Iryna Stepanova, ICO Research Fellow and taxpayer rights defender represented ICO at the conference hosted by the International Bureau of Fiscal Documentation (IBFD) in Amsterdam, The Netherlands, on the 3rd and 4th of May 2018. Here are the insights from the views of Iryna:
3rd International Conference on Taxpayer Rights
Taxpayer rights: Good Governance and Legal Remedies
An overview of the 3rd International Conference on Taxpayer Rights
In the current global tax environment, a number of national and international events regarding taxpayer rights protection are minimal compared to the activities dedicated to exclusively tax liability computation. Starting from 2015, National Taxpayer Advocate of the Internal Revenue Service (IRS), Nina E. Olson, convened three international conferences on taxpayer rights. The last International Conference was hosted by the International Bureau of Fiscal Documentation (IBFD) in Amsterdam, The Netherlands, on the 3rd and 4th of May 2018. It was called by the Taxpayer Advocate Service and sponsored by Tax Analysts, American Bar Association Section of Taxation, American College of Tax Counsel, American Tax Policy Institute, US Branch of the International Fiscal Association (IFA) and the International Association of Trial Judges. This event featured the latest information from various tax agencies, highlighting news about changes in taxation, tax policies, tax-related law and legislation that affect taxpayers from all over the globe. During the conference, leading professors and professionals, government officials and tax advocates from 40 different countries were discussing current developments in the field of taxpayers’ rights protection, identifying actual challenges and perspectives for individual taxpayers, small and media entities.
Owing to my research on taxpayers’ rights and by virtue of the Research Fellowship with the International Communities Organisation (ICO), I had the privilege to participate in the International Taxpayer Rights Conference this year and to be invited to the 4th International Conference on Taxpayer Rights in Minneapolis, MN US, on May 23-24, 2019. The ICO Research Fellowship supported the participation hereby giving me an outstanding opportunity to share the ideas of the project on the importance of taxpayers’ self-determination and the establishment of a mechanism for better protection of taxpayers’ rights. The project on self-determination and taxpayers rights protection provides an opportunity to explore how comprehension of taxpayers’ rights by themselves and other involved parties serve as a foundation for effective tax management. The analysis of expectations, challenges, relations’ qualities and solutions includes past and current developments, and focuses on practical realities through a theoretical research. In addition, it purports to render taxpayers more competent and to actuate a collection of various methods and means to improve taxpayers’ rights protection worldwide. The proposed tools for better protection of taxpayers’ rights worldwide include a binding International Taxpayer Bill of Rights (ITBR) and the establishment of a protection mechanism, e.g. an ITC (International Tax Court) or a newly introduced – during the conference – Council Mechanism within the IBFD. These mechanisms could represent a remedy and serve as platforms to address and, in some cases, to appeal a state’s tax policy and implementation of tax law, lobbying human rights relevant to the administrative tax services.
Good governance and remedies: taxpayer rights in application.
The current environment for taxpayer rights: prediction of taxpayers’ behaviour
Social media are constantly covering taxation practices from different perspectives, focusing on a taxpayer’ rights and inconsistent tax administrations in different countries. The 3rd International taxpayer rights conference concentrated audience attention on the notion of trust and highlighted multidisciplinary approaches besides law – psychology, economics, and sociology – dedicated to good governance and legal remedies. Analysis of taxpayers’ legal rights includes cases when those rights have been impaired, impeded, violated in some way, how administrative practice ensures respect for taxpayers’ rights and what leverages are available to taxpayers, as well as what is the role of taxpayers to build the trust. Noteworthy is, however, the way different cultures, legal systems, and tax administrations affect the awareness of taxpayer rights.
A holistic approach to a better understanding of taxpayer rights was also provided under ethnographic and anthropological scrutiny. In this regard, it is especially beneficial to examine engagement of tax administrations and collaboration among tax advisors, accountants, lawyers, unions, employer associations, businesses, politicians, the media, other stakeholders in the interested organisations and the public. Only through a multidisciplinary analysis is possible to achieve an optimal effect of an administrative penalty on taxpayer trust in the tax system.
Assessing the taxpayer’s rights situation in the United States
The U.S. citizens are enjoying the American Taxpayer Bill of Rights (ATBR) since 2014 and, due to the low knowledge about the bill, the Internal Revenue Service (IRS) is entitled to spread awareness of those rights among taxpayers. After introducing its modus operandi – an updated internal revenue code – the IRS employees are also responsible to ensure and adhere to the taxpayers’ rights. In addition, it should be explained to taxpayers what they can expect from a tax authority. At the same time, it is important to remember that ATBR does not create any new rights. The ATBR is only a way to identify possible gaps.
