oecd and tax policy martin jareš tax policy and statistics division oecd centre for tax policy and...
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OECD AND TAX POLICY
Martin JarešTax Policy and Statistics DivisionOECD Centre for Tax Policy and [email protected]
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• 1. Work of the OECD in the tax area– Introduction
– Double taxation
– Transfer pricing
– Harmful tax practices
– Tax administration
– Consumption taxes
• 2. Tax statistics and tax policy analysis– Revenue Statistics
– Taxing Wages
– Tax Database
– Tax policy studies
– Current work
Overview
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1. WORK OF THE OECD IN THE TAX AREA
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• The core work of the OECD in the tax policy area lies in setting standards.
• The standards are not binding, the OECD does not have any legislative power to enforce them.
• However, they are generally highly regarded and also many non-OECD countries follow recommendations formulated by the OECD.
• There is no voting, the aim is to find a unanimous support.
Introduction
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• In the case of international transactions, both countries might want to tax the profit
• Double taxation would be harmful for international business and investment
• Countries conclude bilateral double-taxation treaties
• Model Tax Convention on Income and on Capital– A model for bilateral double-taxation treaty
– It sets general principles and allocation of taxing rights of the two contracting countries
– Used by all OECD countries and some non-OECD countries as a basis for negotiation with other countries
– Regularly updated
– The full version has more than 2,000 pages
Double taxation
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• One of the ways to shift profits among subsidiaries of a multinational group
• Multinational groups manipulate intra-group prices,– Increase prices of export to high-tax countries
– Decrease prices of exports to low-tax countries
• Tax legislation says that the intra-group prices must be set at the same level as prices of third-party transactions– It is called “arm’s length principle”
• Easier in the case of tangibles, complicated in the case of intangibles
Transfer pricing
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• Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.– Provide guidance on the application of the arm's length
principle (valuation of cross-border transactions between associated enterprises)
– Used by all OECD countries as a basis for their legislation
– The full version has almost 400 pages
Transfer pricing (2)
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• In the last decades, countries have been decreasing corporate income tax rates in order to attract more investment.
• This is called tax competition.
• There are instances of tax competition which is regarded as harmful.– For example, a country might introduce tax incentives
only for new, foreign-owned companies.
• Harmful Tax Competition report in 1998 and progress reports.– Model Agreement on Exchange of Information on Tax
Matters
Harmful tax practices
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• Investment incentives in the Czech Republic– Direct subsidies
– Tax expenditures (tax holiday up to 10 years)
• Is it a harmful tax practice?
• Is it good for the Czech Republic?
Investment incentives
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• Sharing best practices and experiences
• Main areas of concern are– Voluntary compliance (taxpayers pay voluntarily their
taxes)
– Taxpayer services (e-services)
• Two work streams:– Taxpayers with global interests (multinational
companies, high net worth individuals),
– Small and medium enterprises.
• Tax Administration: Comparative Information– A good source of information on tax administration
Tax administration
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• Traditionally, OECD worked only in the are of direct taxation– Direct taxes = taxes on income
– Indirect taxes = consumption taxes
• Importance of indirect taxation is rising
• Indirect taxes could cause double-taxation if countries do not follow similar principles– One of the reasons for harmonisation of VAT and
excises in the EU
• The OECD started to work also in this area
• International VAT/GST Guidelines
Consumption taxes
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2. TAX STATISTICS AND TAX POLICY ANALYSIS
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• Work on tax policy analyis and tax statistics is carried on by– Working Party No. 2 on tax policy analyis and tax statistics
– Joint Meeting of Tax and Environment Experts
• Regular statistical products– Revenue Statistics
– Taxing Wages
– Tax Database
– Environmental Tax Database
– Data available at http://stats.oecd.org
• Economic analysis– Tax policy studies and Working papers
Overview
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• The Interpretative Guide defines what is tax– In the OECD classification the term “taxes” is confined
to compulsory unrequited payments to general government
• Data on tax revenues of all member states from 1965
• Data on accrual basis– Tax revenue is recorded at the time that the tax liability
was created
• Breakdown by type of tax and level of government
Revenue Statistics
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• 1000 Taxes on income, profits and capital gains– 1100 Taxes on income, profits and capital gains of individuals
– 1200 Corporate taxes on income, profits and capital gains
• 2000 Social security contributions
• 3000 Taxes on payroll and workforce
• 4000 Taxes on property
• 5000 Taxes on goods and services– 5100 Taxes on production, sale, transfer, leasing and delivery of
goods and rendering of services• 5110 General taxes (5111 Value added taxes)
• 5120 Taxes on specific goods and services (5121 Excises)
– 5200 Taxes on use of goods, or on permission to use goods or perform activities
• 5210 Recurrent taxes (5211, 5212 Paid in respect of motor vehicles)
Revenue Statistics – classification of taxes
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• Attribution of tax revenues to levels of government
• In general, a tax is attributed to the government unit that– exercises the authority to impose the tax (either as a
principal or through the delegated authority of the principal),
– has final discretion to set and vary the rate of the tax, and
– also final discretion over the use of the tax proceeds.
