Digitalization of Tax Administrations and Taxpayers' Rights

Alfredo CollosaAlfredo Collosa    10 February 2020
Digitalization of Tax Administrations and Taxpayers' Rights

The Tax Administrations (TAs), like the rest of the public and private sector organizations, seek to permanently use the new technologies to be more effective and efficient in their basic strategic objective, which is to raise the levels of voluntary compliance by taxpayers through two main lines of action, providing facilities to those who want to comply and leading a radical fight against the fraud.

The TAs are becoming digital and today, more than ever before, Tax Administrations (TAs) are managing information.

This digitalization is producing vertiginous changes not only in the TA’s structures[1],

but also in their main functions of collection, control, information and assistance, in the information systems and in the cooperation/collaboration resulting, for example, from the exchange of internal and international information.

In addition, as I mentioned earlier, the electronic TA is a concept that is developing rapidly and requires diverse measures for its effective implementation.[2].

The TAs are moving quickly to online or real-time control of the taxable events under tax laws.

The main question I am asking myself here is how all this will affect taxpayers’ rights.

In order to protect the rights of the taxpayer, in many countries, charters or statutes of the taxpayer have been issued, establishing the rights of the taxpayer in relation to the TAs.

These statutes or charters also enshrine the duties of taxable subjects as a balance between an obligation and a right.

Already in the Charter of “Minimum necessary attributes for a Sound and Effective Tax Administration”, approved by the CIAT General Assembly held in Santo Domingo, Dominican Republic, in 1996, one of those requirements was established as to ” guarantee the trust of the taxpayers”, for which is required:

  • An administration that ensures fair, reliable and transparent implementation of tax policies and laws, access, reliable service and consultation with taxpayers.

  • The administration ensures a fast processing of the requests of the taxpayers (returns, extensions, etc.) – resolution of appeals, timely and accurate responses to their queries.

  • That the administration and the rest of the government collaborate to create tax awareness, making taxpayers aware of their tax obligations through the implementation of a comprehensive communications strategy that includes forms, guides, public information, education and assistance using a simple language.

  • That the administration must guarantee the rights of taxpayers by disseminating them among taxpayers and their officials and enforcing them.

In the CIAT Tax Procedure Code Model (2015) is considered the figure of the Ombudsman of the taxpayer in article 76, “the figure of the Defender of the taxpayer could be created, as a public entity independent of the Tax Administration, in order to ensure the timely attention, the respect of the rights of the taxpayers and users of customs and the impartiality of the assistance and actions in the exercise of their statutory functions by the Tax Administration”.

The commentaries to the article states that the figure of the Ombudsman of the Taxpayer is recognized in several Latin American legislations, which responds to the role of the state in protecting the rights of its citizens in tax and customs matters, leaving the legislation of each country establish which rules have to be  set with respect to the status of the entity.

For the sake of independent and impartial management, it is stated that it will not be part of the TAs but will be an independent public body.

Its main role will be to ensure the effectiveness of the rights of the taxpayers in the proceedings made before the TAs.

Accordingly, bodies and / or authorities have been established to protect these rights. Some of these agencies and institutions retain independence from the TA, i.e. they are autonomous but interact with them, and others are part of them.

According to the information available for 2015 in a document entitled “Facilitating compliance: services to taxpayers, Cooperative Compliance and tax simplification”[3], 78.4% of TAs declare that they have established a document that formally regulates the rights of the taxpayer.

Some significant differences arise, however, in terms of the existence of a formal body to deal with complaints (75% of the high-income TAs; 47% in low-income countries) and, in general, the number of TAs in which this body is autonomous and external drops drastically (only 28,8 on average).

One work to be highlighted in this regard is a study carried out at the IDB’s[4] Observatory for the protection of the rights of taxpayers, in which it is said that there is a clear and undeniable relationship between human rights and the taxation with human rights that directly influence different facets of the tax relationship, both materially and formally.