Facebook’s tax case and taxpayers’ rights dilemma
The Facebook, Inc., and Subsidiaries v. Internal Revenue Service, et al. (Case No. 17-CV-06490-LB) is a unique per se case with a dilemma whether the taxpayer is always bound to pay the allocated amount of tax. According to the IRS, Facebook failed to report and pay taxes on $7 billion in income overseas, while Facebook warned that the IRS prevails in its position. Facebook was fighting, citing the ITBR, to bring the case before the IRS Appeals board, which is an independent IRS office with a goal to resolve matters outside of court. Nevertheless, the case ended in the United States Tax Court.
And while the social media giant was denied its administrative right to appeal, both the U.S. government and Facebook have quoted the National Taxpayer Advocate to dismiss the case before the federal district court.
For ordinary taxpayers, it might be interesting to learn the developments of a taxpayer rights implementation when the question of the right to fair trial arises between a government and a multi-billion dollar company. The “one source – two opinions” approach to the right to appeal’s implementation highlighted the uncovered field of coordination and understanding of the tax bond beneficial nature.
Since laws – as commonly accepted rules and guidance introduced by the social institutions to govern behaviour – stipulate positive and negative obligations, there is a lack of clear adjustment of the both parties’ rights and obligations in administrative relations. In any case, a matter of political will with a pro-taxpayer law-oriented approach is an extremely important asset for a fair tax policy implementation and its further feasibility.
Quality service and “apology” payments for taxpayers in the United States
What is the legal remedy for taxpayers in case they do not receive a quality service from the IRS?
At the moment, there is no legal remedy as there is no present authority for making “apology” payments to taxpayers under U.S. law. However, the National Taxpayer Advocate, Ms. Nina Olson, believes that the ability to make a de minimis apology payment to taxpayers in situations where the taxpayer experiences excessive costs or undue burden due to gross mistreatment by the IRS is an important aspect of better taxpayer service.
Taking into account tax relations nature, any information regarding available legal remedies for taxpayers is crucial. In addition, an ability to receive compensation after a discontented relationship between the taxpayer the receiving revenue authority – e.g. a long waiting time for a contact center, no response or mistreatment, lack of information and miscommunication regarding tax rates and burdens – helps to identify other gaps in service, provides trust and confidence. For instance, the United Kingdom and Australia provide an apology payment in order to ensure the quality service to taxpayers. The relationship became similar to the service-oriented entities, where the government finally meets its taxpayers’ needs and expectations.
The United States whistle-blower program
The US whistle-blower program organised by the IRS returns to the detriment of taxpayer rights, violating the rights to be informed under the US Taxpayer Bill of Rights. The IRS can share the anonymous testimony from taxpayers with adverse parties – under section 6103(n) of the Internal Revenue Code – as part of written contracts between the IRS and whistle-blowers. However, despite the acknowledged procedures and willingness of taxpayers to share the information, it should be decided when they will be informed that they are the subject of whistle-blower investigation. According to the Senior Tax Counsel from Tax Analysts, it is especially difficult to fulfil the right to be informed when a case has documentation, audits, and evidentiary privileges issues.
The burden of proof in tax disputes and the right to a fair and just tax system
The burden of proof in tax disputes and the treatment of information reported through information exchange agreements differ from country to country. However, tax authorities give priority to preserving international cooperation before taking into consideration the demanding taxpayer rights.
In the European Union, implementation of the right to remedies in connection with finality and detrimental reliance suffers from the burden of proof – which is passed on the taxpayer – and has a form of an indictment and a predicate offense. Moreover, application of sui generis legal interpretation implies a rare possibility for taxpayers to protect their rights. This is an additional argument in favour of a legally binding European Taxpayer Bill of Rights and an International Taxpayer Bill of Right.
Respect for taxpayer rights should promote trust for the government and tax authorities and likewise, tax agencies should ensure:
- Right to appeal,
- Rights to privacy,
- Right to a fair and just tax system.
This group of rights promotes inclusion of a right to expect tax system by considering every case’s facts, developments, and circumstances. In this regard, the concept of trust corresponds to the basic values in taxation – fairness, adequacy, simplicity, transparency, administrative ease – and is associated with voluntary compliance, including the right to be heard and the right to challenge decisions of tax authorities, having a transparent process as a whole.
