Transcript Auditing SMEs

Organisation for Economic Co-operation and Development
Risk Management and
Taxpayer Service
4. Organizational Structure and Management of Tax
Administration
Kampala, 17 – 21 May 2010
Centre for Tax Policy and Administration
Roles, responsibilities and
accountability in a Tax Administration
Traditional vision
Top-level: vision and policy making, leadership
Operational (middle) level: leading and controlling
implementation
Lower level: implementation and maintenance of programs
instructed by upper management
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Mission
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What does a Tax Administration? Definition of the Core business
How does the Administration fulfill its task, how does it perform?
Organizational philosophy, strategic planning, risk
management, performance management (targets, indicators,
results)
What is the strategic direction of the organization? In what direction
should the organization develop? Mission statement
Mission statement Tax Administration
Mission statements describe the strategic direction of the
organization, common elements in mission statements include:
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Improving (voluntary) compliance
Service providing in accordance with compliance goals
Strengthen public’s confidence in Tax Administration’s integrity and
fairness
Ensuring fairness, equity and equality
Improving productivity and quality
Optimal prevention of fraud in society
Motivated, competent and well-trained staff
Efficient and proper use of resources
Reducing the tax gap
Overall Tax Gap
The total amount of tax not collected resulting from
all forms of non-compliance for all taxes
administered by a revenue body
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More useful approach (reflected in tax
administration work at the OECD)
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Well-developed compliance risk management
processes for the identification, assessment and
treatment of major compliance risks for each of the
major groupings of taxpayers
Risk assessment approach entails an element of
estimating the revenue potential of a particular risk ( e.g.
undeclared business income of self-employed persons,
over claimed employee work-related expenses)
Once the major risk areas are assessed and prioritized,
treatment strategies are developed
Autonomy
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Budgetary autonomy
Autonomy in defining the objectives
Autonomy in management of material resources (IT
investments)
Autonomy in management of human resources
(recruitment, promotion)
Autonomy in incentives policy
Autonomy in (individual) case handling
Roles and responsibilities
Traditional
Modern
Two way communication
One way top down
communication
Shared responsibilities
Accountability by information
reports and performance
measurement
Each manager and employee
stakeholder in all stages of
process
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Responsibilities of a central body
(independent or part of the Ministry of Finance)
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Strategy
Working methods and procedures
Allocation of resources
Measuring results
Public relations
Advising the responsible politicians as to the tax legislation and
the implementation of new legislation
Organizational structure
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Geographical approach
Process and functional approach
Tax law approach
Client / target-group approach
Separate unit for large enterprises
Front and back office approach
Risk assessment approach
Geographical approach
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Similar offices in different places
Most common form
Combination with other forms
Large countries
Rural policy to keep villages alive
Geographical approach
Ministry of finance
Customs
Central body tax administration
Division structure according to functional, tax laws or client design
Local office 1
Local office 2
Local office 3
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Agency
Process and functional approach
Head local office
Assessment department
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Audit department
Collection department
Appeals department
Taxpayer service department
Process and functional approach
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Approach can be used for the Tax Administration as a
whole with process and functional offices, within one
office with specialized units (chart) or just for some
specific functions (collection, auditing, fiscal
investigation)
Advantage: specialization/professionalization
Risk: lack of coordination
Tax law approach
Ministry of finance
Central body Tax Administration
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VAT
Excise duties
Individual income tax
Local offices
Local offices
Local offices
Corporate income tax
Dividend tax
Local offices
Tax law approach
Benefits:
Disadvantages:
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Identification of specific group
of taxpayers
Easy understanding of the tax
system
Easy integration of collection
and audit
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Expensive (parallel hierarchies
with overhead)
Taxpayer has to deal with
several different tax
administrations
Taxpayer or client approach
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Focus on (groups of) clients
All information and knowledge about the taxpayer
concentrated in one single office
One window (client manager) for the taxpayer for all
taxes and all processes
Tailor made treatment of taxpayers
Segmentation in branches / risk groups
Taxpayer / client approach
Division level
Ministry of Finance
Central body
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Division private taxpayers
Division small medium business
Division large companies
Local offices
Local offices
Local offices
Taxpayer / client approach
Local office for small / medium
business
Head of office
Team for starting companies
Team for severe non compliance
Enforcement unit
Branch: hotels, restaurants
Branch: agriculture / food
Branch: real estate , construction
Branch: services
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Importance of large taxpayers
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Large companies represent up to 80% of tax revenue
Economic importance
Use of high skilled professional tax advisors
International scope of multinationals
Aggressive avoidance schemes
Common characteristics of Large Business
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Concentration of tax revenue: In all countries, a relatively small
number of very large taxpayers are responsible for the bulk of tax
revenue collections.
