Domestic and International Exchange of Information: Perspectives of Technical Cooperation

1. Domestic and International Exchange of Information:Perspectives of Technical Cooperation 31st CATA Technical Conference 14 October 2010, Abuja, Nigeria Dr Matthias Witt Head, Public Policy Section German Technical Cooperation (GTZ)

2. What´s new? Why do we talk about information exchange • The topic: Levels and types of information exchange • Challenges for revenue authorities • Challenges for Technical Cooperation • GTZ experience Content

3. What’s new? Why we talk about information exchange • Increased international integration of production processes • Tax driven (re)structuring of cross-border value creation • VAT fraud (e.g. carousel trade) • Increased liberalisation of capital markets • Tax driven use of new financial instruments (CIT) • Hiding and shifting of capital income (PIT) • International political discussions: e.g. USA – Switzerland (UBS case) • Revenues of countries with highly integrated markets increasingly depend on the information provided by other countries. Ratio of world exports to GDP Source: IMF, WTO • Do developing countries need international information exchange?

4. Exchange of Information: Procedure and Content • Levels of information exchange • International information exchange • Domestic information exchange • Types of (international) information exchange • Exchange of information on request • Spontaneous exchange of information • Automatic exchange of information • Ways to exchange informations: Procedure • Tax Information Exchange Agreements (TIEA) • Memorandum of Understanding • Example: Memorandum of Understanding between East African Community partner states (Kenya, Uganda, Tanzania and Rwanda) on the exchange of information on revenue matters. Partners continuously exchange informations for the purposes of tax investigations and transfer pricing audits.

5. Exchange of Information: Procedure and Content • Information exchanged, e.g. • Property information • Shareholder information • Income and taxes paid • Financial flows • Preconditions for request and provision of information: e.g. • Requesting country is not capable to gather the information by its own • Reasoning for the request • (Possibly) provision of evidence that the tax payer is suspected to tax fraud

6. Challenges for tax administrations Get the basics right! • Build a performing tax administration • Improve organisational structure • Amend technical infrastructure (hardware, software) • Strengthen technical capacity of staff • Use country internal potential to fight tax evasion • Focus on efficient domestic information exchange first • Government: get in charge of tax information • Get in possession of your own tax data • Collect essential data (e.g. registration of tax payers) • Well performing administration: precondition for international information exchange.

7. How does reality look like? Taxpayer registration and tax assessment in developing countries* PEFA PI-14i: Effectiveness of taxpayer registration and tax assessment • Information about taxpayers is incomplete • The data given is often non-reliable • Data on different taxes is not consistently linked • Missing linkages to other important databases from A, complete registration and linkage with other databases, to D, poor registration, no controls and enforcement system • Do tax administrations provide for corresponding capacities required by the information exchange agreements? *Research results PEFA; recent study

8. Costs and benefits of information exchange • Costs • Investments in technical infrastructure (hardware, software harmonisation, etc.) • Requirements regarding data security • Administrational organisation: • Reorganisation • Establishment of information exchange unit • Employment of experts with the ability to request, understand and use relevant information • Clear legal legislation: allowing data provision and use • Legal enforcement • Benefits • Possibly higher tax revenues • But only moderate integration in international markets

9. GTZ Experience in Ghana Project background: GTZ supported automation of IRS in 2007-2009. Approach: technical support for 6 pilot IRS offices in greater Accra. Result: Substantial increase in revenue collection in those IRS offices; decision to extend automation to all 15 IRS offices in Greater Accra • Lessons learned: • Improve exchange of information in areas relevant for tax revenue (e.g. expatriates, transfer pricing, VAT) • Capable tax administration was paramount for international exchange of information; this included a full-fledged automation of revenue authority • In Ghana: different levels of procedure created difficulties • Internal Revenue Service, responsible for direct taxation, was not automated until partial automation came in 2008 • Value Added Tax Services had IT-system even though full potential of IT-system was never exploited • Get sound tax software in place with wide coverage • Define procedures and responsibilities: IT does not get your TIEA running

10. GTZ Experience: iTAX Background of cooperation: GTZ assisted to the introduction of IT-based Tax Administration and Information System (iTAX) in Tanzania and Philippines. iTAX is an integrated IT based system for assessment and collection of taxes. It allows the administration of all taxes, on a national and local level. Lessons learned: • Political will was paramount for introducing IT based tax administration, and related institutional and administrative reform • There is no universal information system => developing own solutions or customising and adjusting existing solutions • Making iTAX work included process development, capacity development and corresponding institutional reforms • Users of the IT system (e.g. tax officials) had to be trained and continually supported by IT staff; sometimes an IT centre is cheaper than presumably cheap buy-and-customize solutions

11. Thank you for your attention!Please visit our web-site: www.gtz.de/public-finance