FORUM ON TAX ADMINISTRATION Tax Administration in OECD and Selected Non- OECD Countries: Comparative Information Series (2010) 3 March 2011 CENTRE FOR TAX POLICY AND ADMINISTRATION Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) Foreword In today‘s rapidly changing environment revenue bodies are being asked to do more with less, to take on new tasks, and at the same time ensure that governments have the revenues they need to finance important programmes that benefit their citizens. The recent economic crisis has accentuated these pressures, particularly with respect to the handling of refunds. One way in which the Forum on Tax Administration (FTA) has responded to these developments is to provide authoritative international comparisons of the structures, functions, and performance of revenue bodies around the world. Such comparisons are an invaluable tool for Commissioners to learn from the experiences of other countries, and illustrate how different revenue bodies operate in practice. Additionally, the 49 best practice guidelines produced by the FTA also help Commissioners identify what works and what does not. This FTA publication, Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010), is the fourth edition of this series. It contains a wide range of insightful, comparative data on aspects of tax administration around the world. Almost 50 countries have contributed to the research that went into this publication – every OECD member country, as well as EU, G20, and other countries. It provides a unique insight into the tax administration environment. Not only will it promote greater understanding between countries by setting out the context in which revenue bodies operate, but it is also a key tool to assist both administrators and policy makers in identifying the key trends and innovations in tax administration. I would like to thank all those who contributed to this research. It is my hope that through wide distribution this information will be helpful for all those who work in tax administration and support collaboration across boundaries. Douglas H. Shulman FTA Chairman 2 Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) Table of Contents ABOUT THIS DOCUMENT…………………………………………………………………………………………… 9 About the FTA………………………………………………………………………………………………………. 10 Caveat……………………………………………………………………..................................................... 10 Inquiries and further information…………………………………………………………………………… 10 EXECUTIVE SUMMARY………………………………………………………………………………………………. 11 CHAPTER 1. INSTITUTIONAL ARRANGEMENTS FOR TAX ADMINISTRATION………….… 15 Introduction…………………………………………………………………………………………………………. 16 The revenue body as an institution………………………………………......................................... 17 The extent of revenue body autonomy…………………………………………………………………….. 21 Scope of responsibilities of the revenue body…………………………………………………………… 24 A unified body for the collection of direct and indirect taxes……………………….………… 24 The collection of social contributions……………………….……………………………………..…. 24 Non-tax related functions………………………………………………………..………………………… 28 Customs administration………………………………………………………………………………. 30 Special governance arrangements…………………………………………………….……………..……… 31 Formal management boards and advisory bodies………………………………………………... 31 External /independent oversight of the tax administration system……………………….. 36 Dedicated complaints handling and oversight…………………………………………………….. 38 CHAPTER 2. THE ORGANISATION OF REVENUE BODIES…………………….…………………….. 40 Getting organised to collect taxes………………………………………………………………………….… 41 Organizational structures of revenue bodies and their evolution…………………………… 41 Country examples of high level organisational arrangements……………………………..… 44 Reform, reform, reform…………….the never-ending story!...................................... 49 Large taxpayer operations…………………………………………………………………………….…........ 54 The common characteristics of large taxpayers………………………................................. 54 Criteria used by revenue bodies to identify large business……………………………………. 55 Common and/or important features of large taxpayer units………………..................... 55 Special organisational arrangements for high net worth individuals………………….……….. 60 Emerging trends in the growth and wealth of HNWIs…………………………………………. 61 Dedicated HNWI organisational units and their staff resources…………………………… 63 Criteria to identify HNWIs and numbers of taxpayers classified as HNWIs............... 64 Office networks for tax administration…………………………………………………………………….. 65 Examples of large scale office network rationalisation 66 programmes……………………….