INTERNATIONAL TAX COOPERATION ROLE OF THE WORLD BANK GROUP

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1 INTERNATIONAL TAX COOPERATION ROLE OF THE WORLD BANK GROUP Marijn Verhoeven, Lead Economist, Governance Global Practice, World Bank Group World Bank Group January 2015

2 WBG s Interest in Domestic Revenue Mobilization and International Tax Issues Tax issues (and DRM more broadly) is a key development challenge Emphasis enhanced in the post 2015 development agenda Stopping tax evasion in sub Saharan Africa (where it currently costs 20 governments around 10% of GDP a year) would pay off at $49 per dollar spent 2

3 WBG s Role in this Agenda is Critical Strengthen capacities of tax administrations in developing countries Modernize tax administrations by building strong ICT systems Improve intelligence and risk management to deal with tax evasion Provide targeted technical assistance focused on BEPS transfer pricing and other key international tax issues The goal and the challenge Building revenue administrations based on principles of good governance, management and organization, risk assessment and segmentation 3

4 WBG Activities for the International Tax Agenda WBG efforts on the international tax agenda have focused on including the voice of developing countries. In particular, making the international agenda and BEPS accessible to developing countries. Together with OECD and IMF, WBG supports developing countries to fight aggressive tax planning through transfer pricing and other risks to the tax base such as thin capitalization. We also have helped developing countries to identify other base eroding issues such as incentives. Tax transparency has become the new norm WBG has assisted countries in meeting Global Forum standards WBG works on developing AEOI techniques that developing countries can use 4

5 Advocacy for Low Income and Low Capacity Countries We have been advocating on behalf of low capacity countries to ensure topics that are significant to their tax base preservation efforts, such as tax incentives and revenue from extractives, are flagged and prioritized by the international community. Advocacy through international fora, including the G20 Development Working Group process. 5

6 Supporting Dialogue that is Inclusive of Developing Countries WBG has made formal submissions on several OECD proposals (comparables, transfer pricing documentation) to advocate on behalf of low income countries. Jointly with other IOs, WBG has advocated for a structured dialogue process with developing countries on the BEPS agenda and action plans, with inputs and participation from all the IOs and regional organizations. Each IO will lead different events. Jointly with other IOs, WBG has advocated to include developing countries in the technical BEPS work of the formal Committee of Fiscal Affairs, to ensure their needs and considerations are reflected. World Bank has actively sought developing country feedback on BEPS; October 2014 organized a Workshop on Base Erosion and Profit Shifting in Spain: 60 participants from developing countries of 3 regions (13 from ECA, 12 from LAC, 3 from Africa, plus Spain, Canada and the US) 6

7 Main Issues in The BEPS Agenda Identified by Developing Countries 1. Capacity building Several participant countries highlighted the need for technical assistance and training of tax officials to build necessary capacities. 2. Transfer pricing: it remains THE biggest risk in developing countries resolutions take a long time comparable data is a big issue especially being able to acquire the databases (expensive) Judiciary not familiar with transfer pricing issues need for special tax courts/tribunals 3. Legislative framework Not in place for some issues (i.e., for Indirect Transfer of Assets the biggest challenge comes from the absence of the required legislative framework) and foreseen changes being able to put in place needed frameworks to respond to changing situation 7

8 Main Issues in The BEPS Agenda Identified by Developing Countries, cont d 4. Treaties Need to update treaties in line with BEPS agenda and new global economic realities. Implementation of double taxation treaties is a great struggle. 5. Harmonization so everyone doesn t do their own thing. 6. Include natural resource taxation in the BEPS debate. 8

9 WBG Operational Work Related to BEPS Examples COUNTRY/AREA PROJECTS/WORK PERFORMED East AFR Community and individual member countries Regional program focused on informality, tax administration and compliance streamlining and incentives Mali Assess impact of illicit trafficking and governance; develop policy recommendations Georgia Introduced comprehensive TP legislation and guidelines; APAs and capacity building; work on PE and PE profit attribution 9

10 WBG Operational Work Focused on Tax Administration Modernization and Capacity Building Examples in AFR CATEGORY COUNTRY/AREA PROJECTS/WORK PERFORMED Lending projects Ethiopia PFM project Liberia Poverty Reduction Strategy Credit I Nigeria State and Local Governance Reform Project Sierra Leone Sixth Governance Reform and Growth Credit Tanzania Tax Modernization 10