TECHNICAL PROGRAM PROFILE FOR THE 2010 CIAT GENERAL ASSEMBLY, MONTEVIDEO, URUGUAY The Assembly’s Technical Program is the result of a process that began with the consultation the Executive Secretariat made to all member countries and associate countries. It asked them to list their priority issues to exchange experiences and make a joint analysis. Once the replies were obtained, the Executive Secretariat prepared a draft list of the issues, which attempted to amalgamate all the proposed topics of greatest interest in terms of the number of countries that have listed them, so as to draft a coherent and integrated technical program. At the General Assembly, the draft list prepared by the Executive Secretariat was submitted to a Topics Committee formed by member country representatives designated by the CIAT Board of Directors. The Committee examines, modifies, or approves the Executive Secretariat’s draft lists that will be discussed at the General Assembly, in which all member countries participate. The Assembly in turn approves or modifies all the projects of the list of topics that will comprise the technical program for the following year’s General Assembly and Technical Conference. The topics selected for the technical program of the General Assembly of Uruguay comes from the decision made by the CIAT member countries at the General Assembly held in the city of Santo Domingo, Dominican Republic in 2009. Key issue:
“THE ROLE OF TAX ADMINISTRATIONS IN THE GLOBAL CRISIS”
The impact of the global economic crisis on Tax Administrations must be looked into by considering two basic aspects: the role of tax administrations as an advisor in the realm of tax policy design and according to their duties as the manager and executor of those policies. Regarding the former, in the feedback process the administrations develop from those responsible for the design of these policies; the tax revenue estimate based upon the studies and analyses on tax statistics administrations conduct, particularly those tools that enable gauging tax evasion and expenses and, and based upon the results obtained, plot risk maps as a reference in the design and implementation of successful oversight programs, in the accompaniment and evaluation of current tax policies, in the analyses of other tax alternatives to finance public spending and how they can affect the design of the tax system, how the rate increases can be; the increase in or creation of tax incentives and preferential systems; and the simplification of the system, among others, constitute priority issues that undoubtedly affect the fairness of the tax system and have a bearing on how easy its management is or is not. In regards to the latter, tax administrations, like other state organizations, must face a reduction in public spending and therefore must face a reduction in their budgets, a factor they must handle effectively in order to sustain or even increase their degrees of efficiency and effectiveness. Thus the challenges, especially for some countries, will be increasing tax bases through a broader coverage and a more efficient control of 2
compliance with tax obligations by considering the particular conditions the crisis has already triggered, such as an increase in the informal sector and the nonpayment of taxes; the need to implement more effective procedures to collect tax debts, including mechanisms to ease payments that are consonant with the economic conditions of taxpayers, certainly taking into consideration the optimization, classification, and update of taxpayer registers. This implies the need for tax administrations to increase the trust citizens have in them through clear and timely accountability systems; the design of strategies to fight harmful tax planning in order to seek and facilitate better and more transparent tax competitiveness; and the design and implementation of programs that promote ethics among tax administrations through specific, continuous, and permanent actions. 1.
