Principles of good tax administration practice note

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GAP001
Issued: 25 June 1999
Amended: 2 May, 2001
Centre for Tax Policy and Administration
Tax guidance series
General Administrative Principles - GAP001 Principles of Good Tax Administration
Principles of Good Tax Administration - Practice Note
Prepared by the OECD Committee of Fiscal Affairs Forum on Strategic Management
Caveat
Each Revenue authority faces a varied environment within which they administer their taxation system.
Jurisdictions differ in respect of their policy and legislative environment and their administrative practices
and culture. As such, a standard approach to tax administration may be neither practical nor desirable in a
particular instance.
The documents forming the OECD Tax guidance series need to be interpreted with this in mind. Care
should always be taken when considering a Country's practices to fully appreciate the complex factors
that have shaped a particular approach.
1 Ptd: 21 September, 2001
GAP001
Issued: 25 June 1999
Amended: 2 May, 2001
Principles of Good Tax Administration - Practice Note
Table Of Contents
Introduction ............................................................................................................................................... 3
Goals and Challenges of Revenue authorities ........................................................................................... 3
Relations with Taxpayers .......................................................................................................................... 4
Relations with Employees ......................................................................................................................... 5
Relations with other Revenue authorities .................................................................................................. 5
Legal characteristics .................................................................................................................................. 6
Administrative characteristics ................................................................................................................... 6
Managing and Adapting to Changes.......................................................................................................... 7
Conclusion................................................................................................................................................. 7
Guidance Summary - Revenue authorities are encouraged to:.............................................................. 8
History ....................................................................................................................................................... 9
Compatibility ............................................................................................................................................. 9
Contact....................................................................................................................................................... 9
2 Ptd: 21 September, 2001
GAP001
Issued: 25 June 1999
Amended: 2 May, 2001
Principles of Good Tax Administration - Practice Note
Introduction
1. This paper consolidates the views of the OECD CFA Forum on Strategic Management on the principles of
good tax administration. These views do not necessarily reflect the current policy or direction of individual countries
and are not binding on any country. Rather they represent what may be considered as good characteristics that can be
promoted by international organisations and used as guidance when providing assistance to other countries.
Goals and Challenges of Revenue authorities
2. The main role of revenue authorities is to ensure compliance with tax laws. Their effectiveness is
dependent on a variety of external factors such as the state of the economy, public support for the priorities of the
government and the willingness of taxpayers to comply with tax rules. In an ever-changing environment, revenue
authorities must have a clear focus on what their goals are and continually review their operating approaches and
procedures to ensure they are making the most effective and efficient use of the resources available to them. By
adapting and adopting appropriate technologies as well as by being open to the benchmarking and testing of their
operations to achieve "best practice", good revenue authorities improve both their public image and the organisation
of work processes.
3. The promotion of voluntary compliance should be a primary concern of revenue authorities. The ways by
which revenue authorities interact with taxpayers and employees impact on the public perception of the tax system
and the degree of voluntary compliance. Taxpayers who are aware of their rights1 and expect, and in fact receive, a
fair and efficient treatment are more willing to comply. Skilled and committed employees who are valued and treated
equitably will be more likely to act fairly and professionally in all their dealings with taxpayers.
4. Voluntary compliance is promoted not only by an awareness of rights and expectations of a fair and
efficient treatment but also by clear, simple and "user-friendly" administrative systems and procedures. Voluntary
compliance is enhanced when it is easier for taxpayers to do so.
5. When compliance is not achieved on a voluntary basis, revenue authorities must identify and address the
risks associated with non-compliance by developing strategies targeted at those risks2. Voluntary compliance is
maximised when revenue authorities are aware of major developments and trends in the business and legislative
environment, and are responsive to their implications on tax administration and compliance. Good revenue
authorities identify and assess compliance risks and develop strategies targeted at addressing those risks. These
strategies include education, service, marketing, profiling risk, auditing, general anti-avoidance efforts, prosecution
and proposals for legislative change.
6. Revenue authorities have to address the opportunities and challenges associated with the globalisation of
the world's economies. The administration of tax systems in an open global economy is more complex. Taxpayers
are more sensitive to differences in inflation, tax treatment, exchange rates, tax rates and the ability of revenue
authorities to monitor trade and income flows. By increasing significantly the amount and type of income earned
abroad, globalisation also reduces the ability of revenue authorities to verify the accuracy of taxpayers' returns.
7. Good revenue authorities are strategically focussed and responsive to changes in their environment and
that of their taxpayers. In a globalising context they assess risks to compliance, not only domestically but also
internationally, with resources allocated on the basis of priorities identified under a sound risk management process.