Tax agencies and attorney advisors also consider decisive the problem of disproportionality in penalties linked to the taxpayers’ right to a fair and just tax system. The way relations are designed and implemented predicts possible information sharing developments and further penalties perceptions. Research, presented by a Professor at Vrije Universiteit Amsterdam, Mr. Jacco Wielhouwer, found a nonlinear relationship – a U-shaped development – between a taxpayer and revenue office when there is a distrust and, thus, social and psychological distance. The learning is explicitly relevant to the disputes on tax compliance.
Appeal rights and mutual assistance principle
The compared appeal rights in Canada, Spain, Mexico, Nigeria, Ghana, Kenya and South Africa confirm that tax law can afford no fair satisfaction. The wide variety in rights available to taxpayers in different countries, including access to mediation, administrative courts and judicial before and after assessments or paying the fair amount of tax depends on the way a national legal order operates in practice. An overview of tax behaviour classifies the understanding of subjective views based on experience in corporate taxation, dealing with procedural fairness, trust, and legal certainty. As practice shows, taxpayers and tax agencies have to maximise their mutual goals enhancing a cultural change in order to achieve mutually beneficial relations.
The process of mutual assistance, used by the governments to obtain bilateral or multilateral assistance in criminal investigations and prosecutions, confirms the monopolization of a situation by governments through the “information is power” approach. Moreover, according to the European Court of Justice case law, mutual assistance directive did not create an obligation on the requesting state or requested state to notify the taxpayer and allow the taxpayer to present their point of view at the time the information was requested.
Co-operative compliance: what is at stake for the large corporate taxpayers?
The most effective tool to prevent disputes is a cooperative compliance program, available however only to large business taxpayers with an aim to ensure a business fully taxes compliant. This alternative voluntary system appeared for the first time in Australia, Ireland, the Netherlands, the United Kingdom, and the United States. Since then, a significant number of revenue bodies have adopted cooperative compliance programs or similar ways of cooperation. The programs prevent disputes despite their complex, fragile and interpersonal-based character. Thus, protection of taxpayer rights by good governance means is delineated by an analysis of voluntary compliances while analysis of litigation is involving taxpayers and tax authorities, and depicts the availability of legal remedies.
The four biggest accounting firms that provide professional services networks in the world, offering audit, assurance services, taxation, management consulting, advisory, actuarial, corporate finance and legal services – Ernst & Young (EY), Deloitte, KPMG and PricewaterhouseCoopers (PwC) also known as “the big four” – constantly publish reports on the co-operative compliance situation. The big four, following the OECD reports, examine also some thoughts about the future direction of the co-operative compliance concept.
The situation with individual and small-sized businesses, as well as medium and big-sized businesses in the majority of countries, is different since they do not have access to an official co-operative compliance program. Therefore, taxpayer rights defenders should study more the policy decision-making process since tax policy creators have no information about how it affects taxpayers in the end. Tax law and regulation is complex and this can lead to unintentional errors. Amount of a small entity’s or an individual taxpayer’s losses is lower than a big company failed to pay taxes, however, lack of support and responsiveness to the main group of a state’s taxpayers is misleading reliability of the whole system.
The lack of a similar mechanism for the majority of taxpayers underlines the current state of the situation and raise interest in when the stakeholders will start to cooperate.
Current Developments in Taxpayer Rights
Current developments of taxpayer rights protection highlighted the lack of reasonable time management in administrative cases. In confronting with criminal and civil rights and obligations where everyone is entitled to a fair and public hearing within a reasonable time-period, administrative relations’ standards depend on the type of national legal system.
For example, some tax-related cases in Brazil last for ten to fifteen years before a final decision is taken. In general, apart from the costs related challenges and admissibility problems, a taxpayer has no legal remedies to address the injustice and violations. Therefore, one of the probable solutions, when a feeling of injustice is maximised, is non-violent protests and tax-related demonstrations.
Special attention should be given to the use of data to identify taxpayers at risk of financial distress and prevention of insolvency. Thus, a new Italian tax reform aims to identify symptoms of bankruptcy and obliges tax authorities to assess a strict vigilance of tax payment delays and notify companies in this regard. The reform has a future-focused approach, as per the national lawyers’ practice, leaving apart the daily taxpayer challenges and fears in correlation with economic and political developments and authoritative mightiness of the domestic tax authorities. Despite the struggle to confront the reality of their business activities failures, companies are unwillingly involved in the indebted machinery of the country. Italy has the co-operative compliance program, however, it is available only to the ten percent of companies, since the ninety percent of taxpayers are small and medium-sized companies. Therefore, in this situation, more attention should be given to the local tax agencies, their organizational structure, internal management improvement and the way they cooperate with taxpayers on a daily basis.