Transparency and Ethics as institutional effectiveness
condition for strengthen and improving
The current economic crisis has clearly shown several causes, including the lack of transparency in major players’ actions in the socioeconomic arena, as well as the responsibility the state and society at large have by failing to demand from public and private organizations an effective and timely accountability in order to follow up on the activities they carry out and the complete adaptation to norms, administrative regulations, and codes of ethics that they must respect. Situations such as the current one have led to the need to think twice about issues that never lost validity, but that lost a starring role, such as the implementation of effective accountability mechanisms, fairness as a factor of transparency in tax competitiveness through the fight against the abusive planning of companies, and the promotion of ethics by tax administrations in the exercise of their essential and support activities. In this regard, it is important to know what have been or would be the strategies to implement effective mechanisms enabling accountability if there has been interaction with citizens to obtain feedback or follow-up on the process; through which means this has been done; and what were the results obtained. Likewise, what legal and administrative mechanisms have been taken into consideration to fight against the abusive moves resulting from companies’ tax planning, whether indicators that show the magnitude of the problem have been designed and implemented, and what the main results obtained have been. Finally, what have the measures taken to promote ethics in tax administration been, considering those outlined in the declaration on the promotion of ethics issued by the CIAT, as well as any other measure that tax administrations may have deemed valid and significant for these purposes and how they have impacted the strengthening of the organization both at the internal and external levels. 1.1 The development and strengthening of citizen trust: the accountability mechanisms in the Tax Administrations 3
Accountability has become one of the basic pillars to strengthen institutions through the improvement of the institutional image by supplying relevant information on what the organizations are doing and how. Through this process in which the management of tax administration becomes transparent, citizens can learn in a clear and timely fashion about the performance of these institutions both at the level of the execution of the allocated budget and in the development of policies and strategies enabling the fulfillment of the objectives outlined. Nowadays, accountability has a broadly comprehensive sense in which it is not conceived that the duty of tax administrations to account for their actions ends with the supply of information regularly requested, in accordance with the norms of each country, by internal and external control organizations. The concept is much broader and is related to the duty of supplying information on all aspects related to decisionmaking processes resulting from the development of essential processes inherent to tax administration, as well as those that take place to support and guarantee compliance with this management. It also entails aspects dealing with the budget and management of the organization and does not limit itself to mere compliance with tasks. It also includes following up on management plans, their evaluation, and the gauging of the quality with which they are executed. It also impacts the efforts made to improve relations with taxpayers and compliance with the challenges and trials that have been determined to be key factors to forge tax administrations that are not only more integral, but also more effective. Nowadays, there are various means to supply key information in the accountability process. Even the Internet has become an important tool for the timely and complete availability of such information. In the practical case to be developed, it is important to consider what the existing accountability procedures are, what type of information is supplied in the process, who supplies it and to whom, what citizen participation there is, what technological and nontechnological means are used to inform, how periodic it is informed, where quality processes are involved in it, and the results obtained. 1.2 The Tax Administrations and the taxpayer’s social responsibility: Strategies for combatting harmful tax planning In addition to the primary obligation of complying with their tax obligations, taxpayers also have a series of commitments and responsibilities toward society, whose correct compliance guarantees transparency in business activities through the non-use of legal and / or administrative tax mechanisms, systems, or instruments that threaten free and healthy economic competitiveness at the local and international level and that can also constitute an infringement of existing laws. Meanwhile, tax administrations must seek fairness in tax treatment through an increase in tax bases and the exercise of effective and specialized control in order to detect and analyze legal and commercial structures 4
and mechanisms used in international operations for tax evasion (systems, maneuvers, and instruments). To do so, the exchange of experiences and the identification of areas of cooperation and strategies, along with other administrations, facilitate and enable the exercise of control on such planning. For the presentation of the case, it will be important to determine which systems, mechanisms, and instruments of harmful tax planning tax administrations have detected, what the strategy to fight them have been, which legal and / or administrative tools or mechanisms have been implemented, what the results obtained are, and how they were determined. Likewise, the following must be included in the analysis: if cooperation agreements have been signed with other tax administrations as part of the mechanisms implemented, particularly the areas and issues included in the agreements, as part of the analysis, identify the main obstacles or problems for the effective control of planning and how these obstacles have been overcome or are planning to the overcome. In addition to the legal and administrative measures designed and implemented, determine whether any other innovative mechanisms enabling the prevention or non-use of such mechanisms on the part of taxpayers and facilitating talks between them and tax administrations as part of the prevention strategy have been incorporated. 1.3 The promotion of ethics in the Tax Administrations: Strategies and programs for the promotion of ethics. Ethics is not an isolated issue that can exist on its own; it is also part of all activities and decisions of the administration. It is an integration of many of the fundamentals and programs that already exist or that constitute part of the regular area of work of the organization and the way they are carried out, communicated, assessed, and corrected. However, even though we cannot and must not talk about specific programs of ethics, because their promotion is reflected more on the manner in which the processes are developed and how the institution obtains feedback from them, determining the need to implement corrective actions or not, ethics is mainly an issue of trust by the tax administrations in their leaders, their officials, and their processes and society’s trust in the organization and the state as such. This is why the strategies designed and implemented through the various programs that tax administrations are in charge of are essential for the perception of transparency and integrity on the part of citizens and the organization itself. Factors such as the role of the leader or top authority in the promotion, construction, and setting in motion of such important tools as the codes of conduct; the organization’s independence in relation to possible political intervention; the adequate management of human resources not only regarding the existence of an administrative career, selection and recruitment processes, a healthy environment free of harassment, an effective internal control process in which the processes, responsible parties, and its evaluation are previously and clearly defined, are, among others, some of the elements that contribute to the promotion of ethics.
