This article[1] addresses the protection of taxpayer rights in the era of tax law internationalization. It looks first at tax law internationalization: its beginning, course, impact on domestic tax law, its progress, and its anticipated future. It then considers the problems that taxpayers face, especially those connected with economic digitalization, and acts that currently secure taxpayer rights.
Tax Law Internationalization
Traditionally, one of the main fields of state sovereignty has been power over tax matters, especially the power of a state to tax entities in its territory and introduce new tax laws. This power was crucial in guaranteeing both internal sovereignty and external independence of a state. Globalization, however, has decreased institutional barriers to the movement of goods, services and both taxable profits and capital, which decreases taxes on a global basis and makes it more difficult to locate assets and activities generating income. If assets or activities are located in more than one state, the source of income is less clear. Globalization allows countries to attract capital with favorable tax regimes, leading to aggressive tax competition and enabling tax avoidance. A frequent result is double non-taxation.
This leads to a clash of values between taxpayer freedom to move around the globe and tax fairness. It also creates a strong tension between tax cooperation and tax competition between states. Nonetheless, the contemporary environment requires tight cooperation between states on tax matters, because most tax problems that states face have an international character. States thus need to consider international aspects in forming their domestic tax laws. This is reflected in international and regional initiatives such as those of the Organization for Economic Co-operation and Development (OECD). Although the OECD began by introducing, and then updating, the model convention on the avoidance of double taxation, it has broadened its activities by preparing various types of tax analyzes and becoming a platform thorough which states can implement mechanisms to fight tax evasion. The most important OECD initiative in combating tax avoidance and evasion is the Base Erosion and Profit Shifting (BEPS) action plan published in 2015. In the following years, the OECD undertook numerous activities to implement BEPS guidelines by coordinating activities, supervising implementation of individual instruments, and providing further recommendations for states. Currently, 139 jurisdictions have joined the BEPS initiative by incorporating it into their legal systems.[2]
Another important example of collaboration on tax matters at the international level is the platform for collaboration on tax (the Platform) launched in 2016 by OECD, the International Monetary Fund, United Nations and World Bank Group. The Platform formalizes regular discussion between the founding organizations on the design and implementation of standards for international tax matters, strengthens their ability to provide support for developing countries and helps them collectively deliver developed guidelines.[3] This kind of collaboration is also taking place at the regional level–e.g., the Asia Pacific Economic Co-operation, African Tax Administration Forum, the Inter-American Centre of Tax Administrations and the European Union (EU) or the Intra-European Organization of Tax Administrations.
The EU example shows increasing initiatives tackling tax issues. Although direct taxes are not subject to harmonization, the EU has introduced a variety of directive—i.e., a merger directive, parent-subsidiary directive, interest and royalty directives and, most recently, an anti-tax avoidance directive introducing legally binding anti-abuse measures, which all member states should apply against common forms of aggressive tax planning (including a controlled foreign company rule, switchover rule, exit taxation, interest limitation and general anti-abuse rule). The EU has also increasingly focused on solutions its member states should implement to manage domestic tax systems. The EU single market and Court of Justice impact on direct taxation in member states increases as they somehow harmonize standards on tax matters. The EU also introduced a common consolidated corporate tax base proposal (CCCTB) in 2011 that relaunched in 2016, that would share consolidated taxable profits between the member states in which the group is active using an apportionment formula. Each member state would then tax its share of the profits with its own national tax rate. That proposal has not been implemented due to the member states’ resistance against broadening integration on tax matters; however, many consider it likely to be achieved in the future.[4]
It can be expected that this internationalization and collaborative tax process will deepen. Therefore, it is important to analyze the mechanisms of taxpayer rights protection in the context of this ongoing tax law internationalization.
Basic Principles of Taxpayer Rights and Legal Acts Which Secure Taxpayer Rights
At the international and regional levels, the discussion of taxpayer rights stems from groups of tax advisors and centers of tax administration[5] introducing codes of taxpayer rights that provide general principles that tax administration should respect to guarantee taxpayers freedoms such as the right to be informed, the right to privacy or the right to challenge a tax authority’s position and the right to be heard.[6] There are also organizations that monitor and publish reports regarding observance of taxpayer rights, such as the International Bureau of Fiscal Documentation.[7] Other organizations, such as the United Nations or the European Court of Human Rights, protect taxpayer rights as a part of human rights such as the right to own property, the right to privacy and the prohibition of interference with correspondence or the right to access to swift justice and right to fair trial.[8] Nonetheless, these protections are predominantly “soft” law without a binding character.