…. CHAPTER 3. SELECTED ASPECTS OF STRATEGIC MANAGEMENT………………………..……. 69 Strategic planning in tax administration……………………………………………………………..…... 70 Managing for improved performance………………………………………………………………………. 70 Planning and management approaches of revenue bodies……………………………………….... 71 Preparing and publishing business plans and annual performance reports……………. 72 Preparing the strategic plan – what the research reveals………………………………………. 74 Measuring the performance of revenue bodies…………………………………………………..... 80 Managing and improving taxpayers‘ compliance………………………………………….……... 88 Domains of taxpayer obligation…………………………………………………………………… 88 Adopting a risk management approach………………………………………………………… 88 Recognising the influences on taxpayers‘ compliance behaviour…………………….. 89 Monitoring and evaluation of compliance risk managements…………………………. 90 Compliance risk identification, assessment, prioritization, and treatment……….. 91 Tax gap estimation……………………………………………………………………………………… 93 The use of random audit programmes…………………………………………………………… 94 3 Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) Reporting revenue body performance……………………………………………………………………. 95 Concluding observations……………………………………………………………………………..……….. 95 CHAPTER 4. HUMAN RESOURCES MANAGEMENT STRATEGY, ORGANISATIONAL 100 CAPABILITY AND STAFF PERFORMANCE…………………………………………………………………… Human resources management strategy, organisational capability and staff 101 performance………………………………………………………………………………………………..……….. 102 Aspects of HRM Strategy………………………………………………………………………………..……… 107 Changes in policy in aspects of HRM within revenue bodies……………………………….…….. 107 Staff recruitment and appointment……………………………………………………………………….... 108 Staff development……………………………………………………………………………………………..…… 110 Performance management……………………………………………………………………………………… 110 Talent management……………………………………………………………………………………….…. 111 Reward and remuneration……………………………………………………………………………………… 112 Staff metrics—Staff numbers and attrition, age profiles and qualifications……………..…… 112 Staff numbers – attrition……………………………………………………………………………….….. 114 External churn…………………………………………………………………………………………………. 114 Total churn…………………………………………………………………………………………………….... 114 Age profiles of revenue body………………………………………………………………………….….. 115 Qualifications……………………………………………………………………………………………….….. CHAPTER 5. RESOURCES OF NATIONAL REVENUE BODIES…………………………….……….. 116 The resources of national revenue bodies………………………………………………………………… 117 Tax administration expenditure………………………………………………………………….……........ 117 Aggregate expenditure……………………………………………………………………………………… 117 Ratio of administrative costs to revenue collections ……………………………………………. 119 Ratio of administrative expenditure to GDP……………………………………………………….. 128 International comparisons of administrative expenditure & staffing………………….………. 133 Cost of collection ratios……………………………………………………………………………………. 133 Relative staffing levels of revenue bodies………………………………………………………….... 134 Trends in aggregate staffing levels of OECD revenue bodies………………………………… 137 Allocation of staff resources by functional groupings………………………………………….…….. 138 Outsourcing of revenue body functions/operations………………………………..………………... 140 The non-tax roles of national revenue bodies…………………………………………………………… 140 CHAPTER 6. OPERATIONAL PERFORMANCE INFORMATION…………………………..……… 144 Tax revenue collections………………………………………………………………………………………..… 145 Refunds of overpaid taxes……………………………………………………………………………….……… 153 Taxpayer service delivery…………………………………………………………………………………..…… 154 Are you being served? The use of service delivery standards in tax administration and related revenue body performance……………………………………………………….……... 155 Tax verification activities………………………………………………………………………………..……… 162 Tax disputes……………………………………………………………………………………………………….…. 170 Tax debts and their collection…………………………………………………………………………………. 170 Impact of the global financial crisis……………………………………………………………………. 182 Keeping aggregate tax debt to a minimum………………………………………………………….. 184 CHAPTER 7. PROVISION AND USE OF ELECTRONIC SERVICES IN TAX ADMINISTRATION…………………………………………………………………………………………….……….. 185 Provision and use of modern electronic services………………………………………………………. 186 Electronic filing of tax returns……………………………………………………………………………. 186 Personal income tax…………………………………………………………………………………… 186 Corporate income tax………………………………………………………………………………… 187 Value added tax…………………………………………………………………………………………. 187 4 Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) The provision of pre-filled tax returns to taxpayers……………………………………………… 192 Electronic payments of tax…………………………………………………………………………….