Current Challenges in Revenue Mobilization: Improving Tax Compliance. CEPAL Regional Tax Seminar March 10, 2015

Transcription

1 Current Challenges in Revenue Mobilization: Improving Tax Compliance CEPAL Regional Tax Seminar March 10, 2015

2 Outline Recent trends in tax compliance Understanding and addressing noncompliance The hard-to-tax transactions emerging issues Managing compliance Supporting compliance management new tools 2

3 Measurement and trends 3

4 The Crisis Exposed Tax Administration Weaknesses When the crisis hit, it made the task of RAs increasingly difficult Flaws in governance/management, and legal rigidities New approaches to foster compliance just emerging 4

5 Compliance, which was improving before the crisis, has at best stabilized now Latin America Ave (VAT) EU Ave Australia (VAT) 25 Colombia (VAT) Japan (VAT) México (Excise) UK (VAT) 10 UK (CIT)

6 Change in Compliance Gap Compliance and Output Gap Changes in Compliance and Output Gaps, vs LVA EST LTU IRL ROU LUX HUN GRC GBR ESP CZE PRT SVK SVN FRA BGR NLD BEL ITA FIN DEU DNK AUT SWE JPN MLT POL Change in Output Gap 6

7 Compliance Gaps Remain Useful Tools Calculated by an increasing number of RAs but very far from all 16% UK VAT Compliance Gap 14% 12% 10% 8% 6% 4% 2% 0% Do not necessarily indicate recoverable revenue Alone, do not indicate remedial action needed Various ways to calculate 7

8 Understanding and addressing noncompliance 8

9 Core Framework Evasion as a gamble (Allingham-Sandmo) with key parameters: Tax rate; Probability of detection; Punishment Important in practice: Audit strategies Costs of compliance Corruption/extortion 9

10 Underreporting Gap Net Misreporting Percentage Key Role of Withholding and Third Party Information 120 $120B 100% % $64B 56% 80% 70% 60% 60 50% $11B $12B 1% I. Amounts subject to substantial information reporting and withholding (Wages & Salaries) 8% II. Amounts subject to substantial information reporting. (Pensions & annuities, unemployment compensation, dividend income, interest income, Social Security benefits) 11% III. Amounts subject to some information reporting. (Deductions, exemptions, partnerships/s-corp income, capital gains, alimony income) 40% 30% 20% 10% 0% IV. Amounts subject to little or no information reporting. (Nonfarm proprietor income, other income, rents and royalties, farm income, Form 4797 income, adjustments) 10

11 The hard-to-tax emerging issues 11

12 Corporate Taxes Rates Corporate Income Tax Rates,

13 Corporate Taxes Base Erosion and Profit Shifting Tax planning schemes Aim at shifting taxable income to low tax jurisdictions Mechanisms: Transfer pricing abuse Intra-company debt Location of intangible assets 13

14 Corporate Taxation: Tax planning schemes Tax arbitrage opportunities: taking advantage of mismatches in legislation across countries Treaty shopping Risk transfer: redefinition of risk (high margin) toward low corporate tax rate countries Relocation. From , about 6 percent of all MNEs relocated their headquarters Deferral of taxes 14

15 FDI Stocks Relative to GDP FDI Stocks Relative to GDP The Top Ten (2012) 15

16 Income Tax Liability, % High Wealth Individuals Treatment matters for equity and revenue Income Tax Liability of Top 1% of Taxpayers Income Tax Liability of Top 5% of Taxpayers US UK Netherlands 16

17 HWI Problems and Dealing with Them Complex affairs, well-advised, powerful, mobile Specialized HWI compliance programs HWI unit: risk analysis, audit, debt collection have shown results E.g. UK collected 1 billion since 2009 Credit Suisse fine $2.6 bn; HSBC Several post crisis Exchange of Information initiatives FATCA, G20 and AEOI 17

18 More on the Hard-to-Tax Professionals Small enterprises B2C transactions Lotteries Electronic fiscal devices Internet and intangible services; Amazon 18

19 Managing compliance 19

20 Revenue Agency Company A Company B Company C Company D Revenue Agency Company A Company B Company C Company D Revenue Agency Company A Company B Company C Company D Revenue Agency Company A Company B Company C Company D Percent of GDP Revenue Administrations Are large, complex organizations USA UK JAPAN CHILE USA UK Japan Chile That have been through turbulent times and face rapidly changing environment ahead 20

21 Organizational Management Requires Strong HQs. High turnover of senior staff a common problem 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Rotation of Commissioners by Region, % AFR (31) APD (21) EUR (36) MCD (16) WHD (26) 1 Commissioner 2 Commissioners 3 Commisioners 21

22 Iceland Cyprus Argentina Slovenia Canada Poland Singapore Portugal Saudi Arabia Germany United States Chile Japan Belgium Spain Romania Mexico France New Zealand Sweden Korea El Salvador Indonesia Italy Australia Ireland Malaysia Israel Austria United Kingdom Bolivia Russia South Africa Ecuador Denmark Latvia Honduras Uruguay Adequate, Sustained Financing, 0.1 Changes in Spending on Tax Administration, (In percent of GDP) Source: CIAT, RA-FIT data, OECD 22

23 To Do List for Operational Management Focus on main compliance risks and prompt payment of refunds Pressure to take on new major expenditure functions but important to keep priority on administering core taxes Some countries still struggle with automating basic compliance operations Need for proactive relationship with taxpaying community 23

24 Supporting compliance management 24

25 with New Analytical Tools 20% RA-GAP: Actual vs. full compliance 15% 10% 5% 0% RA-FIT: Collects RA data and establish baselines/benchmarks TADAT: Assessment tool Accountability and Transparency Integrity of the Registered Taxpayer Base Operational Efficiency and Effectiveness Assessment and Mitigation of Risk Tax Dispute Resolution Supporting Voluntary Compliance Performance Outcome Areas Ensuring Accuracy of Reporting Payment of Obligations Filing of Tax Returns 25

26 Conclusions Tax administration is catching up, but the challenges are big International tax competition is very strong and for CIT there are strong incentives to a race to the bottom International cooperation is more and more critical BEPS Initiative 26

27 Thank You! 27