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Capacity building for domestic revenue mobilisation

Intergovernmental organizations such as the United Nations, IMF, the World Bank Group and the OECD hold a variety of training programs in different areas of tax, to build capacity for countries that need assistance. Many of the most recent developments in international transparency, cooperation and taxation will require a heightened standard for the countries who implement them. Dealing with these standards is particularly difficult for developing countries, some of whom have limited resources and capacity to efficiently administer and enforce domestic tax compliance. For the countries facing those limitations, capacity-building is of utmost importance, especially as proportionally developing countries have the most potential to gain from improved revenue collection.

ODA resources for capacity building

The OECD’s Aid Statistics provide data on official development assistance (ODA, see cluster: Official development assistance) provided by the 30 members of the Development Assistance Committee, with project level data available through the Creditor Reporting System. The OECD Development Assistance Committee agreed in 2016 to a Creditor Reporting System code dedicated to tracking ODA related to domestic resource mobilization in addition to the broader category of public financial management. This will allow tracking of such ODA from 2015 onward for those donors that use the code. Creditor Reporting System data for 2015 shows $189 million committed to DRM spending according to the new code. (this includes aggregate rather than project-level figures provided by Australia, Germany, Ireland, Portugal and European Union institutions).

Addis Tax Initiative

The Addis Tax Initiative was launched in July 2015, and commits donor countries to doubling the resources they provide for capacity building on tax. In 2016 a monitoring framework was put in place which will serve as an important coordination tool for support to partner countries in the field of DRM.

In the spring of 2017, the first Addis Tax Initiative Monitoring Report, using data from the OECD DAC, will be released, setting the baseline against which the commitment to doubling support to DRM will be measured. This will use data provided from the OECD DAC Creditor Reporting System.

IMF-led programmes

The IMF provides technical assistance to approximately 100 countries every year, the outcomes of such advice are not public and are provided on a confidential basis to member countries. The IMF has recently undertaken additional efforts to incorporate revenue mobilization advice even more extensively into its regular economic surveillance of member countries.

During the IMF’s fiscal year 2017, country economic teams are integrating such advice in 25 countries for which revenue mobilization for development is a critical issue, spanning all geographic regions. A second part of this effort involves expansion of technical advice on international corporate tax issues for 10 other countries ranging across all income levels, from Sub-Saharan Africa through Europe and the Americas. In both cases, analysis is being included in annual surveillance staff reports.

An important aspect of IMF international tax analysis includes assessments of spillovers from one country’s actions to other countries. A major paper assessed international corporate tax spillovers from potential changes in one countries tax system to other countries, using national accounts data and a very large panel data set covering most countries. That paper found that impacts on developing countries from changes elsewhere were relatively much more significant to them than for advanced economies. Furthermore specific spillover analysis took place in the context of the 2016 United States Article IV surveillance report, examining the impact of certain proposed changes to the United States international tax regime on other countries. Similar work on other proposed changes continues.

Regional work is being undertaken on these cross border issues—for example in the context of increasing ASEAN integration and with the East African Community (EAC).

UN programme on capacity development

The UN programme of capacity development on international tax cooperation is carried out through a unique collaborative engagement of tax officials from developing countries, members of the Committee of Experts on International Cooperation in Tax Matters (Committee), other experts and relevant international and regional organizations. This multi-stakeholder approach aims to ensure that all activities are demand-driven and effectively address the needs and priorities of developing countries.

The programme features training courses, publications and other capacity development tools and it largely draws upon the outputs of the Committee, with a view to disseminating and operationalizing them for the benefit of developing countries. These include the United Nations Model Double Taxation Convention between Developed and Developing Countries, the United Nations Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries, and the United Nations Practical Manual on Transfer Pricing for Developing Countries.

Significant progress was made in the implementation of the programme in 2016. A major focus was on the delivery of global and regional training events in the following areas: 1) double tax treaties; 2) transfer pricing; and 3) base erosion and profit shifting issues for developing countries. In addition, the programme has gradually encompassed the implementation of country level technical cooperation projects in the same areas. As a result, the number of tax officials in developing countries who benefitted from capacity-building activities under the programme increased significantly, going from 128 in 2015 to 214 in 2016 and almost doubling in the areas of double tax treaties and transfer pricing, as shown in the figure.