8. Good revenue authorities make good tax treaty partners, as there cannot be significant differences in how
taxation issues are addressed for domestic and international taxation purposes. For example, the availability of
redress mechanisms and the confidentiality of taxpayer information are both domestic and international issues. In
their dealings with other countries, good revenue authorities co-operate in a spirit of trust and ensure that non-tax
disputes do not impact on the administration of tax laws.
1 See GAP002 Taxpayer rights and Obligations
2 See GAP003 Risk Management and GAP004 Compliance Measurement
3 Ptd: 21 September, 2001
GAP001
Issued: 25 June 1999
Amended: 2 May, 2001
9. Good revenue authorities can be characterised by how they relate to taxpayers, their employees and other
revenue authorities as well as by how they adapt to changes in their business and legislative environment.
Relations with Taxpayers3
10. A major challenge of revenue authorities is to be responsive to the individual circumstances of taxpayers
while at the same time being consistent.
11. Responsiveness translates into accessible, dependable and timely information service as well as the
accurate and timely treatment of requests and appeals. This can be achieved by constructing systems and procedures
that are aimed more towards the needs of the taxpayers than those of the tax administration. Examples of this would
be to facilitate links with taxpayers through single points of contact to ensure that services are available when and
where needed. Efforts to develop enhanced electronic means of communication between taxpayers and the revenue
authority which could include enabling the electronic submission of returns, introducing facilities for electronic
payments and on-line access to account balances.
12. A good revenue authority consults with taxpayers and other stakeholders on changes to, and the
development of, significant policies and procedures. It ensures that compliance costs are kept at the minimum level
necessary to achieve good compliance with tax laws. Revenue authorities should also co-operate with other
regulatory bodies in designing appropriate "whole of government approaches" to lessen compliance costs with due
regard to the interests of all levels of government.
13. Consistency is improved by having policies and procedures that are transparent and that conform to
domestic tax laws and international tax treaties and norms. Consistency also implies ensuring that the rights and
obligations of taxpayers, complaint procedures, and redress mechanisms are outlined and communicated through
guides, forms, public information and education programs.
14. Taxpayers' information should be used only to the extent permitted by law. Laws permitting the use of
information in the possession of the tax administration (other than that obtained through a treaty exchange) for
purposes other than administrative should be limited, and the reasons for such exceptions compelling.
1. Guidance - Relations with Taxpayers
15. Revenue authorities are encouraged to:
1.1 apply tax laws in a fair, reliable and transparent manner;
1.2 outline and communicate to taxpayers their rights and obligations as well as the available complaint
procedures and redress mechanisms;
1.3 consistently deliver quality information and treat inquiries, requests and appeals from taxpayers in
an accurate and timely fashion;
1.4 provide an accessible and dependable information service on taxpayers rights and obligations with
respect to the law;
1.5 ensure that compliance costs are kept at the minimum level necessary to achieve compliance with
the tax laws;
1.6 where appropriate, give taxpayers opportunities to comment on changes to administrative policies
and procedures;
1.7 use taxpayer information only to the extent permitted by law;
1.8 develop and maintain good working relationships with client groups and the wider community.
3 See GAP002 Taxpayer rights and Obligations
4 Ptd: 21 September, 2001
GAP001
Issued: 25 June 1999
Amended: 2 May, 2001
Relations with Employees4
16. Skilled and committed employees who are valued and treated equitably are more likely to act fairly and
professionally in all their dealings with taxpayers. Although salary and benefits paid to employees are not typically
under the direct control of revenue authorities, along with opportunities for the development and advancement of
careers, they can be instrumental in creating an attractive work environment. Employees' skills should be matched to
their tasks. There should be a high standard of support and development programs for employees. Effective training
programs should address the impact of globalisation and related complex taxation issues.
17. Transparent and appropriate controls over the recruitment, promotion and dismissal of public officials
contribute to the integrity of the administration. The community trust in the administration of the tax system is
further enhanced by administrative standards such as codes of conduct and rules on conflict of interest. Codes of
conduct define the behaviour and performance expected from public officials while rules on conflicts of interest
minimise the possibility of personal interest competing with public duties.
2. Guidance - Relations with Employees
18. Revenue authorities are encouraged to:
2.1 communicate and upholds high ethical standards in employees;
2.2 identify and resolve conflicts of interest between the public duties and private affairs of employees;
2.3 recruit and promote its employees on the basis of merit and equal opportunity and protect them
against arbitrary dismissal;
2.4 communicate and uphold high professional standards by providing effective training opportunities
to employees to enable them to address the complex taxation issues associated with globalisation;
2.5 remunerate employees at a level sufficient to attract and retain competent individuals.
