IMF Fiscal Forum – International Taxation: Opportunities & Risks
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International Taxation: Opportunities & Risks
Moderator Marin Verhoeven, World Bank Group
Presenter: Vicky Perry, Assistant Director, Fiscal Affairs Department, IMF
Discussant: Savior Mwambwa, ActionAid International
Presentation by Vicky Perry – Diagnostic and Assessment Framework, or ‘Tax Policy Assessment Framework ‘TPAF’
- A preliminary attempt to develop this tool, and we still invite comment.
- As we discuss details, we’ll seek to elicit feedback on this idea.
- Goal of this tool is to provide systematic assessment of tax policy systems in countries
- The Tax Assessment Diagnostic Tool – which is now well established.
- The tool will provide a foundation for improvements in countries’ policy systems
- Also to provide a window or transparency into how WB & IMF go about providing the technical assistance which is provided very extensively, for both policy and administration. In the IMF’s case, this is over 100 countries per year
- Not this advice is candid and if they are published it is at countyr’s discretion. Instead this is procedural, it explains how we go about thinking & assessing a country’s tax policy
- Hence it allows us to bring best practice into a zone where countries themselves can use this diagnostic framework to assess & determine policy
- Recognizing that there is not one answer for everybody, and in this capacity is always key, and indeed countries’ goals can be quite different
- Tax systems, rather than administration, reflect sovereign choices not simply political, but also how for example to achieve progressivity, and how to achieve it given a prevailing context of trade-offs, conditioned by the capacity
- This framework should allow assessment of the balances & trade-offs
- Efficiency cannot be ignored, Equity likewise – hence different taxes can be used to do different things, and this framework will seek to recognize it
- The concept is like a ‘house’, and consider it as a modular approach as at any moment you do not seek to consider every aspect, but at all times foundational and cross-cutting issues have to be considered.
- Also the ‘roof’ comes at the end, asking the question of who will use this and to what end
- We have to ask what’s cross cutting, where are inter-tax linkages and spillovers, and perhaps sometimes optionally what is revenue source-specific (e.g. tobacco excises perhaps)
- So some things are required, to look at the overall structure, and governance
- Drilling down further, ask what is the current treatment?
Savior Mwamba
Two contextual issues to keep in mind –firstly that we are all aware of the Panama Papers, which is not new but an illustration of longstanding issues.
Secondly, technical assistance (TA) around tax administration is not new, and it would be helpful if an African delegation reflected their experiences around that, and connecting it to broader dynamics around aid and the use of development assistance in terms of the different ways of using TA.
- How a country responds or deals with the challenges of e.g. designing a tax regime or how to deal with multi-nationals companies (MNCs), or tax treaties
- Key is to ask also what is the value added, given most African countries’ need to make difficult choices in short-term and long-run, which includes how to engage in a process that the framework suggests.
- I notice the framework does not appears to include areas like natural resource taxation, but this is one of the most important areas for developing countries and considering much o the question of profit shifting or avoidance is often regarding
- So therefore focusing only on tax administration and TA is not sufficient to address all the problems that many states confront, and should not be separated from dealing with the bigger picture issues, such as dealing with tax loopholes.
A positive is the encouragement of dialog, which of course is not new. To ask what kind of dialog occurs would be a useful questions, e.g. are developing countries going to revceive more power in shaping the system, e.g. from this morning’s discussion featuring the IMF managing director, the need to have developing countries’ actively participate in shaping those rules.
Question & Answer
VP:
Agree with much of Savior’s remarks
- National tax systems are highly affected by events around the world
- To clarify: we do not see this as another thing that countries should take on, but a way to guide discussion within country, about what the tax policy structure should look like. This is not really about administration, but rather what discussion is supposed to look like. It is not a new process, but to systematize the process which countries already go thorough.
- Only then discuss how to change approaches,
- These are naturally difficult issues currently being discussed – the question is how do we help a country, and what would we advise to a country – well if they’ve already signed a treaty imposing certain obligations, then you have to analyse the context and ask the treaties which are in place, or the ones being discussed and seek to support considering which actions or commitments affect a country
International Taxation: Building Capacity in International Tax Matteers
G20 commitment on cross-border tax, Domestic Revenue Mobilisation
Session 2
Richard Stern, World Bank Group
Presenting the Second prong of Bank-Fund Joint Initiative
- G20 process has mandated Bank/Fund to develop a series of toolkits which are really collecting good practice experience in areas that are problematic for most countries – eg. basing kits on what is working
- Hence providing documentation on what countries have said needs more exploration and needs collection of evidence on what works and what does not
- The three issues are comparables for transfer pricing, transfer pricing documentation and risk assessment tools and techniques
- The purpose is not to set standards or tell countries how to go, but to give them choice in how to tackle
- Started a new consultation process – these have already been ongoing, but now the purpose is to enhance existing dialogue with focus on either a specific topic or a range of topics in domestic resource mobilisation
- The expected outputs are prioritisation of what areas are most pressing, where the gaps in existing frameworks, procedures, capacity
- The expected outcomes are focusing our support on these priority areas, producing new approaches, and enhancing our operational support
- The expected impact is timely implementation of tax reform that enhances revenue mobilisation, addresses base erosion, and broadens tax transparency
First consultation
- Participants including country representatives, outside experts, CIAT staff
- Transfer Pricing was topic of consultation, because it is not simply an international tax issue it’s also a domestic tax issue, because of both international and domestic transactions’ relevance
- We asked ‘how big of a risk is it, and how important is it to you including how much is your base erosion affected by TP (transfer pricing) to understand where it sits in list of priorities
- The issues often boiled down to capacity, rather than legislation, and whether it was well used to look at TP rather than something else
- Test of success was the lively discussion which raised many challenges
- Issues raises were need for developing risk assessment tools, administrative issues, documentation and simplification. Key was capacity building, including basic, sector specificity, understanding risk, and even language ability
- Countries need to be able to guide us to the relevant topics to be covered by toolkits/guidance notes with good practice examples
but the major message was to continue to provide the basic and general support in both tax policy and administration, that these are the foundations of all tax reform
