Centre for Tax Policy and Administration

Organisation for Economic Co-operation and Development

Risk Management and Taxpayer Service

4. Organizational Structure and Management of Tax Administration

Kampala, 17 – 21 May 2010

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Roles, responsibilities and accountability in a Tax

Administration

Traditional vision

Top-level: vision and policy making, leadershipOperational (middle) level: leading and controlling

implementationLower level: implementation and maintenance of

programs instructed by upper management

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Mission

What does a Tax Administration? Definition of the Core business

How does the Administration fulfill its task, how does it perform? Organizational philosophy, strategic planning, risk management, performance management (targets, indicators, results)

What is the strategic direction of the organization? In what direction should the organization develop? Mission statement

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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

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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

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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

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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

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Roles and responsibilities

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

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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

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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

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Geographical approach

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

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Geographical approach

Ministry of finance

Customs Central body tax administration Agency

Division structure according to functional, tax laws or client design

Local office 1

Local office 2

Local office 3

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Process and functional approach

Head local office

Assessment department Audit department Collection department Appeals department Taxpayer service department

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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

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Tax law approach

Ministry of financeCentral body Tax Administration

VAT Excise duties Individual income tax

Local offices

Corporate income tax

Local offices Local offices Dividend tax Local offices

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Tax law approach

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

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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

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Taxpayer / client approachDivision level

Ministry of FinanceCentral body

Division private taxpayers Division small medium business Division large companies

Local offices Local offices Local offices

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Taxpayer / client approachLocal office for small / medium

business

Head of office

Team for starting companies Team for severe non compliance Branch: hotels, restaurants

Branch: agriculture / food

Branch: real estate , construction

Enforcement unit

Branch: services

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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

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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.

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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.

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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.

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Importance of Large Business

Organizational trends:

ADVICE ON LAW INTERPRETATIONADVICE ON LAW INTERPRETATION

INFORMATION PROVISIONINFORMATION PROVISION

AUDIT/ VERIFICATIONAUDIT/ VERIFICATION

ENFORCED FILING & DEBT PAYMENT

ENFORCED FILING & DEBT PAYMENT

INFORMATION PROCESSING & ACCOUNT MAINTENANCE

INFORMATION PROCESSING & ACCOUNT MAINTENANCE

RANGE OF FUNCTIONS

THAT MAY BE RESPONSIBILITY

OF LARGE TAXPAYER

UNITS

FUNCTIONS MAJOR TAXES

RANGE OF TAXES THAT MAY BEADMINISTERED BY LARGE TAXPAYER UNITS

COMPANY PROFITS TAX

PERSONAL TAX WITHHOLDINGS

SOCIAL CONTRIBUTIONS

VALUE ADDED TAX

EXCISES

THESE ARE SOMETIMESORGANIZED BY MAJOR INDUSTRY SEGMENTS

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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.

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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

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Front office – back office, examples

Front office design

- Large taxpayers office with intensive audit

- Helpdesk for import and export companies

- Customs surveillanceBack office design

- Income tax office with individual taxpayers in a white collar middle class suburb

- Automation centre dealing with pre filled declarations

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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