Moreover, work on publications and other capacity-building tools continued, including: 1) update of the United Nations Handbook on Selected Issues in Protecting the Tax Base of Developing Countries to reflect the latest developments in this area; 2) development of a series of Practical Portfolios on Protecting the Tax Base of Developing Countries to complement and further operationalize the Handbook through more in-depth and hands-on practical guidance.

Joint initiative to support developing countries in strengthening tax systems

In July 2015, the World Bank Group and IMF launched the Joint Initiative ahead of the Financing for Development Conference in Addis Ababa. Responding to country demands, the Initiative has two pillars: 1) Deepening the dialogue with developing countries on international tax issues and 2) developing improved diagnostic tools to help member countries evaluate and strengthen their tax policies.

The primary focus of this coordination is to strengthen the participation and voice of developing countries in quickly evolving global discussions—particularly on international tax. Recent years have seen significant and rapid changes in the international tax landscape, with developing countries both estimated to suffer the largest revenue loss from cross-border corporate tax avoidance, but also with the most to gain through new approaches to access to information on offshore accounts. Bringing the voice and interests of developing countries, particularly those too small to play a role at the G-20 level, more fully into the debate on international tax policy issues is a key priority. It is recognized that that membership in global fora is only the first step. It is important now to ensure relevant actors make institutional structures work in favor of countries with varying capacities, including the tailoring of rules and standards to their circumstances.

World Bank-led initiatives

Current lending profile

The expansion of the tax portfolio is ongoing as increasing country-demand in combination with commitments to the Addis Tax Initiative (ATI) requires an expansion of the number of tax projects. The current pipeline of tax related projects demonstrates that 19 lending operations with a combined value in lending of $585 million as well as 76 Advisory Services and Analytics (ASAs) will be implemented starting from FY2017. This includes 11 DPLs and 8 IPFs, predominantly in Africa and South Asia regions. This builds on the current foundation of 86 lending operations with tax themes or components (32 IBRD and 54 IDA) with a total lending commitments related to tax of $1.3 billion and 29 trust funds with a total of donor pledges valued at $51.6 million to help increase domestic resource mobilization in developing countries.

The Bank works with countries on broad international tax and base erosion issues, including but not limited to: tax competition, achieving the right balance between taxing capital and labor, designing efficient tax systems (CIT, VAT, tariffs) for international traded goods and services, improving the effectiveness of tax incentives, addressing domestic taxing rights on passive income sourced, managing fiscal revenues from natural resource wealth, and bringing small and medium-size businesses into the formal tax base. The Bank Group is also actively engaged with countries to improve the equity dimension of their overall fiscal systems by assessing the joint impact of taxation and expenditure programs.

Global Tax Program

In attention to the gap in revenue accumulation ability between developed, middle income and least developed countries, the World Bank is establishing a Global Tax Program. Its objective is to strengthen tax systems in developing countries by facilitating the design and implementation of evidence-based systems. Intermediate objectives include greater participation of developing countries in the development of global tax systems, improved understanding of the requirements to improve the performance of country based tax institutions and strengthening the application of research and knowledge development for improved performance of tax institutions.

This involves proposing improvements to the international tax system as well as country-specific activities that support countries in their efforts to strengthen and enhance the effectiveness of their DRM-related policies, legislation, institutions and informed tax decisions, as well as to improve their tax compliance and performance. The Global Tax Program is not in effect yet, but it builds on the Bank’s existing capacity building activities in select States.

The Global Tax Team

The Global Tax Program required the creation of the Global Tax Team (GTT) to better respond to comprehensive country demands. Expertise on tax is mostly focused in the Equitable Growth, Finance, and Institutions (EFI) Vice Presidency with about 70 staff working on country programs, of which the majority are regionally focused. Inside of this, EFI’s newly created GTT provides the basis for further improvement as it creates a focal point for countries and development partners to engage on all DRM related activities. This enables WBG teams to apply a more comprehensive approach to tax issues, harness particular sets of expertise, and to provide partner countries with a more integrated approach in the efforts to improve DRM, including reaching efficiency and equity objectives. The World Bank is also involved in sector specific tax reforms in areas such as carbon pricing, taxation of extractive industries and tobacco taxes.

