The fundamental principles outlined in Article 4 of our Model Taxpayer Charter are imperative to understanding the foundation of the Taxpayer Charter. These principles provide a framework for the rights and responsibilities of the taxpayer and act as the guiding principles from which most of the specific provisions of the Charter are derived.
These principles outline the 10 Taxpayer Rights and 10 Taxpayer Responsibilities that are fundamental in administering an effective tax system and attaining support from taxpayers. While central to illustrating Taxpayer Rights and Taxpayer Responsibilities, the fundamental principles cannot stand alone in forming the Taxpayer Charter. They provide a useful starting point in guiding the taxpayer and tax authority, however since these principles in essence are not actionable, it is thus required that they be supplemented by more specific provisions.
The following is a brief description of the 10 Taxpayer Rights and 10 Taxpayer Responsibilities. While we find the principles to be self-evident, each fundamental principle is described below, with an emphasis on their importance and the basis for which each principle is essential in creating an effective tax system. The Taxpayer Rights largely represent basic human rights that should be afforded to taxpayers, while the Taxpayer Responsibilities correspond to significant duties of taxpayers that ensure that the tax system can be administered effectively and efficiently.
A) 4.11A Taxpayer Rights:
Integrity and Equality
The principle of integrity and equality demands that the tax system be designed and administered fairly, honestly and with integrity, according to the law, without bias or preference. This is possibly the most fundamental right afforded to the taxpayer, since a system that relies on voluntary compliance must be perceived as fair by those engaged in the system. It is therefore important for achieving taxpayer compliance that the system be designed and administered with integrity, fairness and equality in mind.
The principle of certainty recognizes the importance of designing and administering the tax system to provide for, as far as possible, certainty, clarity, and finality in one's tax affairs. Taxpayers should be able to manage their affairs with confidence, and plan into the future without fear of radical change. They should not feel that the system is being administered arbitrarily or unfairly. This principle underlies, once again, the importance of taxpayers having confidence in the tax system (somewhat like a consumer or business confidence index or measure).
Efficiency and Effectiveness
The principle of efficiency and effectiveness stands for designing and administering the tax system fairly and cost effectively, taking into account the attainment of its purposes. An efficient tax system is essential in garnering support from taxpayers. If the system unnecessarily burdens the taxpayer to comply, the system will not be effective in achieving its goals. The taxpayer should therefore have confidence that the appropriate rules and systems are in place to ensure that the system is being administered fairly and cost effectively and that the compliance burden is the minimum necessary in the circumstances.
Appeal and the Right to Dispute Resolution
It is reasonable to assume that within any tax system there is likely to be disputes between the taxpayer and tax authority. For the tax system to be perceived as fair, it must allow for the taxpayer to be heard, and to do so in a cost effective and independent manner. Without such a right, taxpayers will lack confidence in the system and will be discouraged from complying with the law. It is therefore fundamental that the tax authority be held accountable for their actions and that taxpayers have a forum for expressing their concerns both as to treatment by the tax authority and a legitimate tax dispute.
Given the complexity of modern tax legislation, taxpayers cannot be expected to be familiar with the full application of the law. Assistance is thus required as a service to taxpayers and tax advisors. Appropriate assistance must be given to taxpayers to simplify the compliance process and encourage participation with the system. Failure to provide for this would be unjust and place a heavy burden on the taxpayer.
Confidentiality and Privacy
The principles of confidentiality and privacy recognize the importance of keeping matters disclosed by the taxpayer confidential and private. The right to confidentiality ensures personal information will not be dealt with inappropriately. The right to privacy limits what can be asked of a taxpayer to what is reasonably necessary.
Pay Correct Amount of Tax
It is fundamental to the fairness of the tax system that the taxpayer not be required to pay more tax than what has a basis in the law. If the taxpayer is obliged to pay more than what is required by law, they will not view the system as being fair. Thus reasonable tax planning is permitted, limited by anti-avoidance rules where provided for.
Not every taxpayer has the ability to comprehend fully the application of tax law and it is not reasonable for the tax authority to expect this. Taxpayers should therefore have the ability to be represented by a qualified individual who has specialized knowledge in the area. Respecting this relationship is of fundamental importance.
While enforcement action is necessary for influencing the actions of taxpayers, fairness dictates that such actions on the part of the tax authority be proportionate to the circumstances in question. If penalties are too severe or punish the taxpayer for actions involving no fault, the taxpayer is likely to view the tax system as being unjust. It is therefore important for the overall fairness and support for the system that enforcement action be proportionate to the circumstances.
