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Taxpayer Rights as a Win-Win Proposition

Posted on March 20, 2017 by Stuart Gibson

As spring approaches, the thoughts of tax practitioners turn to tax returns. This leads inevitably to thoughts about the taxpayers who file those returns, and the rights that protect them from their governments. Are those rights expanding, or are they eroding as tax authorities exchange increasing amounts of information with other countries in the quest for additional revenue?

Tax Analysts recently sponsored the second annual International Conference on Taxpayer Rights. Hosted by the Institute for Austrian and International Tax Law at Wirtschaftuniversität Wien in Vienna, the conference brought together tax administrators, judges, taxpayers, and taxpayer advocates from around the world. Their goal was to share best practices and support taxpayer rights and greater government transparency.

From all accounts, they succeeded. Taxpayers might be more willing to share information with the tax authorities if they knew that the tax agency could use their information only for tax administration purposes. But taxpayers might think twice if they knew that their tax authorities would share that information with their counterparts in other countries, especially if the receiving countries lack procedural safeguards or can use it for other purposes.

Ali Noroozi, Australia's inspector general of taxation, observed that only a handful of jurisdictions notify taxpayers when their information is sent to another country. While neither Australian domestic law nor its treaties require the Australian Taxation Office to do so, the office routinely notifies taxpayers when their information is gathered for purposes of sharing. Noroozi suggested that the best practice would be to notify taxpayers of the exchanges at the earliest possible opportunity (p. 1062).

By paying closer attention to the rights of taxpayers and providing them with useful and timely information, tax authorities can create a win-win situation. According to Michael Hallsworth of the U.K., governments can increase collection of delinquent taxes by making small changes to the wording of letters demanding payment of those taxes. One effective change would provide information about how taxpayers can pay their overdue taxes on the web, or by phone, credit, or debit card. Another is simply to advise delinquent taxpayers that interest is accruing on their unpaid taxes (p. 1062).

Now that its work on the base erosion and profit-shifting project is winding down, the OECD can refocus its attention on protecting taxpayer rights, according to John Peterson, OECD senior policy adviser. The European Commission's Directorate General for Taxation and Customs is working to enhance taxpayer certainty through a pilot program that allows taxpayers to obtain advance rulings on complicated cross-border VAT issues. (p. 1065). In the United States, the courts are working to protect taxpayer rights in litigation. Tax Court Special Trial Judge Peter J. Panuthos noted that with taxpayers increasingly underrepresented in tax litigation, judges are taking it upon themselves to protect unrepresented taxpayers by engaging in "affirmative judging" (p. 1067).

It's not just the developed world that is focused on protecting taxpayer rights. John Njiraini, commissioner general of the Kenyan Revenue Authority, said that Kenya and other developing nations are moving away from strict tax enforcement, to building trust and participation among taxpayers -- another potential win-win (p. 1063).

As discussions continue over the shape of possible U.S. tax reform, much attention has been focused on the border-adjustment tax proposed in the House Ways and Means Committee blueprint. Mindy Herzfeld discusses another part of that blueprint that has received far less attention, a mandatory deemed repatriation proposal that would cover more than $2 trillion in deferred offshore earnings (p. 1042).

Stuart Gibson is editor of Tax Notes International.