Emerging Challenges Facing Tax Policymakers and Administrations in the Area of International Taxation and Transfer Pricing
July, 17th 2015
Senior tax administrators and tax policy officials from 26 countries throughout Europe and Central Asia as well as experts from the WU University and the World Bank met in Vienna, Austria to share experiences and lessons learned from the emerging challenges that Tax Policymakers and Administrations face in the area of International Taxation and Transfer Pricing. This was the 4th Conference organized under the aegis of the “Tax Administrators Exchange of Global Innovative Practices” or TAXGIP, a peer learning forum for tax administrators. The purpose of the conference is to bring together these practitioners to establish a forum for future cooperation.
Tax administration and domestic resource mobilization are central to the development agenda. Demands on public services continue to grow as countries strengthen efforts to eliminate poverty and boost shared prosperity. Increasing pressures on public spending in the context of slowing growth has put pressure on tax administrations to achieve revenue targets. However, domestic resource mobilization is about more than simply raising money. In his remarks, James Brumby, Director, Governance, World Bank, stressed the link between taxation and good governance, saying that “participation in the process of domestic revenue collection that involves citizens and the state interacting, i.e., participation in state building, is essential for development and inclusion.”
The financial crisis of 2008-09 brought the issue of tax compliance into sharp focus. Outright tax evasion has always been considered a crime and countries have developed measures to detect and curb these illegal activities. However, until recently, the international community has often tolerated legal tax avoidance through base shifting, illicit financial transfers, treaty abuse and transfer pricing. World leaders have recently described tax avoidance immoral, unfair and negating the goal of achieving shared prosperity. Jeffrey Owens, former head of OECD’s Center of Tax Policy and Administration, and now with the Vienna University of Economics and Business, laid out the landscape of the international tax environment.
The international taxation environment is continuously changing. In a globalized world there is an urgent need for harmonization and coordination of tax policies, however too often those global/regional instruments are lacking. Ilya Trunin, Director, Tax and Customs Policy, Russian Federation, pointed out that countries in the region are increasingly worried about tax evasion, not only from multinational groups, but also from domestic companies. In line with these concerns, there are recent global initiatives pushing for a more transparent international tax environment (BEPS, AEOI). The conference discussed how tax administrations can better equip themselves to become more transparent, as also to deal with the increased data flows and information that will result from the new arrangements.
One of the key challenges in international taxation is transfer pricing. The 3rd TAXGIP Conference in Marseille (France) last year identified transfer pricing as a core tax issue in the European and Central Asian region given the massive growth in international trade. Countries are struggling to build capacity of their auditors to deal with this issue and implement the international standards. Following up on the challenges voiced a year ago, the Conference took a deep dive into the area of Transfer Pricing. Sessions covered Transfer Pricing methods, compliance and management of audits, resolution of disputes and the challenges posed by the dearth of comparable data. The Conference discussed various approaches tax administrators can adopt to overcome this problem to make their tax audits and assessments more effective.
The World Bank Group has been at the forefront of tax administration and domestic resource mobilization reform for many years. Now, with the increased international attention on this agenda from the G20, the United Nations and its forthcoming Sustainable Development Goals, and the OECD BEPS initiative, the World Bank plans to step up its engagement in this area. Forums such as TAXGIP which facilitate discussion of issues and best practices in the tax area will continue to play a useful role.
The participants commit to continuing dialogue among tax administrators and tax policy experts with the goal of sharing best practices to strengthen tax systems in the region, and thereby improve the efficiency of tax administration while reducing the compliance cost for the private sector. Participants will work to solicit the support and commitment of their governments and policy makers to ensure the success of the initiatives discussed.