….. 194 Other electronic services available to taxpayers………………………………………..…………. 196 CHAPTER 8. LEGAL AND ADMINISTRATIVE FRAMEWORKS FOR TAX ADMINISTRATION…………………………………………………………………………………………….……….. 200 Taxpayers‘ rights and charters………………………………………………………………………………… 202 Access to tax rulings………………………………………………………………………………………….…… 207 Taxpayer registration………………………………………………………………………………………..…… 209 Collection and assessment of taxes………………………………………………………………………….. 214 Income taxes……………………………………………………………………………………………….…… 214 Overview - withholding regimes…………………………………………………………………… 215 Withholding regimes for employment income……………………………………………….. 215 Withholding regimes for other categories of income………………………………………. 219 Use of third party information reporting requirements…………………………………… 222 Collection of income taxes by advance/instalment payments of tax…………………. 227 Administrative assessment and self-assessment regimes………………………………… 228 Collection of VAT…………………………………………………………………………………………….. 238 Regulation of tax agents/ tax professionals…………………………………………………..………….. 243 Administrative review………………………………………………………………………………..………….. 245 Enforced collection of unpaid taxes…………………………………………………………………….…… 246 Powers to enforce tax debt collections………………………………………………………………… 246 Information and access powers……………………………………………………………………..……..... 251 Tax offences, interest, penalties and enforcement……………………..……………………….…….. 254 Failure to file returns on time……………………………………………………………………………. 254 Failure to pay tax on time………………………………………………………………………………….. 254 Failure to correctly report tax liability………………………………………………………………… 254 Recent legislative developments……………………………………………................................. 255 Annexes ANNEX I. LIST OF PARTICIPATING REVENUE BODIES: NAME OF REVENUE BODY 290 AND FİSCAL YEAR………………………………………………………………………………………………………. 5 Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) Boxes 1 An overall framework for a tax administration: strategic objectives and performance 17 indicators……………………………………………………………………………………………………………. 2 The integration of tax and social security contributions (SSCs) collection…………………. 25 3 HRMC change and transformation programmes……………………………………………….……. 53 4 New Zealand: IRD‘s compliance focus in 2010-11 High-wealth and high-income individuals……………………………………………………………………………………………………….…. 61 5 The state of the world‘s wealth—research by Capgemini & Merrill Lynch………..………… 62 6 Examples of large scale office network rationalization programmes…………………………. 66 7 Enhancing public sector administration—emerging directions………………………………… 70 8 Setting targets and measuring performance – emerging directions and issues across the broader public sector……………………………………………………………………………………… 80 9 Published assessments of key compliance risks and treatments…………………..…............ 93 10 Tax gap estimation activities of selected revenue bodies……………………………….............. 94 11 The use of random audit programmes by selected revenue bodies…………………….……… 95 12 Reporting performance outcomes – Timely service delivery…………………………............. 96 13 Reporting performance outcomes—Taxpayers‘ compliance……………………………………… 97 14 Reporting performance outcomes- Taxpayers‘ compliance…………………………................ 98 15 Reporting performance outcomes – Perceptions of services and competence……………. 99 16 Australia- People strategy………………………………………………………………………….............. 104 17 IRS Workforce of Tomorrow…………………………………………………………………………………. 105 18 Finland—Gauging staff engagement, satisfaction & motivation……………………............... 106 19 Singapore—Gauging staff engagement, satisfaction & motivation…………………………….. 106 20 Revenue body examples of major HRM policy change………………………………….............. 107 21 Revenue body examples of innovative recruitment practices……………………………………. 108 22 Ireland—Revenue and external recruitment…………………………………………….….............. 110 23 Talent Management…………………………………………………………………………………………….. 110 24 South Africa – Leadership development programme architecture…………………….......... 112 25 Canada— Workforce Movement Indicators……………………………………………………………. 114 26 Using the cost of collection ratio as an efficiency and/or effectiveness………………………. 124 27 International comparisons of cost of collection ratios………………………………….………….. 133 28 Doing more with less………..the Finnish experience and future plans…………..……………. 138 29 Denmark—The evolution of pre-filled tax returns…………………………………………………… 192 30 France‘s use of pre-filled tax returns………………………………………………………..……………. 193 31 Spain‘s pre-filling service……………………………………………………………………….….............. 