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The presentation of the practical case must include a definition of strategies and programs designed that have been implemented or are going to be implemented in tax administrations, what led to their implementation, the areas under coverage, the main results obtained in the process, how they have been gauged or established, the main obstacles detected, the strategies and programs implemented to overcome them, and the next steps to follow as part of the strategy to promote ethics. 2.
The measurement of the tax gap and its impact on the efficiency and effectiveness of the tax administration
The increase in the tax base through greater efficiency in control is possibly one of the most complex, but more important tasks for tax administrations. In the first place, it leads to the quantification of the gap, and even before it, to the determination of potential collection. Several methods have been applied to determine it and, with it, establish the magnitude of the fraud. Another important aspect in the implementation of a more efficient control is the verification of the correct use of fiscal benefits through the gauging of tax spending, and to do so, various tools and methods are usually used. Regardless of the instruments or methods applied to establish the tax gap, the information stemming from them constitutes the base to draw the risk maps that will be used as guides for tax authorities in the drafting of oversight plans. These plans must establish the priorities of tax administrations in the economic sectors, types of taxpayers, or taxes that must be overseen. In the issue to be presented, the strategies of tax administrations to determine the tax gap must be outlined, as must be the impact they have had on tax administrations and the strategies that have been developed based upon the results obtained to improve the efficiency and effectiveness of the administration. 2.1 Instruments and techniques for the measurement of evasion As Jose Sevilla Segura mentioned in his speech delivered on the occasion of the CIAT General Assembly held in Florianopolis, Brazil, in 2006, the determination of the margin of fraud (evasion) constitutes one of the basic tasks and objectives to be fulfilled by tax administrations. However, accurately determining the degree of evasion for each one of the taxes administered by tax administrations is not an easy task, but it is a priority. There are several aspects that could make this task complex; precisely, the most difficult aspect consists in establishing what the potential collection is, know the real base and based upon it, after what has really been collected has been established, establish the difference not only at the general level, but also at the particular level, in 6
other words, by classifying evasion by types of taxes, economic activity, taxpayers, and even geographic areas. The qualified information is an irreplaceable raw material to draw risk maps adjusted to the reality of the tax behavior of taxpayers. In the practical case, it is important to consider the description of the tools or instruments used in the estimate of the evasion, what methods or techniques have been used, and as part of it, determine the information used for the application of such techniques, the results obtained and their dissemination and the areas involved in the gauging.