At the domestic level, some countries have introduced tax charters protecting rights and others protect taxpayer rights through reference to constitutional freedoms, the general principles of tax law or international acts protecting human rights. Italy illustrates the first approach, with the Italian Taxpayer Bill of Rights (ITBR).[9] Italian judges, have referred to ITBR’s provisions and linked them directly to the Italian constitution’s protections, but the failure of the legislature to consider the protections when designing new taxes makes the provision ineffective.[10] Another example is the United States, which enacted the Taxpayer Bill of Rights (TABOR) in 1992, prohibiting tax increases without legislation and limiting the amount expenditures. A second bill was passed in 1996, creating the Office of the Taxpayer Advocate independent from the Service to assist taxpayers who face problems with the Service and introducing possible solutions to address problems encountered.[11] The National Taxpayer Advocate presents an annual report to Congress with additional recommendations.[12] A third rights bill was passed in 1998.[13] The Service also adopted a bill of rights with the ten following taxpayer rights:
- the right to be informed;
- the right to quality service;
- the right to pay no more than the correct amount of tax;
- the right to challenge the Service’s position and to be heard;
- the right to appeal a Service decision in an independent forum;
- the right to finality;
- the right to privacy;
- the right to confidentiality;
- the right to retain representation; and
- the right to a fair and just tax system.
Poland is an example of the protection of taxpayer rights through reference to constitutional protections.[14] Under Poland’s constitution, the concept of tax fairness includes the principles of equality of taxation and universality of taxation. These protections are supplemented by the Polish Tax Ordinance Act that provides procedural rights such as the right to be informed, the principle of objective truth or the rule of speed of actions.[15] A draft Tax Ordinance Act presented in the 2019 term was expected to be in force as of January 2021. Although it was not enacted before the end of the parliamentary term, it is expected to provide the basis for further legislative work.[16] The proposal organizes and supplements the directives of proceedings in resolving tax matters, including the ones so far present only in tax jurisprudence and doctrine (e.g. the principle of consensual handling of cases).[17] The proposal also creates an Ombudsman of Taxpayer Rights.[18] The Ombudsman would handle mediation between a taxpayer and the tax authority, provide guidance regarding legislative changes which would increase protection of taxpayer rights, and conduct educational activity with respect to tax law, in particular protection of taxpayer rights.
In spite of these various protections, there is no international organization that can issue binding authority to its members in protection of taxpayer rights. Domestic taxpayer rights protection remains the most significant.
Ongoing Processes of Digitalization and the Problems Related to Protection of Taxpayer Rights
Taxpayers face new problems due to the increasing internationalization of tax law, especially provisions introduced to deter tax avoidance. One such measure is the increased drive for information exchange between states on tax matters, which raises concerns about taxpayer rights to privacy and rights to be informed. Other risks taxpayers face is the use of tax exchange information for other purposes, the increasing number of tax disputes, and the potential exchange of false information.[19] The implementation of digital solutions may cause taxpayers to face an increasingly burdensome array of administrative obligations such as e-authentication requirements.[20] Some taxpayers may have difficulty understanding electronic forms of communication from tax authorities, thus requiring new kinds of support.[21]
Digitalization also creates opportunities to create measures that protect taxpayer rights and interests—e.g., through establishing instruments that simplify tax settlements, increase knowledge about new tax laws or improve contacts with tax authorities.[22] In the future, digitalization may enable widespread computerized application of the tax law.
Protection of Taxpayer Rights with a World Tax Organization
In this digital, globalized era with ongoing processes of tax law internationalization, international tax cooperation between states should be a focus. Various ways to strengthen the protection of taxpayer rights at the international level have been recommended by commentators, including the introduction of a world tax court,[23] and the strengthening of interaction among international tribunals.[24] This article supports the establishment of a formal international tax organization.
Vito Tanzi presented the idea of creation of a World Tax Authority, an organization that would be mainly responsible for providing technical support to countries in the field of international tax law. Its tasks would include preparation of various types of statistics and reports, developing international standards, supervising the development of tax policy, developing mechanisms governing exchange of tax information between states, chairing initiatives aimed at combating tax competition and creating arbitration procedures between countries.[25] Later, the Zedillo Commission introduced a report supporting a similar World Tax Organization based on Vito Tanzi’s idea that would be administered by the United Nations.[26] Thomas Rixen presented an enlarged concept for an international organization that would enable global tax management that would have executive rights and powers to sanction governments that engage in tax competition.[27] Concurrently, he suggested that governments should also abolish all rules that make it impossible for other countries to enforce the membership principle, such as strict bank-secrecy regulations or refusal to exchange information with other tax administration agencies. Within the organization’s forum, countries could reach agreement on a common consolidated tax base.[28]
These concepts have not been implemented, but the ongoing processes of tax law internationalization put pressure on the need for an international tax organization that could provide technical assistance to states in handling tax matters or possess some kind of power to collect taxes. In considering the potential development, the correct framework will be important: should such an organization be based within the institutional framework of an existing organization such as the United Nations or the OECD or would it be better established as a new body separate from any other existing international organization. A difficult issue would be determining how the organization could protect the rights of all its members, including developing countries.
Let’s consider the key question, though, of the scope of possible tasks the international tax organization could perform in the area of providing protection of taxpayer rights. An international tax organization as a body providing technical assistance on tax matters to its members could develop model instruments that provide protection of taxpayers rights. For example, various kinds of tax charters and instructions for tax administrations regarding taxpayer protections could be made available. The organization could also provide digital solutions that simplify a tax authority’s contact with taxpayers. At the international level, big data could be used to full potential only if all countries were able to share the categorization and software. Sharing such digital solutions would be particularly beneficial for developing countries since they do not generally have adequate resources to design them. The international tax organization could also be a forum for its members to discuss solutions that their tax administrations could implement and the ways in which the international cooperation of its members on the protection of those rights could be conducted.