A taxpayer must actively cooperate with the tax system by providing information and making disclosures to the tax authority. In doing so, it is an important and fundamental principle to presume that a taxpayer is being honest and truthful, unless there are contrary indications. Presuming that the taxpayer is honest will allow for the system to be administered more efficiently and will contribute to taxpayers perceiving the tax system as being fair and reasonable.
B) 4.11B Taxpayer Responsibilities:
The responsibility to be truthful corresponds to the taxpayer right of being presumed as honest. For the system to work efficiently and for the taxpayer to in fact be presumed as honest, it is necessary for the taxpayer to be truthful in all its dealings and disclosures with the tax authority. A system that relies on self-assessment requires this fundamental responsibility on the part of the taxpayer.
A taxpayer shall have a duty to cooperate with the tax authority in providing information on a timely basis when reasonably required. The taxpayer should also ensure that the information provided is accurate and complete. This is essential to administering an efficient tax system and it is to be balanced by the taxpayer's right to proportionality.
A taxpayer should be cooperative in dealings with the tax administration, filing tax returns and information reporting, the conduct of an audit, and payment of taxes and should not obstruct the process by delay, providing incomplete or misleading information, or through any other means. This is fundamental in ensuring that the tax system runs smoothly and efficiently. This is again the counterweight to the various rights given to the taxpayer, including the presumption of honesty.
A tax system requires the full cooperation of taxpayers, and specifically requires that taxpayers make all payments of taxes that are rightfully owing, subject to the right of appeal. Taxes are necessary in delivering essential programs and initiatives to the public, and therefore it is fundamental that taxpayers comply with this duty.
Comply with the Law
A taxpayer must comply with their responsibilities under the tax system. Without taxpayers complying with the law, the tax system would not be effective in achieving its goals. This principle also stands for the notion that ignorance of the law does not justify non-compliance, thus a taxpayer has the duty to seek assistance if necessary. A taxpayer must always comply with the law.
A fundamental responsibility of a taxpayer is to keep appropriate records so that a taxpayer's financial affairs can be verified if necessary. For the tax system to be administered effectively and efficiently, a taxpayer should be required to keep adequate books and records within the applicable limitation period. Again, this is a responsibility which is commensurate with the rights given to a taxpayer. These rights (for example the right to be presumed honest), can be withdrawn. Failure to maintain adequate records is a good example of when it would be appropriate to do so.
Take Due Care
It is a fundamental responsibility on the taxpayer to exercise an appropriate degree of care and diligence in taxation matters. A taxpayer should not be careless in making tax filings and disclosures but rather should take such matters seriously and act diligently. A taxpayer must exercise an appropriate degree of care and diligence over the conduct of a tax advisor acting on the taxpayer's behalf, as the taxpayer remains responsible for the correctness of the information prepared by the tax advisor. The effectiveness and efficiency of the tax system depends on taxpayers providing honest, complete, and accurate information to the tax authority, and therefore acting with diligence and care is a fundamental responsibility of the taxpayer.
Retain Responsibility for Advisors
Where a taxpayer has retained the services of a tax advisor, it is fundamental that the taxpayer nevertheless be responsible for the accuracy of the information provided. A taxpayer's responsibilities will not be discharged by placing such responsibility in the hands of a tax advisor. This puts a duty on the taxpayer to provide the tax advisor with accurate and complete information and retain the services of a competent advisor. The taxpayer will ultimately be held accountable for the information prepared by the tax advisor and is thus expected to review the information as if the taxpayer had supplied the information. This ensures that taxpayers act diligently in complying with their tax obligations, whether or not an advisor is involved, thereby contributing to the overall effectiveness of the tax system.
For the tax system to work efficiently, taxpayers must treat tax officers with respect and cooperate with them. A taxpayer should not act frivolously, with delay, or in obstruction of a tax officer's duties, as this would undermine a fair and effective tax system. If taxpayers wish to be respected by the tax authority, they correspondingly need to respect the tax authority in the performance of their duties. This principle, along with the duty to be cooperative, is therefore fundamental to guiding the actions of the taxpayer.
Comply Cross Border
Given that business and investment transactions and arrangements frequently transcend borders, taxpayers and tax advisors should have a duty to comply with not only domestic tax laws, but also with the tax laws of all the jurisdictions involved. Maintaining several offshore companies or numbered bank accounts which are not disclosed to tax authorities entitled to this information is completely unacceptable.