CIAT Technical Conference 1 CIAT Technical Conference Improving the effectiveness of tax administration through new organizational models Paris, France 18 - 21 October, 2010 Key aspects in implementing the merger of competencies in the Tax Administrations Marcio F. Verdi Executive Secretary 1

2 Introduction The Tax Policy in Latin American countries reflects their Tax Administrations; The tax systems are what the TAs may execute with their Human, Material, and Technological resources and with their Enforcement Powers and Autonomy under the legal framework in effect. 2 2

Introduction Key Objectives of the TAs 3 Introduction Key Objectives of the TAs Voluntary Compliance: tax presence and social acceptance of taxes Latin American scenario Integration is not an objective per se and it is not the only objective 3 3

Merger models from the perspective of Internal Taxes 4 Merger models from the perspective of Internal Taxes Internal Taxes; Internal Taxes + Customs; Internal Taxes + Social Security; Internal Taxes + Customs + Social Security; Previous options with or without Enforced Collection and Criminal Prosecution; Previous options and Non-Fiscal Functions, such as the payment of benefits, treasury and other non-tax services, such as tax education. 4 4

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Countries in the Americas 6 Countries in the Americas Internal Taxes, Customs and Social Security Argentina, Brazil and Peru Internal Taxes and Customs Argentina, Brazil, Colombia, Guatemala, Honduras, Mexico, Peru and Venezuela 6 6

Organizational Integration: Single Agency 7 Organizational Integration: Single Agency Centralizes and optimizes tax control and collection powers; Applies the Single Taxpayer principle; Applies the one-stop shopping window, synergies, integral public service, taxpayer assistance and procedure simplification; Promotes professional development of officials and efficient development of material and human resources; Saves costs to the State and maximizes the use of resources – data networks, payments and systems, etc. 7 7

Functional Integration 8 Functional Integration Information Collection and Processing Systems; Taxpayer Information and Assistance Services; Taxpayer Registry; Payment processing; Current account control; Collection and payment agreements; Services to Manage Material and Personal Resources; Training Services. 8 8

Indirect Advantages of Integration 9 Indirect Advantages of Integration Risk management Risk assessment may be significantly improved with the supplementation of elements from different sources. Defining notions of noncompliance and inconsistencies. Imports, exports and sales. Salaries, income and payments to social security. Foreign trade transactions, inventory, purchases and sales. Appraisal processes and transfer pricing in transactions among related parties. 9 9

Risks of the integration 1010 Risks of the integration Two organizations sharing one head: Process differences are maintained. Shared support structures. Technology, planning and internal control may also be separated. One organization absorbing the other. Organizational environment issues. Two specific business areas, and a common control area. Feasibility of the model structures in a merger scenario. By tax? By function? By type of taxpayer? Highly hierarchical or flat structures. 10 10

1111 Challenges of Tax Administration Unification, Merger and Incorporation processes. Government policy The decisions go beyond the responsibility of the officials of the relevant organizations. It constitutes a strategic government development. Legal aspects Adjustments shall not affect the operating continuity at the time of transition. The merger shall not overrule any of the powers in the organizations. Defining functions and institutional relations. Process management committee and project manager. 11 11

1212 Challenges of Tax Administration Unification, Merger and Incorporation processes. Ensuring service continuity; Maintaining two simultaneous systems; Facing reactions to change; 12 12

The greatest challenge: the implementation strategy. 1313 The greatest challenge: the implementation strategy. Design the process according to phases, identifying the preliminary merger stage, the transition and the start of the new phase. Early risk detection and mitigation steps in each phase are decisive. Each phase shall identify priority actions. Each phase shall also identify the minimum control requirements to be met. Logistics The merger shall require adapting the physical infrastructure to the material and equipment supply processes, and human resource management and development. Careers, powers, remuneration, unions Training Skills’ development 13 13

Action Plan Focused on merger objectives Process improvement 1414 Action Plan Focused on merger objectives Process improvement Generation and use of synergies Efficiency improvement Aspects and phases Incorporated services Merged services Specialized services Areas Regulations Management Technology Internal services Contingency May or may not require a regional specific treatment. 14 14

Action Plan (2) 15 Human Resources Leadership 1515 Action Plan (2) Human Resources Leadership Identifying the process champions from early stages. Associations and unions. Internal and external opinion managers. Identifying managers as change agents. Incorporate middle managers as promoters of a shared strategy. Communication project. Strategic communication plan Internal. External. Disseminating the grounds and advantages of the change. 15 15