July 2012. These treatments and rates may have changed since this date and the paper should not be interpreted as reflecting the current taxation of capital income in OECD countries. (…) Many individuals, especially employees and pensioners, do not generate capital income from their own business activity, but they may have capital income from holding funds in deposit accounts or bonds, or from the ownership of shares or real property. The tax systems applied to these forms of income differ within and across OECD countries according to the nature, timing and source of the revenue, and the income level and characteristics of the income-earner. As a first step toward a comparative, descriptive analysis of the differing regimes for the taxation of capital income in OECD countries, this paper provides an analytical framework which summarises the different types of tax systems applied to three simple types of capital income earned by resident individuals in a domestic setting: · Dividend income from ordinary shares; · Interest income from cash deposits and government bonds; and · Capital gains realised on real property and shares. The paper uses this framework to describe the different types of tax systems that can apply to these types of income, noting those used in each OECD country and considering, where appropriate, the interaction between corporate and personal taxation. It calculates the maximum statutory combined tax burden on each income type: tracing the impact of different tax treatments from pre-tax income, through the relevant corporate and personal tax systems, to the post-tax income received by a representative individual. The descriptions of the different progressions are supplemented with diagrammatic and algebraic presentations and worked examples for each country. The tax rates presented in this paper represent the maximum possible burden on capital income under the relevant tax systems and statutory rates, rather than the effective tax rates on these different income types. At the individual level, the paper assumes the taxpayer to pay the highest marginal rate of tax and does not consider personal circumstances, such as the existence of family tax credits, that may reduce effective income tax rates. At the corporate level, the impact of deductions or tax planning in reducing effective tax rates is also not considered. Two related OECD work streams will calculate effective tax rates on capital income: the first will consider effective tax rates on corporate income, including the impact of tax planning; and the second, effective tax rates on savings income at the individual level for a broader range of tax payers and savings opportunities than this paper. The paper’s descriptions and analysis are somewhat stylised in order to distil the main features of what are often complex tax regimes, but it provides an overview of: · The differing ways in which dividends, interest and capital gains are taxed; · How far the relative taxation of dividends, interest, and capital gains varies in each country and from country to country; and · The differing ways in which so-called double taxation of dividends (and possibly, capital gains) at corporate and individual levels is attenuated. (Michelle Harding)