193 32 OECD Taxpayers‘ Charter-illustrative description of taxpayers‘ rights………….………….. 205 33 Key elements of the Australian Taxation Office‘s Taxpayer‘s Charter…………..……………. 206 34 Key elements of SKAT‘s (Denmark) Taxpayers‘ Charter……………………………..…………… 207 35 Key elements of the UK HMRC‘s Taxpayer‘s Charter………………………………………………. 207 36 Withholding arrangements for employee taxpayers………………………………….….............. 216 37 New Zealand – Issues in PAYE administration and possible solutions……………………… 217 38 United Kingdom – Issues in PAYE administration and possible solutions……............... 218 39 Withholding regimes and self-employment/business income………………………………….. 222 40 Third party reporting regimes for self-employment/business income…………..………….. 223 41 The impact of VAT compliance on business—study conducted by PWC………….............. 238 42 Australia: Tax Agent Services Legislation……………………………..…………………..…………… 243 43 United States: Tax Return Preparer Review………………..……………………………................. 245 6 Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) Figures 1 Argentina‘s views on the benefits of social security integration………………………………… 26 2 Features of the organisation structure of selected revenue bodies…………………………….. 44 3 Argentina‘s (AFIP) high level organisational model…………………………………..……………. 45 4 Austria‘s high level structure for tax administration……………………………….………………. 45 5 France‘s high level headquarters organisation structure……………………………................. 46 6 Hungary‘s (APEH) high level headquarters organisation structure…………………………… 46 7 Japan‘s National Tax Agency organisation structure…………………………………................. 47 8 Mexico‘s revenue body (SAT) headquarters organisation structure…………….……………. 47 9 New Zealand‘s Inland Revenue Department high level organisation structure…………… 48 10 Israel Tax Authority organisational structure…………………………………………………………. 48 11 Large taxpayer operations—Selected features of selected revenue bodies‘ large taxpayer divisions……………………………………………………………………………………..…………. 59 12 Example—The performance management cycle……………………………………………………… 71 13 Key elements of revenue bodies‘ strategic plans……………………………………………………… 76 14 Key elements of revenue bodies‘ strategic plans (contd.)…………………………................... 77 15 Key elements of revenue bodies‘ strategic plans (contd.)…………………………................... 78 16 Key elements of revenue bodies‘ strategic plans (contd.)………………………..……………….. 79 17 The compliance risk management process……………………………………………..………………. 89 18 The compliance risk management diagnostic model……………………………………………….. 89 19 The BISEP model & spectrum of taxpayer attitudes to compliance…………………………… 90 Diagrams 1 Maturity model of pre-filling capabilities……………………………………………..………………… 194 2 Maturity model of payment methods…………………………………………………………………….. 195 Charts 1 Trend of average salary costs/aggregate administrative costs for tax functions(%)…….. 118 2 Trend of average IT costs/aggregate administrative costs for all functions (%)………….. 119 3 Average revenue body expenditure/GDP, 2005-2009, OECD countries……………………. 128 4 Average staff usage on major tax functions (OECD countries)………………………………….. 139 5 Average staff usage on major tax functions (non-OECD countries)…………………………… 139 6 Average staff usage on major tax functions (non-OECD countries)………………………………………… 139 7 Trend of averages of value of year-end tax debt/annual net revenue (%)…………………… 181 Tables 1 Institutional arrangements………………………………………………………………………............... 20 2 Delegated authority of national revenue bodies………………………………………………………. 23 3 Collection of social security contributions —the roles of selected revenue bodies/1………………………………………………………………………………………………………......... 28 4 Selected non-tax functions of revenue bodies (with such functions)…………………………. 29 5 Selected features of the organisational structure of revenue bodies………………………….. 43 6 Selected features of Large Taxpayer Units……………………………………………………………… 57 7 Revenue bodies with dedicated units for high net worth individuals………….……………… 64 8 Office networks of revenue bodies (2009)………………………………………………..……………. 67 9 Revenue bodies‘ mandated business performance targets………………………….……………. 73 10 Selected management practices (business plans, annual reports, etc.)………………………. 74 11 Strategic approach for managing taxpayers‘ compliance………………………………………….. 92 12 Revenue bodies‘ human resources management (HRM) strategies…………………………… 103 13 Aspects of Staff Recruitment and Development………………………………………………………. 109 14 Performance Management and Remuneration……………………………………..………………… 111 15 Staff metrics………………………………………………………………………………………………………… 113 16 Aggregate administrative costs for tax administration functions……………….