2.2 Instruments and techniques for the measurement and analysis of tax expenditure Stanley Surrey1 in 1967 [Pathways to Tax Reform, 1973] introduced the concept of Tax Expenditures to say that the deductions, exemptions, and other benefits granted for income taxes are not part of the structure typical of the tax and really constituted government expenditures the government incurred through the tax system, particularly through the income tax. The objective of introducing the concept, he used to explain, was to include its discussion in tax policy debates, because gauging them and making them evident contributed not only to making transparent the expenditures the government was really incurring not only through the budget, but also to assessing whether the introduction of such expenditures in the tax system could adversely affect the principles of fairness, efficiency, and simplicity of it. Forty years after the introduction of the concept, the need to gauge the tax expenditures incurred through the tax system is more evident and more of a priority; it is so much so that nowadays very few countries fail to do so. Many of them have made progress on methods for the quantification and evaluation of expenditures. However, it is a task on which we must continue to work, so that tax policy designers can be given feedback effectively on the best way to incur such expenditures without negatively affecting the tax system. For tax administrations, as owners and managers of statistical and tax information and as responsible parties for the management of taxes, the quantification of such expenditures is part of their tasks not only in terms of the relevance of their determination, but also in terms of the need to identify and point to the factors that may lead to more or less complexity in tax management as a result of the introduction of such mechanisms in order to propose the necessary adjustments for the simplification of the tax system. For the practical case, it is important to point to the concept of tax expenditure that is applied in the country, what methods are being used for its determination and analysis, 1
Former Assistant Secretary of the Treasury for Taxation Policies of the US Department of the Treasury.
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what the results obtained have been; what the consequences of procedures to follow when inconsistencies and temporary situations that worsen or make difficult the administration of the tax system are detected are; and what incidence or influence tax administrations have in the introduction of corrective measures. 2.3 Use of the results of tax gap measurement for structuring the risk map and designing control plans. According to the results obtained once the tax gap has been determined, the most relevant task is the drawing of risk maps. They will enable the drafting of specific oversight plans and are focused on areas, taxes, and taxpayers who potentially present higher levels of risk for tax administrations. In the practical case, the procedure to draw risk maps must be described, as must be how it is made up; how the priorities regarding risk assessment are determined; what areas are involved in their development; how they are integrated to oversight plans, their follow-up, adjustments, and assessment (describe indicators gauging effectiveness if they are applied); and the periodicity with which it is drafted and assessed.
3.
Strategies for improving voluntary compliance and the collection of taxes
Every day, tax administrations put more emphasis on the need to focus a large part of their efforts to promote voluntary compliance on the part of taxpayers through the implementation of facilitation mechanisms, and when such compliance does not take place, they describe the authority for the collection of tax debts. Among the strategies to improve compliance, the use of technologies and attention centers is promoted to guide ordinary taxpayers regarding how and when they must comply with their tax obligations. The access to important services such as how to be able to create or update tax information, enabling the administration to have a real and current taxpayer register, the possibility of filing tax returns and paying taxes through the Internet, dispelling their doubts through “call centers,� obtaining information bulletins detailing the changes or adjustments to tax laws that may affect them in one way or another, and special attention by type of taxpayer that meets the needs and conditions that characterize compliance with them are some of the actions geared toward enhancing voluntary compliance. On the other hand, if taxpayers fail to pay their obligations, the administration must exercise its administrative collection power, if it has any, or send the corresponding information so that the pertinent authorities can collect tax debts. This is in case persuasion or friendly collection fail to have the desired effects.