IBFD Observatory on the Protection of Taxpayer Rights (OPTR) and Supervisory Council mechanism
Council Mechanism within the IBFD
The third International Conference on Taxpayer Rights introduced a remarkable and unparalleled change for taxpayers. The IBFD Observatory on the Protection of Taxpayer Rights created a working database – Supervisory Council. The Council mechanism was established to monitor the current state of taxpayer rights around the world in order to raise awareness and show the linkage between human rights and taxation.
For many taxpayers, the Supervisory Council is more than an institutional platform within the bureau. While looking for remedies in order to protect their rights in both domestic and cross-border taxation, the mechanism is similar to the OECD mediation tool and it is the first stage of a long-term process to bring a modicum of justice to taxation.
The IBFD, which celebrated 80 years since its inception in 1938, also contributes to and participates in the work of various international and regional governmental organizations, including the United Nations, the International Chamber of Commerce (ICC) and International Fiscal Association (IFA). The latter, established in 1938, is the only non-sectoral and non-profit international organisation dealing with fiscal matters with an aim to advance the study of tax law.
The bottom line
From a human rights defender’s point of view, autem, there is a tendency to highlight. For instance, the Organisation for Economic Co-operation and Development (OECD) as an official United Nations observer is acting to promote policies that will improve the economic and social well-being of people around the world. However, its collaboration with active, demanding and vibrant research environment in the field of taxation and taxpayers’ rights protection is very limited. For many years now, IBFD and the OECD have been co-operating on a wide range of tax issues. However, IBFD representatives and eminent taxpayer rights defenders are not deputising in a number of important – recent and upcoming – developments in the OECD’s international tax cooperation overview.
For instance, the OECD’s Centre for Tax Policy and Administration (CTPA), which holds OECD Tax Talks on monthly basis, G20 Summits, as well as in the Global Forum on tax transparency and exchange of information for tax purposes provide sustainable development in the field of taxation. However, as practice shows, these activities do not reach ordinary taxpayers and do not allow them to present their observations in terms of how taxes are collected, challenges in approaching tax authorities, and do not provide a platform to address the taxpayer rights violations, eventually connected to the structural violations of socio-economic rights. Thus, the OECD should enforce the existing mechanisms involving NGOs network, and more importantly reach out civil society and encourage them to address taxpayers’ rights violations.
The mentioned activities and events together would set out shared values, and demand rights for taxpayers that can be realised through structural, systemic, cultural and fiscal policy changes. An exhaustive and accurate record of all citizens’ contributions versus corresponded legal remedies and monitoring mechanisms of the tax expenditure will serve a basis for sound decisions in terms of fiscal and economic policies as well as politics, society, philosophy, and culture.
Taxpayer rights protection mechanism
In lieu of a developed international protection system for taxpayers, we are enjoying domestic and regional semi-mechanisms, putting on a scale, weighing whether positive outweighs the negative. A good example of a modern taxpayer rights protection tool is an American Taxpayer Bill of Rights.
Thus, despite the modern developments, the era of research in the field of taxpayers’ rights and a mechanism for their protection is only at its inception. Yet many government officials and public authorities struggle to provide a diligent and expert public authority oversight to confront the increased interest to taxpayers’ rights protection. Unfortunately, tax collectors are not ready for comprehensive cooperation with taxpayers, being taxpayers themselves. Therefore, altogether the taxpayers constantly overcome indirect pressure while collecting a sufficient amount of information in order to protect their rights, withal fighting to exercise their fundamental rights.
Having said the foregoing, every taxpayer is entitled to enjoy their rights and the human rights defenders community cannot stay silent about tax abuses. Both normative developments and empirical experience point to how human rights can shape tax policy. Tax reform is a process of changing the way contributions are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits, exerting commutations in favour of taxpayers and is gaining developments to benefit them. However, the actual quality-oriented changes are still ahead and all such national and international conferences serve as an outstanding multinational research platform, highlighting the latest challenges and providing solutions through dialogue exchange and further research.
The international taxpayer rights conferences are an out-and-outer place where prominent judges, advocates, and scholars discuss legal gaps in taxation, addressing taxpayers’ rights violations. The third International Taxpayer Rights Conference provided an overview of the current taxpayer violations and introduced leading solutions, based on dialogue and a common understanding of the importance of the good governance and availability of legal remedies. The lively discussions of tax reform sector play the “litmus test” in the public eye, calling for more awareness and overlapping research on the possible solutions for mistreated tax reality.
An ICO Research Fellow and taxpayer rights defender