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Risk Management and Taxpayer Service

Risk Management and Taxpayer Service. 4. Organizational Structure and Management of Tax Administration Kampala, 17 – 21 May 2010. Roles, responsibilities and accountability in a Tax Administration. Traditional vision Top-level: vision and policy making, leadership

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Risk Management and Taxpayer Service

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  1. Risk Management and Taxpayer Service 4. Organizational Structure and Management of Tax Administration Kampala, 17 – 21 May 2010

  2. Roles, responsibilities and accountability in a Tax Administration Traditional vision Top-level: vision and policy making, leadership Operational (middle) level: leading and controlling implementation Lower level: implementation and maintenance of programs instructed by upper management

  3. Mission • What does a Tax Administration? Definition of the Core business • How does the Administration fulfill its task, howdoes it perform?Organizational philosophy,strategic planning, risk management,performance management (targets, indicators, results) • What is the strategic direction of theorganization? In what direction should theorganization develop?Mission statement

  4. Mission statement Tax Administration Mission statements describe the strategic direction of the organization, common elements in mission statements include: • Improving (voluntary) compliance • Service providing in accordance with compliance goals • Strengthen public’s confidence in Tax Administration’s integrity and fairness • Ensuring fairness, equity and equality • Improving productivity and quality • Optimal prevention of fraud in society • Motivated, competent and well-trained staff • Efficient and proper use of resources • Reducing the tax gap

  5. Overall Tax Gap The total amount of tax not collected resulting from all forms of non-compliance for all taxes administered by a revenue body

  6. More useful approach (reflected in tax administration work at the OECD) • Well-developed compliance risk management processes for the identification, assessment and treatment of major compliance risks for each of the major groupings of taxpayers • Risk assessment approach entails an element of estimating the revenue potential of a particular risk ( e.g. undeclared business income of self-employed persons, over claimed employee work-related expenses) • Once the major risk areas are assessed and prioritized, treatment strategies are developed

  7. Autonomy • Budgetary autonomy • Autonomy in defining the objectives • Autonomy in management of material resources (IT investments) • Autonomy in management of human resources (recruitment, promotion) • Autonomy in incentives policy • Autonomy in (individual) case handling

  8. Traditional One way top down communication Accountability by information reports and performance measurement Modern Two way communication Shared responsibilities Each manager and employee stakeholder in all stages of process Roles and responsibilities

  9. Responsibilities of a central body(independent or part of the Ministry of Finance) • Strategy • Working methods and procedures • Allocation of resources • Measuring results • Public relations • Advising the responsible politicians as to the tax legislation and the implementation of new legislation

  10. Organizational structure • Geographical approach • Process and functional approach • Tax law approach • Client / target-group approach • Separate unit for large enterprises • Front and back office approach • Risk assessment approach

  11. Geographical approach • Similar offices in different places • Most common form • Combination with other forms • Large countries • Rural policy to keep villages alive

  12. Geographical approach

  13. Process and functional approach

  14. Process and functional approach • Approach can be used for the Tax Administration as a whole with process and functional offices, within one office with specialized units (chart) or just for some specific functions (collection, auditing, fiscal investigation) • Advantage: specialization/professionalization • Risk: lack of coordination

  15. Tax law approach

  16. Benefits: Identification of specific group of taxpayers Easy understanding of the tax system Easy integration of collection and audit Disadvantages: Expensive (parallel hierarchies with overhead) Taxpayer has to deal with several different tax administrations Tax law approach

  17. Taxpayer or client approach • Focus on (groups of) clients • All information and knowledge about the taxpayer concentrated in one single office • One window (client manager) for the taxpayer for all taxes and all processes • Tailor made treatment of taxpayers • Segmentation in branches / risk groups

  18. Taxpayer / client approachDivision level

  19. Taxpayer / client approachLocal office for small / medium business

  20. Importance of large taxpayers • Large companies represent up to 80% of tax revenue • Economic importance • Use of high skilled professional tax advisors • International scope of multinationals • Aggressive avoidance schemes

  21. Common characteristics of Large Business • Concentration of tax revenue: In all countries, a relatively small number of very large taxpayers are responsible for the bulk of tax revenue collections. • Size and roles: This concentration of tax revenue results from the sheer size of these taxpayers and the range of taxes they are responsible for, including as intermediaries. • Complexity: Many large taxpayers’ tax affairs are very complex for a variety of reasons: • Multiple operating entities • Diverse business interests • Large volume of business transactions • International dealings (many with related parties) • Unique industry characteristics • Widely spread in geographical terms • Complex financing & tax planning arrangements.

  22. Overview of OECD Country & International Practice Common characteristics: • Major tax compliance risks: Combination of • Large revenue potential • Complexity of business and tax affairs • Complex laws, and • Policies and strategies to minimize tax liabilities mean that these taxpayers present significant tax compliance risks that can have major consequences for tax collections if not addressed. • Detected non-compliance: The vast bulk of adjustments resulting from tax audits concern large taxpayers.

  23. Importance of Large Business Organizational trends: • Most OECD and many other countries have dedicated organizational units (i.e. Large Taxpayer Units (LTUs) to manage these taxpayers’ affairs. • LTU’s are typically multi-functional, cover a range of taxes, responsible for a designated group of taxpayers, and located in major cities near to taxpayers/ advisers. • The IMF recommends LTU’s that are multi-functional and cover all the major taxes for developing economies. • The compliance operations of LTUs in many countries are structured on an industry basis. • The proportion of large taxpayers administered by LTUs vary significantly from country to country.

  24. Importance of Large Business FUNCTIONS MAJOR TAXES Organizational trends: ADVICE ON LAW INTERPRETATION COMPANY PROFITS TAX INFORMATION PROVISION RANGE OF FUNCTIONS THAT MAY BE RESPONSIBILITY OF LARGE TAXPAYER UNITS PERSONAL TAX WITHHOLDINGS RANGE OF TAXES THAT MAY BE ADMINISTERED BY LARGE TAXPAYER UNITS AUDIT/ VERIFICATION SOCIAL CONTRIBUTIONS ENFORCED FILING & DEBT PAYMENT VALUE ADDED TAX INFORMATION PROCESSING & ACCOUNT MAINTENANCE EXCISES THESE ARE SOMETIMES ORGANIZED BY MAJOR INDUSTRY SEGMENTS

  25. Conclusions on Importance of Large Business • LTUs are not an isolated trend, but rather part of a more systemic development in international tax administration practice- a customer-centric approach to managing taxpayers’ compliance. • Large taxpayers are very different from other taxpayers and present substantial risks to effective tax administration. • Managing these risks requires strategies appropriate to the unique characteristics and compliance behaviour of these taxpayers. • Many tax bodies have introduced special organizational & management arrangements to improve the administration of large taxpayers.

  26. Front and back office approach • Front office is the part of the organization where taxpayers and tax officials have contacts. Both physical and non physical. • Back office is the part of the organization without client contacts. Examples are automation centers for massive processes

  27. Front office – back office, examples Front office design • Large taxpayers office with intensive audit • Helpdesk for import and export companies • Customs surveillance Back office design • Income tax office with individual taxpayers in a white collar middle class suburb • Automation centre dealing with pre filled declarations

  28. Trends in organizational structuresoffice networks for tax administration • Technology driven changes in organizing work to concentrate routine/seasonal functions (processing of tax returns and payments) into large dedicated processing centres • Technology driven changes in providing services to taxpayers:- use of dedicated call centres - modern methods for paying taxes (direct debits via the banking system, online payment via internet) - increasing the range of services offered by internet • Whole of government developments • Rationalizing the administration of social contributions

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