Tax Transparency Fund

The Tax Transparency Trust Fund, managed by the WBG, finances two sets of work streams targeted at addressing base erosion and DRM limitations caused by the current international tax architecture in about 24 countries. The trust fund targets the following areas:

  1. Transfer pricing, profit shifting, and addressing the international sources of tax base erosion. This has led to concrete results, including increases in audit cases completed, revenue collected, and number of cases going to dispute resolution.
  2. Improving tax transparency as a means to strengthen tax administrations and to identify tax avoidance and tax evasion

Other efforts

The WBG Global Tax Team has conducted regional consultations to hear and discuss the views and demands of the countries about their priorities for support. Three consultations have taken place so far: in Dar el Salaam for East Africa, in Seoul for Asian countries and a separate one specifically for ASEAN, and in Montevideo for countries in Latin America and the Caribbean. Further consultations are planned in the Balkans and Eastern Europe, Franco-phone Africa, and South Asia. These priorities are summarized in the figure below, expressing the demand for capacity development and organizational strengthening as well as support on various thematic areas.

Tax Inspectors Without Borders

The Tax Inspectors Without Borders (TIWB) initiative, jointly operated by the OECD and UNDP, supports countries in building tax audit capacity. In recent years, the Tax Inspectors Without Borders (TIWB) style assistance has been provided to select developing countries through a) ongoing bilateral capacity building support programmes and b) particular assistance on audits to specific country requests. In general, different tax administrations consider different industries to be high risk.

The 21 TIWB programmes include twelve full programmes and nine programmes where advice is being provided on anonymised cases. A further six full programmes are due to commence shortly in early 2017. The results so far have been impressive, with over USD 278 million to date in increased revenues as a result of TIWB assistance and TIWB-style support offered through technical assistance programmes, including those supported by the African Tax Administrations Forum, the OECD, and the World Bank Group.

OECD-led initiatives

Forum on Tax Administration

The Forum on Tax Administration (FTA) was created in 2002 to provide an space for Commissioners from 50 OECD and non-OECD countries (35 of which are OECD member countries) to identify, discuss and influence relevant global trends and develop new ideas to enhance tax administration.

The objective of the Forum is to improve taxpayer services and tax compliance by helping tax administrations increase the efficiency, effectiveness and fairness of tax administration and reduce the costs of compliance. The results of the studies are published in the form of reports or guidance notes under the tax administration guidance series. In 2016 the Forum published a report which surveyed tax administration systems, practices and performance across 56 advanced and emerging economies. In 2016, the tenth meeting of the Forum for Tax Administration took place in China, focusing on international tax co-operation to tackle offshore tax evasion and transparent tax systems.

As part of the Forum on Tax Administration’s (FTA) 2015/16 work programme a report was presented at the 2016 Beijing FTA Plenary on how tax administrations might undertake capacity building in a manner that is more targeted, strategic and effective (“Tax Administrations and Capacity Building – A Collective Challenge, OECD 2016”).  One of the recommendations of this report, sponsored by the Commissioners of Canada and China, was that the FTA should establish a Capacity Building Network (CBN) to improve the co-ordination and the collective effort of tax administrations in delivering capacity building assistance. The CBN was launched in 2016 and now has 26 FTA countries as members. The FTA and its members also participate in the Knowledge Sharing Platform, together with other international organisations, which provides an internet platform for dissemination of information both to enhance co-ordination and to provide access to a range of resources to support tax capacity building. 

Support on transfer pricing and other BEPS-related issues

Bilateral programmes actively build capacity in developing countries to support the application of the OECD’s transfer pricing and other BEPS measures through tailored country level assistance. In many cases, these programmes are undertaken in partnership with other organisations such as ATAF, CREDAF the European Commission and the World Bank Group. More than 20 countries now receive assistance. In some countries, a partnership between the OECD and BIAC, business representatives deliver knowledge on supply chains and business models, an essential prerequisite to effective transfer pricing in many cases. A dedicated programme has also been established to support countries addressing BEPS-related issues in the extractive industries.

The OECD’s Global Relations programme on tax was launched in 1992. These seminars and workshops provide information and practical skills on key BEPS topics and help develop peer networks for effective international tax co-operation. Multilateral skills-building workshops are conducted through “train the trainer” programmes for lead officials in Inclusive Framework members’ tax administrations.