The study concludes that globalization and the increasing internationalization of tax law have added more complexity to the analysis. The current political climate and the response to the calls for “tax justice” has led to the growth of the powers of investigation of the TAs with the goal of addressing both the tax evasion, as well as the so-called “aggressive tax planning”.

Such enhanced powers should be balanced with the provision of timely and effective protection of taxpayers ‘ rights.

The aim of the research is to establish the current principles, minimum standards and best practices that ensure the respect of the taxpayers’ rights (within the scope of the human rights).

The Observatory on the protection of taxpayers’ rights (OPTR in Spanish) identifies principles, minimum standards and best practices for the effective protection of taxpayers’ rights and also allows for the ongoing monitoring of global compliance with such minimum standards, as well as their amendment and development in different regions of the world (defining whether that can qualify as a universal or regional standard).

In view of everything that has been said about the digitalization of the TAs, I consider that it is necessary that TAs always consider the rights of the taxpayers in all their actions.

A very important point is that taxpayers need to know that their information is safe.

The TAs have economic, financial and other information from taxpayers.

Comprehensive laws are therefore required to protect the security and confidentiality of this information.

These laws should specify, for example, who assumes the risks and responsibility for systems failures, for example, when leakage of the information resulting from actions of criminals take place, or because of the own actions of TAs’ human resources.

It is also important that due to digital complexity, the new tax laws of each country are consistent with both other national laws and where national law cross international laws.

I am convinced that technology is simplifying the determination and reporting of taxes by reducing the compliance costs and that should be the way forward[5].

The timeless principles of the taxpayer protection and existing rights frameworks in each country should be adapted to the digital disruption.

It is key that this should be done as soon as possible as a society’s trust in the fairness of the tax system is essential to improving voluntary compliance.

The activity deployed by TAs,  product of the international cooperation and collaboration for the purposes of tackling tax evasion through exchanges of information inevitably leads to new risks and challenges in terms of the security of the data.

To mention a recent example, in July 2019 the personal data of four million Bulgarian and foreign taxpayers were hacked at the Bulgarian National Revenue Agency.[6].

The stolen data included names, addresses, personal identification numbers, birth dates, annual tax returns; income records; “acts of administrative infractions”; and health and social security status. Crucially, it also included full details of the tax information automatically exchanged with foreign governments. It is reported that hackers have publicly disclosed the identities of 189 people

In October 2019, the Swiss Federal Council cancelled the automatic exchange of financial account information with Bulgaria after confirmation of the data leak. Before they resume the exchange of information, corrective measures from Bulgaria must be validated by the Global Forum of the OECD on Transparency and Exchange of Information for Tax Purposes.

For all these reasons, I am convinced that TAs should work closely and in coordination on the security and use of the information.

Clearly, the taxpayers’ trust will decrease if cases of leaks or data theft occur.

TAs must use information to meet their strategic goal of increasing voluntary compliance levels.

Many TAs are investing in sophisticated technology to ensure that data is processed, cross-referenced and accurately evaluated.

Promoting fiscal transparency is key to combating crimes including corruption, money laundering, drug trafficking and tax evasion.

But no less important is that the exchange and use of information must be performed with the strictest security.

As a final idea, I consider that the new technology incorporated into the TAs should effectively serve to improve their efficiency and effectiveness in the fight against fraud by providing better services to citizens, reducing compliance costs and promoting transparency, all of this always respecting the rights of taxpayers.

 


[1]          CIAT Blog 10/21/2019 Scanning of the Tax Administrations and changes in their Organizational Structures

[2]          CIAT Blog 10/14/2019 Electronic Tax Administration Some trends with regard to the recent OECD Report.

[3]          Making it easier: taxpayer services, cooperative compliance and tax simplification – ISORA data on tax certainty and tax administrations / 2018 Santiago Díaz de Sarralde Miguez – October 2018 CIAT

[4]          https://www.ibfd.org/Academic/Observatory-Protection-Taxpayers-Rights

[5]          To expand: Does technology simplify taxes? ? CIAT BLOG 06-02-17

[6]          INSIGHT: Tax Transparency—Risks and Rewards

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Other articles by Alfredo Collosa


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