complex tax rules and capricious tax inspectors
Kitty Miv, Editor
21 February, 2019
Governments the world over are repeatedly heard telling taxpayers to ensure they follow the tax rules. But they don't make it easy for taxpayers to achieve compliance – they really don't.
A lot has been written and said about the impact of the ill-timed government shutdown in the United States. Occurring in the weeks before the launch of the 2019 tax filing season, when taxpayers would be filing under markedly different rules for the first time, the shutdown couldn't have come at a much worse time for taxpayers, or the IRS.
Thanks to National Taxpayer Advocate Nina Olson's annual tome of tax code woes, published last week, we've had a glimpse of just how bad things are: only seven percent of callers seeking help with their tax affairs have got through to the IRS's Installment Agreement/Balance Due line this year, with those who do facing an average wait of 81 minutes to actually speak to somebody; five million pieces of correspondence now await processing; 80,000 responses to Earned Income Tax Credit audits remain unaddressed. And that's just for 2018. A further 87,000 amended tax returns are pending.
You get the picture: offices stacked full of pieces of paper, rather than staffed by people. That's not going to help you to fill out your tax return correctly. Not that this is really the IRS's fault. After all it's Congress and the Government that signs the checks.
Nevertheless, it's not been a good time for taxpayers in many jurisdictions lately. India, for example, is infamous for its complex tax rules and capricious tax inspectors. It's just the sort of place where you need a neutral authority standing in between taxpayers and the tax man to arbitrate disputes. Like an ombudsman. Except that the Indian Government has just decided to abolish its income tax ombudsmen service. Oh dear.
Apparently, according to the government, the ombudsman service is being shut down because it hasn't achieved its objectives, and because taxpayers are increasingly turning to alternative forms of dispute resolution mechanism. That the ombudsman's office has been effectively squeezed out by the competition probably tells you all you need to know about India's tax system. Dispute resolution must be a lucrative market indeed!
On to matters of a more multilateral flavor now, and the bell has sounded on the latest round in the heavyweight bout that is the OECD versus the European Union – Angel "the Angel" Gurria versus Donald "the Elephant" Tusk, perhaps? I can visualize the pay-per-view channels fighting to get that on prime time! No, it's not nearly as entertaining as that, I'm afraid. This is a tale of two harmful taxes campaigns.
Am I the only one that's noticing how willing the EU has become to usurp the OECD's tax territory? It's almost a year since the European Commission muscled in on the digital tax agenda, which had, until then, largely been the domain of the OECD. Indeed, it can't be a complete coincidence that the OECD decided to make the tax challenges of the digital economy Action 1 out of 15 in its BEPS Action Plan. Now this aspect of the BEPS project has seemingly taken on a life of its own.
The EU's latest act of appropriation is the harmful tax initiative. It was only last November that the OECD declared that substantial progress had been made towards curbing harmful tax practices and preventing the misuse of preferential tax regimes. Then in January 2019, the OECD announced that 44 jurisdictions had newly delivered on commitments to eradicate harmful elements in their tax regimes, either by abolishing them or making satisfactory amendments, among them Barbados and the Seychelles. However, no sooner had Barbados and the Seychelles proudly announced to the world that they were no longer considered "harmful" than the shadowy and not-so-snappily titled EU Code of Conduct (Business Taxation) came along and rained on their parades.
You might not have heard of the EU Code of Conduct (Business Taxation) – it hardly trips off the tongue. But it's had a huge influence over tax policy in EU and certain "third countries," namely the offshore jurisdictions speckled around the fringes of Europe. And now it appears to be going global.
The Code Group's recent activities raise numerous questions. It has been much criticized for operating largely under the radar, out of the glare of public and parliamentary scrutiny. However, after appearing largely unconcerned about this since its inception in 20 years ago, the Code Group has suddenly decided to become "transparent" by publishing its latest findings.
I must say that I find the timing of this somewhat strange. Why has the Code Group effectively decided to openly contradict the findings of the OECD? And why so soon after the OECD announced its own conclusions? What's going on here? Is the EU deliberately trying to undermine the work of the OECD? Is the EU trying to take over the OECD's role as the guardian of international tax standards? Is the EU trying to tell us something, that the OECD becoming a bit lenient in its old age, perhaps?
It's certainly true that the OECD doesn't have any teeth – legally speaking, I mean. But then what power does the EU, let alone a quasi-legal body like the Code Group, have over territories far from its borders? Is this what they call soft power? If it is, the EU seems to have it in abundance. Or it jolly well likes to think so.
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