clear, and understandable. Appeals of tax or non-tax obligations should be considered in a timely manner.
Accessibility and understandability
77. Revenue laws, regulations, and other documents relating to administrative
interpretation of revenue laws should be accessible to the general public. In addition to being accessible, tax and other revenue collection laws should be understandable and avoid
unwarranted complexity. Clear, understandable tax rules and regulations aid fiscal
transparency by limiting discretion in their interpretation. However, tax and customs laws and their implementing regulations can be very complicated, particularly regarding corporate income tax and the calculation of profits. Therefore, it is critical to provide taxpayers with up-to-date explanatory materials (e.g., instructions and pamphlets), which are usually prepared by the tax agency. Tax administration staff should be able to offer professional advice and assistance to help taxpayers understand their rights, obligations, and entitlements under the tax laws. In addition, many countries find it convenient to provide taxpayers, on request, with advance rulings on how particular transactions that they are contemplating would be treated in a subsequent tax assessment. Where this practice is followed, it is important that the rulings be publicized.
78. Any exception to the application of tax laws should also be published. General tax exemptions, deductions, or special rates are normally a part of the tax law and hence,
published and known to the public. However, the larger the number of exemptions, the greater the complexity and increased room for interpretation of the law, thus reducing transparency. Also, many countries offer (or negotiate) special tax treatment for new businesses. Transparency requires that all such tax incentives be made public—ideally with an estimate of the revenue foregone (see the discussion under practice 3.1.3).
Clear criteria for administrative application
79. A corollary to requiring that taxes be imposed under law is that administrative discretion in applying tax laws must be limited. Tax incentives that involve a large degree of administrative discretion and case-by-case negotiation of tax liabilities between officials and taxpayers should be avoided, because such practices lack transparency and they have the potential for corruption. However, appropriate provision should be made for the treatment of taxpayers who cannot comply with complex rules, settlement of tax cases, agreement on installment payment schedules, and writing off of uncollectible amounts, all with procedural safeguards. Similarly, non-tax obligations should be transparently determined and
nonnegotiable in their application.
80. Customs administration is another area in which transparency is critical, especially given the still high reliance on import duties in many developing countries. The Declaration of the World Customs Organization (Customs Cooperation Council), Arusha (revised 2003),44 which sets out guidelines for a program to achieve integrity in customs
administration, emphasizes clarity and precision of legislation as a means of promoting transparency and integrity, and fighting corruption with respect to customs. Other resources available from the internet can also promote greater transparency in customs
administration.45 Transparency is frequently lacking in the formulation of import tariffs, where there may be several overlapping schedules that apply to any particular import, or a confusing combination of ad valorem and specific levies. In addition, customs valuation is often not based on an accurate assessment of the import value, but rather on some notional reference price or flawed assessment procedure. This creates a gap between the nominal and effective rates of ad valorem customs tariffs. It is thus important that customs have a clear statement of tariffs and how different tariffs applying to the same import relate to each other, and also have an accurate way of measuring import value. Similar considerations apply to exports, although export taxes have become increasingly rare and generally play a small role in revenue systems.
Judicial appeal for tax and regulatory impositions
81. Citizens and taxpayers should have access to clear regulatory and administrative procedures, including a well-functioning system of administrative review of decisions, as well as the opportunity to appeal to an independent judiciary. The proper administration of
44 See http://www.wcoomd.org
45 http://www.wcoomd.org/ie/en/recommendations/recommendations.html.
tax and customs matters, through the articulation of clear procedures, is an important transparency matter. Adjustments to taxpayers’ tax returns (e.g., following an audit) should be accompanied by clear and complete statements to taxpayers as to the reasons for
adjustments. In most countries, these rights exist on paper; however, they often function imperfectly. In particular, the appeals system may fail to provide safeguards against arbitrary administrative action and to keep the tax administration within the bounds of the law.
82. An impartial mechanism for appealing and adjudicating decisions when the taxpayer is dissatisfied with the results of the administrative objection process should be established.
This would include a full judicial process through the courts system to resolve matters of legal interpretation. The appeals process should not be overly difficult or onerous, appeals decisions should be made in a timely manner, and, subject to issues of privacy of all parties to the dispute, all decisions should be in writing. The legal and regulatory framework should be clear on the recovery of disputed debt, including that subject to appeal, and designed to ensure that tax debtors do not postpone payment by making frivolous objections or appeals.
A number of countries require payment of up to half of the total sum due. Where the tax payer has paid tax that is found on appeal not to be owed, this should be refunded with interest.
Revenue administration
83. Revenue administration should be organized in such a way as to minimize
opportunities for collusion between taxpayers and officials. In this connection, administrative functions should be distributed across the administration, to provide a self-checking element whereby the work of staff engaged in one function serves as a control on the work performed by staff in other functions.
84. Reinforcing this, revenue administration should be supported by a strong
headquarters responsible for the design of sound work processes and annual work programs, and monitoring the performance of local offices in delivery. In modern tax systems,
taxpayers assess their own tax liabilities, with minimal intervention by tax officials, subject to ex post review by the tax administration on a selective basis. This extensive reliance on self-assessment combined with targeted enforcement is the basic strategy that permits tax administrations throughout the world to administer the tax system efficiently and to limit the opportunities for collusion between taxpayers and tax officers.
85. Information technology can also play an important role in eliminating opportunities for discretionary action as well as providing for effective monitoring of tax arrears,
exemptions, appeals, and payments. Computer systems should be designed to provide a full audit trail of the information recorded in the taxpayers’ accounts, by cross-referencing this information to original source documents and to the names of the staff who entered it into the system.
86. Computer systems should have the capacity to readily exchange information among revenue departments. But it should be made clear that all taxpayer information is subject to confidentiality provisions and country-specific legal restrictions. The sharing of taxpayer information for enforcement purposes is facilitated by the use of modern taxpayer
identification numbers. In addition to revenues collected by the tax and customs departments, contributions collected under the social security system (if not collected by the tax
department) should be accounted for in a clear manner, and audit information should be shared with tax departments, where appropriate.
87. As in other areas of administration, earmarked taxes and netting operations, to the extent they are used, should be clearly shown and accounted for. If, for instance, a tax
department is authorized to use a share of the revenue it collects from audits for staff bonuses or certain administrative expenditures, then the rules on the use of these funds should be clearly specified to prevent abuse, and normal accounting regulations should apply.
88. Internal audit systems should be established to ensure the financial accountability of tax collection staff and systems, and adherence to tax administration policies and procedures in dealings with taxpayers. Notwithstanding the importance of avoiding collusion and negotiation between tax officers and taxpayers, potential sources of tax disputes should be eliminated during the course of an audit. Discussion with the taxpayer to clarify facts, proper evidence gathering, and third-party verification by the auditor can often eliminate fact-based disputes from arising in the audit. A clear explanation by the auditor to the taxpayer of the law applicable to a transaction (including provision of a copy of the law and technical interpretations thereof by the tax administration) can often prevent a dispute on matters of interpretation at the assessment stage. Good training must be given to auditors on their responsibilities, emphasizing that the primary role is not negotiation, but rather the
acquisition of facts and the correct application of the law to those facts to verify that the self-assessed liability by the taxpayer is correct.
Public comment on legislative or regulatory changes
1.2.3 There should be sufficient time for consultation about proposed laws and