OECD AND TAX
POLICY
Martin Jareš
Tax Policy and Statistics Division
OECD Centre for Tax Policy and Administration
martin.jares@oecd.org
Overview
• 1. Work of the OECD in the tax area
– Introduction
– Double taxation
– Transfer pricing
– Harmful tax practices
– Tax administration
– Consumption taxes
• 2. Tax statistics and tax policy analysis
– Revenue Statistics
– Taxing Wages
– Tax Database
– Tax policy studies
– Current work
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1. WORK OF THE OECD IN
THE TAX AREA
3
Introduction
• The core work of the OECD in the tax policy area lies in
setting standards.
• The standards are not binding, the OECD does not have
any legislative power to enforce them.
• However, they are generally highly regarded and also
many non-OECD countries follow recommendations
formulated by the OECD.
• There is no voting, the aim is to find a unanimous
support.
4
Double taxation
• In the case of international transactions, both countries might
want to tax the profit
• Double taxation would be harmful for international business
and investment
• Countries conclude bilateral double-taxation treaties
• Model Tax Convention on Income and on Capital
– A model for bilateral double-taxation treaty
– It sets general principles and allocation of taxing rights of the two
contracting countries
– Used by all OECD countries and some non-OECD countries as a
basis for negotiation with other countries
– Regularly updated
– The full version has more than 2,000 pages
5
Transfer pricing
• One of the ways to shift profits among subsidiaries of a
multinational group
• Multinational groups manipulate intra-group prices,
– Increase prices of export to high-tax countries
– Decrease prices of exports to low-tax countries
• Tax legislation says that the intra-group prices must be
set at the same level as prices of third-party transactions
– It is called “arm’s length principle”
• Easier in the case of tangibles, complicated in the case of
intangibles
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Transfer pricing (2)
• Transfer Pricing Guidelines for Multinational
Enterprises and Tax Administrations.
– Provide guidance on the application of the arm's length principle
(valuation of cross-border transactions between associated
enterprises)
– Used by all OECD countries as a basis for their legislation
– The full version has almost 400 pages
7
Harmful tax practices
• In the last decades, countries have been decreasing
corporate income tax rates in order to attract more
investment.
• This is called tax competition.
• There are instances of tax competition which is regarded
as harmful.
– For example, a country might introduce tax incentives only for
new, foreign-owned companies.
• Harmful Tax Competition report in 1998 and progress
reports.
– Model Agreement on Exchange of Information on Tax Matters
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Investment incentives
• Investment incentives in the Czech Republic
– Direct subsidies
– Tax expenditures (tax holiday up to 10 years)
• Is it a harmful tax practice?
• Is it good for the Czech Republic?
9
Tax administration
• Sharing best practices and experiences
• Main areas of concern are
– Voluntary compliance (taxpayers pay voluntarily their taxes)
– Taxpayer services (e-services)
• Two work streams:
– Taxpayers with global interests (multinational companies, high
net worth individuals),
– Small and medium enterprises.
• Tax Administration: Comparative Information
– A good source of information on tax administration
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Consumption taxes
• Traditionally, OECD worked only in the are of direct
taxation
– Direct taxes = taxes on income
– Indirect taxes = consumption taxes
• Importance of indirect taxation is rising
• Indirect taxes could cause double-taxation if countries do
not follow similar principles
– One of the reasons for harmonisation of VAT and excises in the
EU
• The OECD started to work also in this area
• International VAT/GST Guidelines
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2. TAX STATISTICS AND
TAX POLICY ANALYSIS
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Overview
• Work on tax policy analyis and tax statistics is carried on
by
– Working Party No. 2 on tax policy analyis and tax statistics
– Joint Meeting of Tax and Environment Experts
• Regular statistical products
–
–
–
–
–
Revenue Statistics
Taxing Wages
Tax Database
Environmental Tax Database
Data available at http://stats.oecd.org
• Economic analysis
– Tax policy studies and Working papers
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Revenue Statistics
• The Interpretative Guide defines what is tax
– In the OECD classification the term “taxes” is confined to
compulsory unrequited payments to general government
• Data on tax revenues of all member states from 1965
• Data on accrual basis
– Tax revenue is recorded at the time that the tax liability was
created
• Breakdown by type of tax and level of government
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Revenue Statistics – classification of taxes
• 1000 Taxes on income, profits and capital gains
– 1100 Taxes on income, profits and capital gains of individuals
– 1200 Corporate taxes on income, profits and capital gains
•
•
•
•
2000 Social security contributions
3000 Taxes on payroll and workforce
4000 Taxes on property
5000 Taxes on goods and services
– 5100 Taxes on production, sale, transfer, leasing and delivery of
goods and rendering of services
• 5110 General taxes (5111 Value added taxes)
• 5120 Taxes on specific goods and services (5121 Excises)
– 5200 Taxes on use of goods, or on permission to use goods or
perform activities
• 5210 Recurrent taxes (5211, 5212 Paid in respect of motor vehicles)
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Revenue Statistics – levels of government
• Attribution of tax revenues to levels of government
• In general, a tax is attributed to the government unit that
– exercises the authority to impose the tax (either as a principal or
through the delegated authority of the principal),
– has final discretion to set and vary the rate of the tax, and
– also final discretion over the use of the tax proceeds.