……………… 120 17 IT costs for all functions…………………………………………………………………….…………………. 122 7 Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) 18 Comparison of aggregate administrative costs for tax functions to net revenue 126 collections /1………………………………………………………………………………………..…............... 19 Tax administration & revenue body expenditure as % of GDP……………………................. 129 20 Non-tax expenditure as % of aggregate revenue body expenditure……………………………. 131 21 Staff usage on tax administration functions: Staff-related measures/1………..……………. 135 22 Trends in OECD member revenue bodies‘ aggregate staffing levels and expected future movements/1………………………………………………………………………………................. 137 23 Aggregate staff usage on major tax administration functions in 2009……….……………… 142 24 Aggregate tax collections (by major tax type) for 2008 (and other years‘ aggregates) … 147 25 Revenue collections and refunds…………………………………………………………….................. 149 26 Revenue collections and refunds (relative shares)…………………………………….................. 151 27 Taxpayer service delivery-standards set and performance achieved in fiscal year 2009/1……………………………………………………………………………………………………………….. 157 28 Taxpayer service delivery-standards set and performance achieved in fiscal year 2009/1………………………………………………………………………………………………………........... 158 29 Taxpayer service delivery-standards set and performance achieved in fiscal year 2009/1……………………………………………………………………………………………………..…......... 160 30 Verification activities-all taxpayers……………………………………………………..………………… 164 31 Verification activities- large taxpayers………………………………………………..…………………. 166 32 Verification activities—selected ratios…………………………………………………..……………….. 168 33 Data on tax disputes in administrative review………………………………………………………… 171 34 Selected data on unpaid taxes (not subject to dispute)…………………………..………………… 173 35 Selected data on unpaid taxes (not subject to dispute)……………………………..……………… 175 36 Selected ratio concerning enforced tax collection activities…………………….……………….. 177 37 Selected ratio concerning enforced tax collection activities……………………..………………. 179 38 Tax debts and the impacts of the global financial crisis…………………………..……………….. 183 39 Personal income tax return filing………………………………………………………..………………… 188 40 Return filing—corporate profits/income tax and value added tax………………................. 190 41 Tax payment methods available………………………………………………………………................ 197 42 Other electronic services provided to taxpayers (and/or their representatives)…………………………………………………………………………………………………… 198 43 Taxpayers‘ rights and regulation of tax professionals……………………………….……………… 204 44 Features of the revenue rulings system………………………………………………………………….. 209 45 Comparison of registered taxpayer populations (2009)…………………………….................. 211 46 System of taxpayer identifiers for revenue administration……………………………………….. 212 47 Use of taxpayer identifiers for information reporting and matching………..…................. 214 48 Withholding and reporting regimes for income of resident taxpayers……….………………. 220 49 Personal income tax: employers‘ withholding, payment, and reporting obligations …… 224 50 Personal income tax: payment and return filing obligations…………………………………….. 229 51 Corporate income tax: payment and return filing obligations…………………………………… 234 52 Value added tax (VAT): registration, payment, and filing obligations……………………….. 240 53 Selected features of tax disputes of assessment or rulings……………………………………….. 247 54 Enforced tax debt collection powers………………………………………………………………………. 249 55 Verification of taxpayers‘ liabilities: information access and search powers of tax officials……………………………………………………………………………………………………………….. 252 56 Penalties and interest for non-compliance of failure to file return on time………………… 257 57 Penalties and interest for non-compliance of failure to pay tax on time…………………….. 260 58 Penalties and interest for failure to correctly report tax liability ………………………………. 