Size and roles: This concentration of tax revenue results from the
sheer size of these taxpayers and the range of taxes they are
responsible for, including as intermediaries.
Complexity: Many large taxpayers’ tax affairs are very complex for a
variety of reasons:
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Multiple operating entities
Diverse business interests
Large volume of business transactions
International dealings (many with related parties)
Unique industry characteristics
Widely spread in geographical terms
Complex financing & tax planning arrangements.
Overview of OECD Country & International Practice
Common characteristics:
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Major tax compliance risks: Combination of
- Large revenue potential
- Complexity of business and tax affairs
- Complex laws, and
- Policies and strategies to minimize tax liabilities
mean that these taxpayers present significant tax compliance risks that
can have major consequences for tax collections if not addressed.
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Detected non-compliance: The vast bulk of adjustments resulting from
tax audits concern large taxpayers.
Importance of Large Business
Organizational trends:
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Most OECD and many other countries have dedicated organizational
units (i.e. Large Taxpayer Units (LTUs) to manage these taxpayers’
affairs.
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LTU’s are typically multi-functional, cover a range of taxes, responsible
for a designated group of taxpayers, and located in major cities near to
taxpayers/ advisers.
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The IMF recommends LTU’s that are multi-functional and cover all the
major taxes for developing economies.
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The compliance operations of LTUs in many countries are structured on
an industry basis.
The proportion of large taxpayers administered by LTUs vary
significantly from country to country.
Importance of Large Business
Organizational trends:
FUNCTIONS
MAJOR TAXES
ADVICE ON LAW INTERPRETATION
COMPANY PROFITS TAX
INFORMATION PROVISION
RANGE OF
FUNCTIONS
THAT MAY BE
RESPONSIBILITY
OF LARGE
TAXPAYER
UNITS
AUDIT/ VERIFICATION
PERSONAL TAX
WITHHOLDINGS
SOCIAL CONTRIBUTIONS
ENFORCED FILING &
DEBT PAYMENT
INFORMATION PROCESSING &
ACCOUNT MAINTENANCE
VALUE ADDED TAX
EXCISES
THESE ARE SOMETIMES
ORGANIZED BY MAJOR
INDUSTRY SEGMENTS
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RANGE OF
TAXES THAT
MAY BE
ADMINISTERED
BY LARGE
TAXPAYER
UNITS
Conclusions on Importance of Large Business
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LTUs are not an isolated trend, but rather part of a more
systemic development in international tax administration
practice- a customer-centric approach to managing
taxpayers’ compliance.
Large taxpayers are very different from other taxpayers
and present substantial risks to effective tax
administration.
Managing these risks requires strategies appropriate to
the unique characteristics and compliance behaviour of
these taxpayers.
Many tax bodies have introduced special organizational
& management arrangements to improve the
administration of large taxpayers.
Front and back office approach
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Front office is the part of the organization where
taxpayers and tax officials have contacts. Both physical
and non physical.
Back office is the part of the organization without client
contacts. Examples are automation centers for massive
processes
Front office – back office, examples
Front office design
- Large taxpayers office with intensive audit
- Helpdesk for import and export companies
- Customs surveillance
Back office design
- Income tax office with individual taxpayers in a white collar middle
class suburb
- Automation centre dealing with pre filled declarations
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Trends in organizational structures
office networks for tax administration
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Technology driven changes in organizing work to
concentrate routine/seasonal functions (processing of
tax returns and payments) into large dedicated
processing centres
Technology driven changes in providing services to
taxpayers:
- use of dedicated call centres
- modern methods for paying taxes (direct debits via the
banking system, online payment via internet)
- increasing the range of services offered by internet
Whole of government developments
Rationalizing the administration of social contributions