• Link: http://www.oecd.org/tax/tax-policy/revenuestatistics.htm.
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Revenue Statistics & Czech Republic
• Total tax burden in the Czech Republic has been slightly
above the average of the OECD countries.
OECD - Average
Czech Republic
38
37
36
35
34
33
32
31
30
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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Revenue Statistics & Czech Republic (2)
• Czech Republic has higher share of social security
contributions and lower share of personal income tax
and property taxes.
Taxes on goods and services
Property taxes
Taxes on corporate income
Taxes on personal income
Social security + payroll taxes
40
35
30
25
20
15
10
5
0
OECD 2013
Czech Republic 2013
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Taxing Wages
• Provides comparative information of tax burden on
labour income of OECD countries.
• Shows information on
– income tax paid by workers
– social security contributions levied on employees and their
employers
– family benefits paid as cash transfers.
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Taxing Wages (2)
• Average and marginal effective tax rates are calculated
– Average effective tax rate = total tax divided by total income
– Marginal effective tax rate = tax from additional income divided
by the additional income
• Not based on actual data but on a model
• Results are presented for different household types
which differ by
– income level (in percentage of average wage)
– household composition (one- and two-earner families, different
number of children)
• Link: http://www.oecd.org/ctp/tax-policy/taxingwages.htm.
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Taxing Wages & Czech Republic
• Average tax wedge (vertical axis) for different levels of
income (horizontal axis) and different family types
– Tax wedge = income tax, employer and employee social security
contributions, pay roll tax minus social benefit as a percentage of
gross labour costs (gross wage + employer SSC)
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Taxing Wages & Czech Republic (2)
• Tax burden on labour income in the Czech Republic is
comparable with the OECD average
– The lines are close to each other
• Even with a single tax rate of personal income tax, the
Czech tax system is as progressive as tax systems of
OECD countries on average
– The lines increase similarly
• The Czech Republic has lower tax burden of low-income
families with children compared to the OECD average
but higher in other case
– Red lines are below blue lines in the right-hand graphs
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Tax Database
• Comparative information on a range of tax statistics on
– personal income taxes,
– social security contributions
– non-tax compulsory payments,
– corporate and capital income taxes
– taxes on consumption.
– (data from Revenue Statistics and Taxing Wages also included
here.)
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Tax Database – Personal taxes
• Personal income taxes
• Social security contributions paid by
– employees
– employers
– self-employed
• Non-tax compulsory payments
– compulsory payments made to organisations outside the
government sector or because they are not unrequited
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Tax Database – Corporate taxes
•
•
•
•
Basic (non-targeted) rates
Surcharges
Small business tax rates
Corporate income taxes relating to sub-central
governments
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Tax Database – Indirect taxes
• Value added tax
– Rates
– Registration threshholds
• Excise duties on
– Beer
– Wine
– Alcoholic beverages
– Mineral oils
– Tobacco
• Link: http://www.oecd.org/ctp/tax-policy/taxdatabase.htm
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Economic analysis
• Tax Policy Studies
• Since 1999, 22 studies published
• Link: http://www.oecd-ilibrary.org/taxation/oecd-taxpolicy-studies_19900538
• Taxation Working Papers
• Since 2011, 22 papers published
• Link: http://www.oecd-ilibrary.org/fr/taxation/oecdtaxation-working-papers_22235558
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Tax Policy Reform and Economic Growth
• Regression analysis of data on GDP growth, the structure
of tax revenue and other variables
• Main findings: different types of taxes have different
effects on economic growth
– Corporate income taxes the most harmful
– Personal income taxes
– Consumption taxes
– Recurrent taxes on immovable property the least harmful
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The Distributional Effects of Consumption Taxes
• Actual household microdata used
• Households ranked by their income (or expenditure) and
split into ten deciles
• Each expenditure item was assigned its VAT rate
• VAT paid can be calculated for each decile
• It allows to calculated how much each deciles gains from
reduced rates
• One of the outcomes: highest income deciles benefit
most from reduced VAT rates
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The Distributional Effects of Consumption Taxes (2)
Average tax expenditure (in CZK) per household from reduced rates on
museums and ZOOs : income deciles, Czech Republic
80
70
60
50
40
30
20
10
0
1
2
3
4
5
6
7
8
9
10
30
Thank you for your attention.
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