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Likewise, it must establish the strategies and policies to grant easy terms of payment that enable the administration the recovery of debts and enable taxpayers to comply with their obligations without considerably affecting their capacity to pay or their permanence in commercial or industrial activities. In the main topic, the strategies tax administrations have developed and implemented to achieve tax compliance on the part of taxpayers must be mentioned, as must be a description of the strategies, mentioning the time they have been in effect, the results obtained, and what indicators or means have been used to obtain them. The strategies implemented for the collection of taxes, including coercive and persuasive means, as well as the easy terms of payments granted must also be described, clearly stating their operation conditions. In each case, it must be stated how much they represent of the total amount of debts and what results have been obtained from each one of the strategies, as well as the gauging indicators taken into consideration to obtain them. 3.1 Benefits and costs in the application of a segmented taxpayer approach in the Latin American tax administrations For several years, beginning with large taxpayers, the structure of tax administrations has been reoriented toward an approach by client or better yet, by type of taxpayers. The benefits of implementing this approach have yielded results insofar as taxpayers have had access to specialized services, according to their characteristics and needs to comply with their tax obligations; on the other hand, for tax administrations, it represents the possibility of focusing their resources and information toward specific aspects, thus specializing not only attendance, but also control and collection. What was initially applied to major sources of revenues, given the weight of taxes on total collection and their role as withholding agents, has been extended to other types of taxpayers, such as individuals and corporations that are not considered large taxpayers. In addition to the advantages or benefits listed, this segmentation or specialization by taxpayers also has a cost for tax administrations not only in terms of structural adjustments, but also in terms of infrastructure and technological structure, which often implies, to a large extent, the training of the human resources necessary to respond to this type of approach. In the practical case, the criteria applied for the segmentation of taxpayers and its scope must be presented, including its basic duties: help for taxpayers, oversight and determination, legal collection: whether support duties are included (studies, information systems); the needs stemming for their implementation, including administrative reorganizations or restructuring; the advantages it represents for taxpayers and tax administrations; the costs stemming from the setting into motion of this segmentation; and the time required for its implementation, as well as all the information that is relevant for a better explanation of the case. 9
3.2 The optimization of tax records: debugging, updating and use Tax registers constitute the backbone of the development of the duties of tax administrations. Their purging, update, and use are the key factors for the development of the powers of tax administrations. They constitute the source of primary information on the number and type of taxpayers the administration has and their characteristics, including, among others, the distribution of a fiscal identification number, the ratio of taxpayers’ tax obligations, the economic activity or activities developed, fiscal addresses, the names of partners, and the number and location of branches, among others. The most difficult tasks for tax administration are the following: the inclusion of all taxpayers in such registers and the updating of the information that has already been listed, so that it includes relevant changes for the validity of the registers. This purging task is complex, but it is a priority. Likewise, the optimal use of registers boosts the degrees of efficiency and effectiveness of tax administrations as it has reliable information. In the practical case, the features of registers; what have the mechanisms to purge, update, an use tax registers efficiently been; the periodicity with which these processes are carried out; the safety and reliability of registers; the areas responsible for carrying out such processes; and the results obtained in terms of better management on the part of tax administration must be explained briefly. 3.3 Effective mechanisms for the collection of taxes and the recovery of debts in times of crisis. An important mechanism that enables a timely collection of taxes is the creation of figures such as withholding agents and substitute taxpayers. In the case of withholding agents, these administrative aides not only act as income and sales tax collectors, but also have the obligation of reporting and informing on those taxpayers whose taxes have been withheld. Likewise, tax administrations can better supervise and exercise tax control by reducing the number of taxpayers to be controlled and by obtaining quality information, enabling a better and timelier exercise of control. Under normal conditions whereby the cash flows of individuals and corporation are not seriously affected, the recovery of debts represents a major challenge for tax administrations. It is also true that in times of strong economic recession, the work of tax administrations becomes more difficult and more complex. This implies for the administration to have to develop collection tools and mechanisms that are not only more efficient, but also compatible with the economic reality of taxpayers. The exercise of friendly or persuasive collection and the granting of facilities
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or better terms of debt payment become important tools to prevent an increase in tax debt portfolio. In the practical case, the mechanisms tax administrations have implemented in order to collect taxes through the creation of such tax figures as withholding agents and substitute taxpayers, what taxes are covered, what criteria were used for their implementation, what obligations they have, what the sanctions in case of noncompliance are, and the advantages and disadvantages for tax administrations and taxpayers must be explained. Likewise, it must describe the mechanisms that have been implemented to guarantee the collection of tax debts, the conditions under which easy terms of payment or extended terms of payment are granted in times of crisis, what the main variations in relation to what was established previously are, who benefits from the mechanisms, what requirements the taxpayers who benefit must meet, and what the results obtained thus far are, as well as the sanctions applied in case of non-compliance.
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