Relations with other Revenue authorities
19. Two distinctive features of international taxation are the need for revenue authorities to interact with each
other and with taxpayers of other countries. Some of the rules in this area are set by tax treaties and international
agreements while others result from the legislative and administrative framework of each country. Living up to those
treaties and agreements, within the constraints set by domestic legislative and administrative frameworks, benefit
taxpayers in many ways and greatly contributes to compliance for international taxation purposes.
20. The main goals of tax treaties are the avoidance of double taxation and prevention of fiscal evasion,
removing key obstacles to the development of economic relations between countries. Tax treaties promote co-
operation between tax authorities while Mutual Agreement Procedures provide a framework for treaty partners to
make genuine efforts to reach an agreement on double taxation issues including Advance Pricing Arrangements. Tax
treaties also increase certainty for the tax consequences of foreign investment.
21. Coupled with the desirability of treaty partners to reach mutual agreement on individual cases,
international partners should be ready to make recommendations and provide assistance to policy makers to
renegotiate aspects of the treaty that are causing difficulties. The changing pace of international economic life (e.g.
the emergence of modern financial instruments) is such that in the future, revenue authorities will be looking for
preparedness of international partners to make recommendations for renegotiating both technical and substantive
issues.
22. Certain legal and administrative characteristics help ensure that good revenue authorities make good treaty
partners.
4 See Staff and support processes, Chapter 4, Handbook for Tax Administrations, Inter-American Center of
Tax Administrations (CIAT) 2000 [Ministry of Finance, The Netherlands]
5 Ptd: 21 September, 2001
GAP001
Issued: 25 June 1999
Amended: 2 May, 2001
Legal characteristics
23. Negotiating tax treaties ensures a workable international fiscal system and redress mechanisms for
taxpayers from other countries. Tax treaties patterned along the OECD Model Tax Convention prevent
discrimination against taxpayers from other countries and protect the confidentiality of taxpayer information. Good
treaty partners do not discriminate between otherwise similarly situated taxpayers on the basis of nationality and
safeguard the confidentiality of information about all taxpayers, foreign or domestic. These provisions apply not only
to the imposition of taxes but also to administrative requirements connected with taxation.
24. Good tax treaty partners are not hostile to other countries' efforts to administer their tax laws. The level of
co-operation that can be achieved between treaty partners is reduced significantly when revenue authorities are
unable to secure and exchange information on banking and financial transactions as non-compliant taxpayers
increasing use tax havens that do not divulge information on bank transactions, frustrating fiscal sovereignty.
3. Guidance - Legal characteristics
25. Revenue authorities are encouraged to:
3.1 apply the provisions of tax treaties in a fair and consistent manner;
3.2 promote the fair sharing of taxing rights in tax treaties and the development of domestic laws;
3.3 not promote or facilitate tax evasion or avoidance by residents of other countries;
3.4 improve access to bank and financial information for tax exchange purposes;
3.5 provide the same treatment and redress mechanisms to all otherwise similarly situated taxpayers
regardless of their nationality;
3.6 treat the information obtained from tax treaty partners with the same or greater confidentiality
protection as that required under domestic laws;
3.7 make recommendations and provide assistance to policy makers for the renegotiations of areas of
mutual concern in existing tax treaties.
Administrative characteristics
26. Good tax treaty partners co-operate with other revenue authorities to prevent tax evasion and avoidance. In
a globalise economy, the taxation of income on a world-wide basis while applying the residence principle is possible
only if there is a full and efficient exchange of information between revenue authorities.
27. The information requested from tax treaty partners should be relevant to a specific liability covered by tax
treaties, imply a significant tax liability or principle of law, be obtainable under domestic laws of both competent
authorities, and be used only in a manner prescribed by law or treaty. The competent authority receiving a request
should take the measures necessary to provide prompt assistance as if its own taxes were at stake.
28. In a mutual agreement procedure, good administrative practices include providing position papers with
sufficient information to identify the basis on which adjustments have been made and restricting issues to major
questions of facts and law.
29. Since tax treaties provide the main legal basis for the exchange of information, administrative
arrangements are necessary to define the scope and contents of simultaneous audits and other assistance. Conformity
with OECD guidelines on transfer pricing ensures a common basis for competent authorities to agree on double
taxation issues.
6 Ptd: 21 September, 2001

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