• Link: http://www.oecd.org/tax/tax-policy/revenue-statistics.htm.
Revenue Statistics – levels of government
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• Total tax burden in the Czech Republic has been slightly above the average of the OECD countries.
Revenue Statistics & Czech Republic
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2013 orig
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35
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OECD - Average Czech Republic
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• Czech Republic has higher share of social security contributions and lower share of personal income tax and property taxes.
Revenue Statistics & Czech Republic (2)
OECD 2013 Czech Republic 20130
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10
15
20
25
30
35
40
Taxes on goods and services Property taxes Taxes on corporate income
Taxes on personal income Social security + payroll taxes
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• Provides comparative information of tax burden on labour income of OECD countries.
• Shows information on– income tax paid by workers
– social security contributions levied on employees and their employers
– family benefits paid as cash transfers.
Taxing Wages
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• Average and marginal effective tax rates are calculated– Average effective tax rate = total tax divided by total income
– Marginal effective tax rate = tax from additional income divided by the additional income
• Not based on actual data but on a model
• Results are presented for different household types which differ by– income level (in percentage of average wage)
– household composition (one- and two-earner families, different number of children)
• Link: http://www.oecd.org/ctp/tax-policy/taxing-wages.htm.
Taxing Wages (2)
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Taxing Wages & Czech Republic
• Average tax wedge (vertical axis) for different levels of income (horizontal axis) and different family types– Tax wedge = income tax, employer and employee social
security contributions, pay roll tax minus social benefit as a percentage of gross labour costs (gross wage + employer SSC)
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• Tax burden on labour income in the Czech Republic is comparable with the OECD average– The lines are close to each other
• Even with a single tax rate of personal income tax, the Czech tax system is as progressive as tax systems of OECD countries on average– The lines increase similarly
• The Czech Republic has lower tax burden of low-income families with children compared to the OECD average but higher in other case– Red lines are below blue lines in the right-hand graphs
Taxing Wages & Czech Republic (2)
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• Comparative information on a range of tax statistics on– personal income taxes,
– social security contributions
– non-tax compulsory payments,
– corporate and capital income taxes
– taxes on consumption.
– (data from Revenue Statistics and Taxing Wages also included here.)
Tax Database
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• Personal income taxes• Social security contributions paid by
– employees
– employers
– self-employed
• Non-tax compulsory payments– compulsory payments made to organisations outside
the government sector or because they are not unrequited
Tax Database – Personal taxes
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• Basic (non-targeted) rates• Surcharges• Small business tax rates• Corporate income taxes relating to sub-
central governments
Tax Database – Corporate taxes
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• Value added tax– Rates
– Registration threshholds
• Excise duties on– Beer
– Wine
– Alcoholic beverages
– Mineral oils
– Tobacco
• Link: http://www.oecd.org/ctp/tax-policy/tax-database.htm
Tax Database – Indirect taxes
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• Tax Policy Studies
• Since 1999, 22 studies published
• Link: http://www.oecd-ilibrary.org/taxation/oecd-tax-policy-studies_19900538
• Taxation Working Papers
• Since 2011, 22 papers published
• Link: http://www.oecd-ilibrary.org/fr/taxation/oecd-taxation-working-papers_22235558
Economic analysis
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• Regression analysis of data on GDP growth, the structure of tax revenue and other variables
• Main findings: different types of taxes have different effects on economic growth– Corporate income taxes the most harmful
– Personal income taxes
– Consumption taxes
– Recurrent taxes on immovable property the least harmful
Tax Policy Reform and Economic Growth
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• Actual household microdata used
• Households ranked by their income (or expenditure) and split into ten deciles
• Each expenditure item was assigned its VAT rate
• VAT paid can be calculated for each decile
• It allows to calculated how much each deciles gains from reduced rates
• One of the outcomes: highest income deciles benefit most from reduced VAT rates
The Distributional Effects of Consumption Taxes
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The Distributional Effects of Consumption Taxes (2)
Average tax expenditure (in CZK) per household from reduced rates on museums and ZOOs : income deciles, Czech Republic
1 2 3 4 5 6 7 8 9 100
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20
30
40
50
60
70
80
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Thank you for your attention.