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Drafting Effective Tax Laws: Insights and Best Practices from the IMF Advisory

This document serves as a comprehensive guide on the drafting of tax laws, focusing on the experiences and expertise of Prof. Dr. Geerten M.M. Michielse, a Technical Assistance Advisor at the IMF. It covers the role of the IMF in providing technical assistance across various jurisdictions, the types of tax systems encountered, and the typical challenges faced in drafting legislation. Key topics include Value Added Tax, Income Tax, and Tax Administration, with examples of legal drafting and implementation provisions addressing both advanced and developing economies.

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Drafting Effective Tax Laws: Insights and Best Practices from the IMF Advisory

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  1. Drafting Tax Laws Prof. Dr. Geerten M.M. Michielse Technical Assistance Advisor, IMF Georgetown University Law Center Washington, DC

  2. IMF (Organigram)

  3. IMF-Organization • Area Departments • Functional Departments • Service Departments

  4. IMF (Area Departments) • African • Asia and Pacific • European I (Central and Western) • European II (Eastern + former SU) • Middle Eastern • Western Hemisphere

  5. IMF (Functional Departments) • Fiscal Affairs • IMF Institute • International Capital Markets • Legal • Monetary and Exchange Affairs • Policy Development and Review • Research

  6. Fiscal Affairs Department • Immediate Office • Expenditure Policy • Fiscal Operations (I + II) • Fiscal Policy and Surveillance • Public Expenditure Management (I + II) • Revenue Administration (I + II) • Tax Policy

  7. Legal • Front Office • Anti-Money Laundering • Law Reform / Technical Assistance • Country (A + B) • Banking • Administrative Law

  8. How Do We Get TA-Requests? • PRGF (poverty reduction and growth facility) by Area Department • Government Initiative (sometimes after “Tax Policy” advise) by Fiscal Affairs Department • Surveillance

  9. What Types of Missions Do We Do? • Legal Drafting (80%) • Tax Policy (15%) • Tax Administration (4%) • Budget Law (1%)

  10. What Experts Do We Use? • IMF staff (USA) • Headquarter-based Expert (NLD) • External Experts (mostly Universities) • Australians • USA, Canadian • Europeans (BEL, DUI, FRA, POR, SWE)

  11. What Tax Laws Do We Draft? • Value Added Tax • Sales Tax • Income Tax • Profit Tax / Corporate Income Tax • Tax Administration • Stamp Duty • Customs

  12. What Countries Do We Work With? • Industrial or Advanced Economies • OECD countries • Emerging Market Economies • South-East Asian ‘Tigers’, South America, EU “wanna be’s” • Transition Economies • Former Soviet Republics • Developing Economies • Africa, Cambodia, Vietnam, Laos

  13. What Legal Systems Do We Encounter? • Common Law Systems • British and American • Civil Law Systems • European and South American • Islamic Systems • Middle Eastern, Indonesia, Malaysia • Former Soviet Union Systems

  14. Are There Any Model Tax Laws Available? • Basic World Tax Code (US-based) • Taxastan Income Tax Code (former SU countries) • Commonwealth of Symmetrical (common law-based) • République Francophone (civil law-based) • Fantasia VAT • Utopia (implementation Merger Directive)

  15. Some Drafting Examples • Implementation of EU-Directives • Drafting VAT + Regulations • Drafting Tax Administration Code

  16. Typical Issues in Drafting Implementation Provisions for EU-Directives Parent-Subsidiary Directive • CZE/LTU: credit for w/h against CIT • EST: distribution tax ‘in lieu of’ CIT Merger Directive • Valuation issues due to FTC systems • HUN/LVA: accounting rules

  17. Typical Issues in Drafting VAT in Developing Countries • Cash Refunds as result of Imputation Credit • 6-months carry forward requirement • Only cash refunds for export • Threshold • Equalization Tax for small businesses

  18. Typical Issues in Drafting a Tax Administration Code • Self-assessment of tax liability • Payment procedures • (absence of banking system) • Collection & Enforcement • Penalty system • usually too high for minor violations and too low for serious violations) • Appeal procedures

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