The international tax organization could also provide technical assistance to its members. If given broader authority, it could safeguard observance of taxpayer rights through sanctioning states that do not respect them. It could also settle selected disputes between taxpayers and the tax authority, issuing binding rulings. With this broader power, it could have a large impact on its members and more assurance that measures to protect taxpayer rights could be implemented.
The establishment of a supranational organization could be beneficial both for tax administrations of states and for taxpayers. It could provide catalogues of taxpayer rights when introducing particular anti-avoidance measures, as well as instructions on how to protect taxpayer rights. It could also monitor whether taxpayer rights are respected by countries in order to determine whether to intervene, imposing sanctions at the international level. It might also introduce a blacklist of countries that infringe taxpayer rights.
Clearly, it will take time and effort before countries will agree to cede some of their taxing powers to an international body. In the author’s view, it is likely to begin at the regional level. Currently existing international organizations will likely continue to increase their interest in tax matters, perhaps leading to increased power to influence states in implementing internationally agreed-upon tax solutions. However it occurs, it is likely that an international organization focused specifically on protecting taxpayer rights could create a more harmonious international approach to taxation. ■
[1] Research financed through the Diamond Grant Program.
[2] See, e.g., Members of the OECD/G20 Inclusive Framework on BEPS.
[3] OECD Platform for Collaboration on Tax.
[4] Ursula von der Leyen, A Union that strives for more: My agenda for Europe—Political Guidelines for the Next European Commission 2019-2024 (2019) (as a candidate for President of the European Commission, indicating that CCCTB is a long-standing project of the European Parliament that she will fight to implement).
[5] These include the Confederation Fiscale Europeenne, the Inter-American Center of Tax Administrations, CFE Tax Advisers Europe, and the Centre for Tax Policy and Administration.
[6] See, e.g., CFE Tax Advisers Europe, Opinion Statement CFE 1/2018 on the Importance of Taxpayer Rights, Codes and Charters on Tax Good Governance, European Taxation (November 2018).
[7] See, e.g., International Bureau of Fiscal Documentation, Observatory on the Protection of Taxpayers’ Rights.
[8] Please note acts such as Universal Declaration of Human Rights, the European Convention on Human Rights and the International Covenant on Civil and Political Rights and their protocols.
[9] State Law no. 212/2000.
[10] G. Thieghi, The Italian Taxpayer Bill of Rights 15 years on ‘ at the top of the world’. But what about effectiveness? (paper presented at the 2015 Int’l Conf. on Taxpayer’s Rights-Washington DC, at 12).
[11] Pub. L. 104-168 (July 30, 1996).
[12] See, e.g., National Taxpayer Advocate’s Objectives Reports 2021.
[13] Pub. L. 105-206 (July 22, 1998).
[14] B. Brzeziński, B. Chanowska-Dymlang, Declaration of Taxpayer Rights, European Taxation (August 2014), at 363–364.
[15] Tax Ordinance Act (Aug. 29, 1997). See e.g., Art. 2a & Art. 120–129 for procedural rules.
[16] See Lukasz Kupiec et al., The New Tax Ordinance (KPMG, June 2020).
[17] See https://www.gov.pl/web/finanse/rzad-przyjal-projekty-ustaw-o-ordynacji-podatkowej-i-o-rzeczniku-praw-podatnika.
[18] See http://www.sejm.gov.pl/sejm8.nsf/PrzebiegProc.xsp?id=3C4188DE6229EA53C1258417003990CA.
[19] Viktoria Wöhrer, Data Protection and Taxpayers’ Rights: Challenges Created by Automatic Exchange of Information (Amsterdam 2018), at 176–184.
[20] Taxpayer Advocate Service, FY 2020 Objectives Report To Congress Volume 1, at 112.
[21] See, e.g., Observatory for the Protection of Taxpayers’ Rights.
[22] Intra-European Organization of Tax Administrations, Impact of digitalization on the transformation of tax administrations (Budapest 2018).
[23] John Azzi, Tackling Tax Treaty Tensions: Time to Think about an International Tax Court, 52 Bull. Int’l Fiscal Doc’n 344–357 (1998).
[24] Ricardo Anton, The Fragmentation of Taxpayers’ Rights in International Dispute Resolution Settings: Healing Anxieties through Judicial Dialogue, 10 World Tax J. 131, 152–162 (2018).
[25] Vito Tanzi, Is there a need for a World Tax Organization? in A. Razin et al eds., The Economics of Globalization (New York 1999).
[26] United Nations, Media Kit: Halting a Global Tax, June 2001.
[27] Thomas Rixen, Global Tax Governance: What is Wrong with It and How to Fix It (Colchester 2016), at 335.
[28] Thomas Rixen, From Double Tax Avoidance to Tax Competition: Explaining the institutional trajectory of international tax governance, 18 Review of Int’l Pol’l Economy 197 (2011).