In today's world, nobody could credibly dispute the right of a sovereign nation to levy tax according to its laws, such as they may be, and to administer and enforce its tax system. Such is a hallmark of sovereignty – the right to tax. Taxpayers have an obligation to comply with the requirements of such a tax system. These obligations are well known and include such matters as providing true and complete information, filing tax returns on a timely basis, paying tax without protest or offset, co-operating with the tax authorities in the administration and enforcement of the tax system, and so forth. In this process, certain rights of taxpayers have traditionally been recognised such as the right to dispute a tax assessment believed to be incorrect through an appeal process. Other rights include the expectation that a taxpayer's affairs will be kept private, that a taxpayer shall not be subject to unreasonable search and seizure, and that a taxpayer's assets shall not be confiscated, seized or encumbered without due process.
It is clear as to why taxpayers have obligations. But for what reasons are their rights recognised? There must be some purpose, some benefit to a country in legislating to recognise Taxpayer Rights. The answer may lie in the concepts of fairness and efficiency and as a consequence of adherence to the Universal Declaration of Human Rights (if not to it specifically, then at least to certain of its principles). An alternative explanation is that the predictability and stability of the tax system is a factor in judging international competitiveness and a basis for evaluating economic decisions.
It is appropriate that a balance exist between Taxpayer Responsibilities and Taxpayer Rights, with the overriding goal being that the tax system of a particular country, whatever that system may be, should – broadly speaking – be fair. It is unrealistic to think that the relationship between taxpayers and the tax administration will invariably be a harmonious one, without conflict or dispute. Taxpayers can be expected not to part with their money easily and not without an exploration of all reasonable and legal ways to minimize and defer the tax outflow. It is, however, vitally important that taxpayers comply willingly. The trend in taxation is increasingly towards self-assessment, and this requires more than the forced and reluctant co-operation of taxpayers; indeed taxpayers must and should comply willingly and deal honestly in their tax affairs.
While one tool to achieve this is obviously the threat of penalties and sanctions, the evidence suggests this alone is not sufficient to achieve a high rate of compliance. In surveys conducted across the world, tax authorities are repeatedly surprised that a large percentage of the population would readily cheat in some way on their taxes given the opportunity despite the possibility of penalties. For what must be balanced, in the minds of some taxpayers, against the threat of penalties is the chance of being caught.
While much of tax evasion takes the form of petty infractions, such as paying a tradesperson in cash to avoid sales tax, it nevertheless shows the challenges which tax authorities around the world face daily. These small bad deeds add up across the population to form the tax gap, the loss of revenue due to non-compliance. It is not unreasonable that tax authorities have skepticism of taxpayers; indeed taxpayers have skepticism of the tax authorities.
Over the past several decades, the obligations placed on taxpayers have increased considerably in most countries across the world, as witnessed by the complexity of tax legislation, and the burden of tax compliance. But in the area of Taxpayer Rights, arguably less (if any) progress has been made. There is certainly no agreed upon worldwide standard for the rights of taxpayers and there is considerable variation.
It is for these reasons, among others, that we (AOTCA, CFE and STEP) began a project to explore Taxpayer Rights across the world, and the attitude of taxpayers and tax advisors towards the subject of Taxpayer Rights. Fundamentally, it is our belief that if taxpayers (and their tax advisors) had greater faith in the fairness and integrity of tax systems (in the areas of both administration and policy including legislation), all stakeholders would benefit. In this connection, we identified three fundamental stakeholders who have an interest in the tax system.
The first is, of course, governments (including the tax administration), the second is, of course, taxpayers, and the third is tax advisors. In this connection, tax advisors play an important role as representatives of taxpayers in their dealings with the revenue authorities. As the number of taxpayers around the world required to self-assess grows, and the complexities of tax systems increase, a greater and greater responsibility will be shouldered by tax advisors. These people are on the front lines of tax practice every day, assisting taxpayers in complying with their tax obligations (and quite often making sure that they do so) while at the same time advising taxpayers on ways in which their tax burden may be legitimately minimized.
The complexity of tax systems demands that taxpayers with any degree of sophistication in their financial affairs involve a tax advisor to assist them, in much the same way that a patient seeks a doctor rather than opting for a self-diagnosis and an aspirin or a home remedy. Indeed between AOTCA, CFE and STEP, there are an estimated 500,000 tax advisors in over 80 countries with a vast knowledge of taxpayers, tax systems and tax administrations. We have drawn upon their knowledge and experience.
It is our view, most fundamentally, that enhancing the fairness and integrity of the tax system in a demonstrable way benefits all stakeholders. This can be done in many ways but one way which is simple, cost effective, and appropriate is through a comprehensive Taxpayer Charter enacted into domestic law.
There are precedents in the field of taxation for adopting an international standard, a model document for worldwide use.
As international trade developed, particularly after the First World War, it was recognized that the world needed an international tax system. A panel of experts was charged with developing this system, which ultimately came under the mandate of the OECD who developed a model international tax treaty. Countries have developed their international tax systems in harmony with this international tax treaty model, (and a similar one developed by the U.N.) ever since, although there are of course variations. Clearly though, some form of standardization was called for, and the success of the endeavour speaks for itself.
The concept of fairness in a tax system is, in conceptual terms, a universal one. While taxpayer culture and psychology may vary from one country to another, there are, arguably, more similarities than differences. Our survey results demonstrate this.
We have surveyed 41 countries on the topic of Taxpayer Rights and Taxpayer Responsibilities (37 in our first report). The survey we used and its results are reproduced in Appendix II. The list of organizations which responded to the survey and/or are members of AOTCA, CFE or STEP is reproduced in Appendix IV. These organizations collectively represent 500,000 tax advisors, and their countries account for over 80% of the world's GDP. As one might expect, there was not universal agreement among the persons who participated, but there is a broad consensus on a great number of important points.
Based from the survey results, we prepared a standard model of a Taxpayer Charter for consideration. In most cases, the provisions which are outlined in the Model Taxpayer Charter are supported within the laws of one or more of the countries which were surveyed. Furthermore, many of the provisions are supported by practice statements of revenue authorities in non-binding Taxpayer Charters released by them. The Model Taxpayer Charter so derived, after refinement from the first report, is outlined in Chapter 2.
We composed a matrix which correlates the provisions of the Model Taxpayer Charter with our survey results. This shows graphically our evaluation of the support or lack thereof for many of the Charter provisions across the 41 countries surveyed. It will be seen that virtually all Charter provisions have one or more countries which support it.
Unlike the supra-national government bodies and agencies around the world (the OECD, the World Bank, the United Nations, the European Union, associations of tax administrations, etc.), the tax community is just beginning to find its feet on the world stage. This project was funded with a mere $30,000US and several thousand hours of volunteer time. Our work regrettably but necessarily may have shortcomings. However, we are hopeful that we have made a good start – a step in the right direction with the thoughts which we offer in this report. It is our hope that this initiative will resound around the world, producing better tax systems and a positive outcome in time for all mankind.