263 8 Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) About this document Purpose and methodology This information series, prepared by the OECD‘s Centre for Tax Policy and Administration (CTPA) for the Forum on Tax Administration (FTA), provides internationally comparative data on aspects of tax systems and their administration in OECD and selected non-OECD countries. The primary purpose of the series is to provide information that will facilitate dialogue among tax officials on tax administration issues, and which may also identify opportunities for revenue bodies to improve the design and administration of their tax systems. This information series, the fourth edition, contains an expanded array of information that should be of interest to tax officials in most countries and to other observers. It is the CFA‘s intention that this information series is updated around every two years and that it evolves to become the definitive source of comparative tax administration-related information for OECD and selected non-OECD countries. The information provided in this series has been obtained from a survey of revenue bodies in OECD member and selected other countries conducted in 2010, revenue bodies‘ annual reports, third-party information sources (e.g. the International Bureau of Fiscal Documentation (IBFD)), selected other OECD tax publications and other sources. Every effort has been made with relevant revenue bodies to validate the information displayed in the series and to note the sources of information used. The series is published under the responsibility of the Secretary-General of the OECD and this edition was approved by the Committee on Fiscal Affairs (CFA) in February 2011. The CFA welcomes feedback that can be taken into account for future editions. A list of the 49 participating countries is provided at Annex 1. For this edition Chile, Estonia, Israel and Slovenia appear as OECD countries, all having formally become OECD members in 2010. As for prior editions, a selection of non-OECD countries has also been included to enhance the objective of providing international comparisons and benefiting a larger number of countries. The criteria used to identify potential participating countries were:  Countries that are formal observers to the CFA (i.e. Argentina, China, India, South Africa, and the Russian Federation);  Non-OECD countries that are members of the European Union (i.e. Bulgaria, Cyprus 1, 2, Latvia, and Malta);  Countries whose revenue body has worked closely with the FTA over recent years (i.e. Malaysia and Singapore); and  G20 countries not captured by abovementioned criteria (e.g. Indonesia and Saudi Arabia). 1 Footnote by Turkey: The information in this document with reference to ―Cyprus‖ relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognizes the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of United Nations, Turkey shall preserve its position concerning the ―Cyprus‖ issue.‖ 2 Footnote by all the European Union Member states of the OECD and the European Commission: ―The Republic of Cyprus is recognized by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.‖ 9 Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010) About the FTA The Forum on Tax Administration (FTA) was created by the Committee on Fiscal Affairs (CFA) in July 2002. Since then the FTA has grown to become a unique forum on tax administration for the heads of revenue bodies and their teams from OECD and selected non-OECD countries. In 2009 participating countries developed the FTA vision setting out that…................................... ―The FTA vision is to create a forum through which tax administrators can identify, discuss and influence relevant global trends and develop new ideas to enhance tax administration around the world. This vision is underpinned by the FTA‗s key aim which is to…................................................... ―improve taxpayer services and tax compliance – by helping revenue bodies increase the efficiency, effectiveness and fairness of tax administration and reduce the costs of compliance. The FTA also prepares comparative analysis on aspects of tax administration to assist member and selected non-member countries. Where appropriate the Forum works in collaboration with non-member economies and businesses, seeking to co-ordinate and develop sound tax administration responses to today's challenges and opportunities.3 Caveat National revenue bodies face a varied environment within which to administer their taxation system. Jurisdictions differ in respect of their policy and legislative environment and their administrative practices and culture. Care should always be taken when considering a country‘s practices to fully appreciate the complex factors that have shaped a particular approach. Inquiries and further information Inquiries concerning any matters raised in this information note should be directed to Richard Highfield (CTPA International Co-operation and Tax Administration Division) at e-mail ([email protected]). 3 A summary of all FTA publications with web linkages can be found at the following website: http://www.oecd.org/dataoecd/2/46/42419552.pdf 10