Panel on Comparative Tax Administration

Summary of minutes of 25 June 2008 meeting, 100 Parliament Street, London, 11.30 - 14.30

Attendees:

John Tiley (Chair) - University of Cambridge
John Hasseldine - University of Nottingham
Judith Freedman - University of Oxford
Michael Devereux - Oxford University Centre for Business Taxation
Peter Melz - University of Stockholm
Chris Evans - University of South Wales, Australia
Peter Essers - Tilburg University Netherlands
John Connors - 100 Group
Mervyn Woods - CBI

Dave Hartnett (Acting Chairman) (Part)
Partho Shome - HMRC Chief Economist
Peter Short - HM Treasury (HMT)
Judith Knott - HM Revenue & Customs (HMRC)
Brigit Bracco - HMRC

Apologies:

Jim Hines (University of Michigan)
Joel Walters - 100 Group
Paul Morton - 100 Group

Welcome

1. Dave Hartnett (DH) welcomed the panel, thanked them for agreeing to participate in the group and highlighted the value that their academic contribution would provide to the UK tax administration debate.

Interaction of panel and other HMRC initiatives

2. Judith Knott (JK) provided an overview of the development of the panel and the way in which it could influence and support other HMRC initiatives.

3. The Review of Links with Large Business in 2006 followed the earlier review in 2001 to improve the business environment. Four key themes for improving the tax system emerged from the review - certainty, clarity through consultation, consistency and resolution of issues. A delivery plan had been developed which included not only practical proposals but also recognition of a culture shift that was required to support and embed the changes.

4. The panel was created in response to proposal 12 of the review which recommended the development of a process by which HMRC, HMT, business and academics could work together to develop a better shared understanding of the contribution of the UK tax system to the overall attractiveness of the UK as a place to do business.

5. JK provided a table of advisory and consultative groups on business tax which highlighted the membership and focus of each group. The consultative groups do not produce formal reports but provide the continuous dialogue and a means of informal consultation with both small and large business.

6. JK explained the interaction of tax policy and administration in the UK. Strategic tax policy formulation had been moved to HMT following the O’Donnell Review in 2004 with HMRC in a supporting role. Policy maintenance is led by HMRC, for example, in relation to anti-avoidance measures.

7. The group felt that this structure of informal groups was quite well-developed by international standards.

Terms of Reference

8. Brigit Bracco (BB) explained that the primary focus of the panel should be on issues relating to large business and tax administration.

9. Broadly the panel’s aim is to provide international academic tax expertise which HMRC can draw on to make the system more effective and provide international benchmarks, supplementing the current programme of research and business surveys.

10. General discussion raised the following points:

  • Business was very supportive of the initiative. In particular, there was merit in economic analysis enhancing the body of research evidence.
  • There should be explicit reference in the Terms of Reference to the departmental strategic objectives.
  • Some concerns were expressed about the title of the group. Reference to 'comparative' may limit the remit and should be replaced by a more general reference making clear that the remit relates specifically to business.

Best practice in tax administration

11. John Hasseldine (JH) introduced his paper ‘Best practice in Tax Administration’ and provided background as to its genesis.

12. Literature on best practice at a global level is sparse and mainly consists of reports benchmarking key outputs and sharing of practice in specific topic areas.

13. Innovating agencies are described as having in place:

  • end-to-end automation
  • increased self-service for taxpayers.
  • expanded use of business intelligence and individual risk profiling
  • highly targeted compliance activities
  • highly interoperable systems

14. Leading agencies are investing in five key areas:

  • Improving society’s understanding of, and attitudes to tax.
  • Taking an increasingly targeted and proactive approach to compliance with greater use of external data.
  • Decreasing the burden on taxpayers through streamlined processes.
  • Increasingly customer-centric, making use of advanced customer relationship management processes, building trust and providing increased self-service capabilities.
  • Rigorous performance management, supported by outsourcing and improved processes and technology to support their service orientation.

15. JH concluded with a list of seven fundamental characteristics associated with a leading tax administration:

  • A professional approach to internal management issues (HR, strategic planning).
  • Attention to cost efficiency and effectiveness.
  • Responsive engagement with all stakeholders.
  • Sophisticated risk profiling and informed responses to taxpayer behaviour, including the areas of enforcement and service provision.
  • Successful introduction of technology applications.
  • Transparency of governance and detailed performance reporting.
  • Understanding what drives taxpayer and tax agent behaviour.

Response to paper from:

HMRC

  • The interaction between tax policy and administration - There are key linkages between policy and administration and they need to be considered together to build an effective administration strategy.
  • International cooperation - There is a lack of academic research on exchange of information between fiscs (Treasury of a kingdom or state) and this should be considered as an area that might be worth exploring further.
  • Research - The need to access the international and joint research that has been undertaken. The panel could be the vehicle to access this information.
  • A summary of the interplay between tax policy and administration (in India) authored by Partho Shome (PS) was circulated to the panel.

Business

  • Risk analysis is a major issue for business and the panel could provide both information and practical experience of what happens in other jurisdictions.
  • Other areas that could be addressed by the panel could include:
    responsive engagement
    taxpayer and agent behaviour
    behaviour and cultural change

Next meeting

16. The panel agreed that the next meeting should focus on risk analysis. Consideration should be given to including the following areas:

  • Operating principles relationship - using the Netherlands experience as a comparison.
  • the advantages and disadvantages of horizontal supervision as applied in the Netherlands.
  • annual compliance arrangements in Australia which require full disclosure from both parties as part of the Joint Risk Assessment Process (which provides the opportunity to engage on what matters).

17. Other possible topics for future meetings were:

  • The meaning of risk - International comparisons.
  • The impact of litigation on risk assessment.
  • The behavioural issues relating to risk assessment. For example, economic distortions based on a comparison of the selected international processes.
  • The impact of planning versus low/high risk.
  • The extent that risk assessment reduces business compliance costs
  • Conflict/tension between international fiscs.
  • Role of the tax practitioner in risk profiling.
  • Why simplified tax regimes suffer from poor take-up rates.
  • Comparative studies of costs which feed into business location decisions would also be useful particularly in relation to the competitiveness debate.

18. It was agreed that the panel would pull together a short summary based on work already undertaken by panel members and any other relevant work as the focus for discussion at the next meeting.

19. The next meeting would be scheduled for early December 2008.