Transparency and Ethics as a Condition to Strengthen and Improve Institutional Effectiveness Inter-American Center of Tax Administrations CIAT General Assembly 2010 Montevideo, Uruguay

2 Integrity and the Effectiveness of Tax Administrations  The effectiveness of any tax administration in a self- assessment system depends in part on the basic inclination of citizens to comply  The willingness of taxpayers to pay taxes is a public expression of trust and confidence in the tax administration “If taxpayers offer compliance, the tax office, as part of government, should reciprocate with integrity.” - Valerie Braithwaite (2003)

Principles of Sound Public Administration  Tax administrations demonstrate integrity through their commitment to: Ethical practices Accountability Transparency  Tax systems suffer in the absence of integrity Arbitrary and unfair administration of tax laws and/or inappropriate use of public resources breeds non-compliance “Low standards of integrity in a tax administration…adversely affect the fundamental premise behind the voluntary compliance and self-assessment systems.” - CIAT Declaration on the Promotion of Ethics in Tax Administrations 3

4 Ethics Begin with Fairness  An ethical tax administration is a fair tax administration Perceptions of fairness are a strong influence on taxpayer behaviour  Notions of fairness apply in several domains Fair share  Dealing with non-compliant taxpayers Fair treatment  Matching penalties/sanctions to the level of non-compliance  Providing opportunities for redress  Respecting taxpayers’ codified and intrinsic rights Fair play  Providing clear and accessible rules and procedures

5 Public Service Ethics  Tax officials must be held to the highest standards of professional behaviour Decisions and conduct of revenue employees affect people’s lives and can ultimately influence taxpayer behaviour  Ethics in a tax administration is also about transparency and accountability Employees must be objective and impartial, seeing themselves and being seen by others as professionals acting in the public interest  Sustaining a culture of ethics among public servants is relevant to all tax administrations Is essential for securing government revenues Creates opportunities for business improvement initiatives that otherwise would be ill-advised if not impossible Safeguards against erosion of public trust and confidence

Levers for Ethical Conduct 6  Strict rules that are enforced with meaningful sanctions are a necessary starting point  Leading tax administrations aim to sustain ethics as much by internal social norms as rules Integrated policies and codes Internal monitoring Disclosure provisions Administrative controls Procedures and processes Human resources management Compensation Orientation and training Management community Leadership at all levels Performance management Incentives Culturally driven ethics Supporting a professional workforce Limiting opportunities for misconduct Rules and standards Values

7 Accountability  Tax administrations are obligated to demonstrate and take responsibility for performance Program results achieved (mandate) Resources managed (financial, personnel, materiel) Means used (decision-making and exercise of powers)  Without accountability, tax administrations—like all institutions—are likely to underperform  Achievement of organizational results must be a shared responsibility among tax administration staff at all levels Need to support and compel staff to achieve the results they are accountable for

Transparency  An expectation of accountability gives rise to its twin: the expectation of transparency  Transparency makes it difficult for public servants to avoid accountabilities Supply Driven Mechanisms Information provided automatically Demand Driven Mechanisms Information provided on request  Periodic reporting on plans and performance  External oversight  Disclosure of internal monitoring results  Citizen access to information laws  Statutory disclosure requirements 8

9 Taxpayer Ethics  As with tax administrations, ethics applies equally to taxpayers  The tax ethics of individual taxpayers need to go beyond pure self-interest and respond to social expectations for fairness and equity  For some taxpayers, an ethical tax position means paying the right tax at the right time and in the right place

Taxpayer Accountability and Transparency  Compliance is the ultimate taxpayer accountability In self-assessment systems, the responsibility for determining and paying taxes owed rests with the taxpayer Taxpayers are then accountable for carrying out these duties honestly and in full  Taxpayers demonstrate transparency in the disclosure of their activities and tax practices to the tax administration At its most basic level - the proper declaration of income and deductions in arriving at one’s liability At its highest level - an active interest by taxpayers in developing a relationship with the tax administration 10

11 Levers for Ethical Tax Practices  Ethical appeals can complement the necessary actions of controlling and enforcing compliance Taxpayers appreciate their civic responsibility to pay tax Taxpayers know that their tax payments enable them to enjoy all the benefits, rights and privileges that their resident country provides  Corporate Social Responsibility (CSR) is a possible lever Emergent view that shouldering a fair tax burden as set out in law is an element of CSR Challenge lies in making tax responsibility an effective counterbalance to attractive tax avoidance schemes  First step - link tax management with good corporate governance Engage corporate boards in discussion of the financial and reputational risks of particular tax strategies

In Closing…  There is a ‘moral contract’ between tax administrations and taxpayers  But…tax administrations have to take the lead in demonstrating ethics, accountability and transparency  In turn, taxpayers can rightfully be expected to reciprocate “Citizens look for substantive integrity in the authorities that seek to direct their actions…A tax authority that delegitimizes itself in the eyes of citizens limits its effectiveness.” -Valerie Braithwaite (2003) 12