the role of tax certainty in promoting sustainable...

The role of tax certainty in promoting sustainable and inclusive growth

Prof. Dr. Jeffrey Owens

Director of WU Global Tax Policy Center (GTPC) at the Institute for Austrian and International Tax Law

International Taxation Conference 2017

December 7-9, 2017

Mumbai

I. Key Concepts

Institute for Austrian and International Tax Law www.wu.ac.at/taxlaw

1. Tax certainty: The capacity to make an accurate assessment of the tax and compliance costs associated with an investment or a continuation of an investment in a country over the lifecycle of the investment/company.

2. Compliance by taxpayers: Voluntary behavior by companies in a way that both respects the letter and the spirit of the law and which is in accordance with the intention of the legislator.

3. Aggressive tax planning: An intentional use of the tax law or a combination of tax laws and/or tax treaties in a way that leads to taxation not in line with the spirit and purpose of the relevant tax laws.

Key Concepts

Institute for Austrian and International Tax Law www.wu.ac.at/taxlawPAGE 4

II. What is the effect on growth and FDI of tax uncertainty


The current economic and political climate are uncertain;

The way businesses weigh the tax situation in certain countries as to whether to make investments in those countries. Tax uncertainty can play an important role in this decision or the decision to leave a country. In the current economic climate, sharply declining levels of investment in China, India and Brazil are influenced by the complexity of the rules in Brazil and the unpredictable environment in China and India. In an uncertain economic environment and one where today there are a number of structural factors that increase global uncertainty, more choices are available to MNEs as to where to locate activity and countries having an unpredictable tax framework lose out;

Effects of Brexit on current investment decisions;

Large fluctuations in commodity prices;

The general shift of economic and political power from the West to the East;

The rise of disruptive technologies.

Some relevant factors in assessing the impact of tax uncertainty on growth are:

III. Fundamental requirements for tax certainty


The legislation is unambiguous and clear, leaving no or little room for unintended misinterpretation;

The legislation realizes the policy aims determined by the government;

The law is designed to minimize administrative costs, striking the right balance between tax compliance and the burden on taxpayers;

The legislation will be as much as possible in line with international standards and best practices, both in terms of content and administrative practice (this includes avoidance of double taxation, not imposing unnecessary compliance costs on cross border activities, and preventing harmful tax competition);

Legalization needs to be based upon a “principle” based approach.

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1. How can the design of tax legislation foster tax certainty?


Application of the tax legislation:

According to the letter, spirit and purpose of the law

With as little administrative costs as possible (minimal compliance burden)

Facilitating and guiding compliant taxpayers (serving the compliant)

Effectively identifying and curbing any aggressive tax planning behavior (curbing the non-compliant)

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2. What elements can be guaranteed by a tax administration to stimulate tax certainty?


Introduction of a well-functioning tax control framework, which:

Links business reality with tax compliance;

Ensures the availability of the right information at the right time;

Ensures that this information is provided to the tax administrations when required;

Ensures that the taxes are paid at the right time and in the right place.

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3. What behavior of taxpayers is expected and should be required/incentivized:


Avoid discretionary incentives;

Avoid incentives outside the control of the Ministry of Finance;

Make all tax incentives subject to regular evaluation and transparency.

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4. Tax incentives needs to be designed in ways which minimize tax uncertainty by:


Incentivized and capable to apply the tax legislation in accordance with the letter and spirit of the law;

Supported by efficient and effective administrative and IT processes;

Social skills and tools to ensure compliant taxpayers are served as efficiently as possible by providing clarity on the taxation positions in as early as possible a stage;

Guidelines, safeguards, tools and skills to ensure that non-compliant taxpayers are identified and appropriately curbed;

The response of the tax administration should be proportional to the behavior of the taxpayers;

Checks and balances should be in place to ensure that the elements above are continuously guaranteed, including through the availability of mediation processes and well-functioning administrative and judicial appeal procedures.

Establish metrics for evaluating measures of success in achieving high compliance that go beyond simple revenue yield measure;

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5. What key features should a tax administration have to promote tax certainty:


What business sees as the top 10 sources of tax uncertainty

Source: Based on a 2016 business tax certainty survey carried out by the OECD and BIAC.

IV. Measures that can be taken to improve tax certainty

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A. How can governments provide greater tax certainty?

B. MNEs could also take measures to reduce tax uncertainty

Conclusion


Jeffrey Owens ([email protected] )

Director of WU Global Tax Policy CenterAt the Institute for Austrian and International Tax Law

WUWirtschaftsuniversität WienVienna University of Economics and BusinessWelthandelsplatz 1, Building D3, 1020 Vienna, Austria

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