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The amount of time given to large and medium traders for paying VAT liabilities varies substantially across surveyed countries, ranging from 10 to 60 days after the end of the relevant liability period.

Generally speaking, countries’ legislation requires VAT liabilities to be computed on an “accruals” basis; however, legislation in quite a few countries (e.g. Ireland, New Zealand, South Africa, Switzerland, and United Kingdom) countries permit use of a “cash” basis or a flat rate scheme for liability determination for a prescribed class of smaller traders (using turnover and/or industry criteria) to simplify taxpayers’ compliance burden.

A small number of countries (e.g. Denmark, Finland, Germany, and Luxembourg) permit very small remitters of VAT and/or those taxpayers with typically irregular transactions to file returns and make payments on a less frequent basis (e.g. annually).

Box 9.8. Key findings: The Impact of VAT Compliance on Business

The study used data collected by the World Bank Group for the Paying Taxes 2010 project. The Paying Taxes project uses a case study company with a standard fact pattern (elaborated in the PWC report). The report acknowledges that while this methodology “brings limitations” it does enable the collection and comparison of data from a large number of countries on a like-for-like basis, and the potential identification of best practices. The study findings are based on data gathered from a representative sample group of 30 countries, 14 of which are included in this comparative series report. The key findings from the PWC study are set out hereunder:

On average it takes the case study company longer to comply with VAT around the world, than to comply with corporate income tax.

The time needed to comply with VAT varies considerably around the world and even between neighbouring countries.

It generally takes less time to comply with VAT in the developed world than in developing countries.

VAT compliance tends to be more time-consuming in countries where indirect taxes are not administered by the same tax authority that deals with corporate income tax.

Administrative procedures vary from country to country and these have a significant impact on how long it takes to comply with VAT.

It takes less time to comply, on average, in countries where business uses online filing and payment for VAT.

The frequency with which VAT returns are required (monthly/quarterly), and the amount of information requested has a significant impact on the time it takes to comply.

Compliance takes longer where extra documentation has to be submitted with the return.

There is a correlation between the VAT compliance burden and the time delay in receiving a VAT refund. Typically, where it takes longer to receive a refund, it takes longer to comply

Source: The impact of VAT compliance on business (PWC, November 2009), see www.pwc.com/gx/en/ tax/publications/index.jhtml.

Administrative review

Administrative review is an integral part of tax administration in all but two of the revenue bodies surveyed. It is the process by which a taxpayer can challenge a revenue body’s decision without or prior to entering the legal system. Administrative reviews are one mechanism for safeguarding taxpayers’ rights and ensuring the integrity of the revenue

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body. Also relevant is the role of oversight bodies and Ombudsman in some countries, as described briefly in Chapter 1.

Based on survey responses, an administrative review is generally compulsory in just over three quarters of surveyed countries before a taxpayer can seek legal recourse. In the vast majority of countries (48 of 52) the process is undertaken by the revenue body itself, although for three revenue bodies further assistance is provided by another government body such as the MOF. The exception is Austria where the process is the responsibility of an independent tribunal. Despite being an integral part of the tax assessment and collection mechanism the use of performance standards for reviews was only reported by around half of revenue bodies.

Table 9.11 sets out selected features of the tax dispute systems in the surveyed countries. The following observations can be made:

The time period in which taxpayers can appeal to administrative review varies considerably between countries. The minimum time reported was 8 days, the maximum 5 years.

Where a case is under administrative review, around sixty percent of revenue bodies reported (some with qualifications) that they can collect disputed tax. This compares with cases under court review where almost 80% (38 of 52) of revenue bodies reported that disputed tax can be collected, albeit in some cases only in certain circumstances.

Specialised tax courts exist in just under half of surveyed revenue bodies.

Performance data on tax disputes in administrative review are set out in Tables 6.14 and 6.15, with brief analysis in Chapter 6. As commented earlier, there were many gaps in survey responses limiting any comprehensive analysis and observations

Enforced collection of unpaid taxes

The efficiency and effectiveness of a revenue body’s enforced debt collection activities relies to a large degree on the nature and scope of the remedies that can be applied under the laws to enforce the payment of tax debts, including the provision of an appropriate regime of sanctions (e.g. interest and/or penalties) to deter and penalise non-compliance. In practice, the legal framework for the enforced collection of taxes is set out separately in the laws governing each tax administered or, preferably for ease of legislative maintenance, in a single comprehensive law on tax administration that provides a common set of provisions, including for enforced debt collection, covering all taxes.

The survey undertaken sought an indication from revenue bodies on the nature of their enforced collection powers and an outline of the interest and penalty regimes in place for late payment. This latter aspect is dealt with later in this chapter in the section dealing with penalties and offences. This section provides an overview of the administrative powers and procedures within countries for managing the collection of tax debt. Performance data and selected ratios on tax debt are described in Chapter 6.

Powers to Enforce Tax Debt Collections

As set out in Table 9.12, most surveyed revenue bodies have been given the more traditional types of powers to enforce (and encourage) the collection of unpaid taxes:

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1.To grant taxpayer further times to pay (47of 52 revenue bodies);

2.To make payment arrangements (50 of 52 revenue bodies);

3.To collect from third parties that have liabilities to taxpayer (50 revenue bodies), for some with limitations/qualifications;

4.To obtain a lien over taxpayers’ assets (46 revenue bodies, with a few requiring a court order;

5.To seize taxpayer’s asset (49 revenue bodies, although in a few a court order is required);

6.To impose tax liabilities on company directors when certain conditions are satisfied (40 revenue bodies, with a court order required by some;

7.To offset taxpayer’s liabilities to his/her tax credits (50 revenue bodies); and

8.To initiate bankruptcy action (44 revenue bodies), although some require a court order.

Only revenue bodies in Brazil and Chile appear to lack the majority of these powers, but in the case of Chile, enforced tax debt collection is primarily conducted by the Treasury (TGR).

Other powers available but to a lesser degree include: 1) to withhold government payment to debtor taxpayers (34 revenue bodies); and 2) to require a tax clearance for government contracts (36 bodies).

Additional powers are given to some surveyed revenue bodies to encourage payment of tax debts that entail the imposition of restrictions on taxpayer’s business or private activities, including: 1) limits on overseas travel (17 bodies, with a few requiring court orders); 2) Closure of businesses or cancellation of business licenses (23 bodies); and 3) Denial of access to government services (11 bodies) – of the OECD countries surveyed only Greece, Hungary, Korea, Portugal and Turkey have this ability; in the non-OECD group 6 of 18 revenue bodies reported being empowered to apply this sanction.

Finally, 20 of 52 revenue bodies report that they are permitted to publically disclose details of individual taxpayer’s tax debts.

Taken as a whole, the data reported suggest that there may be opportunities for revenue bodies’ intent on seeking to significantly improve tax payment compliance and collection effectiveness by seeking a broader set of powers (e.g. authority to impose tax liabilities on company directors when certain conditions are satisfied, and to close of businesses or cancellation of business licenses).

Information and access powers

Table 9.13 provides an overview of the information and access powers that are used by revenue bodies in OECD and selected non-OECD countries to administer the tax system. The key points are as follows:

Generally speaking, all surveyed revenue bodies (except Malaysia and Poland) have powers to obtain relevant information and in virtually all revenue bodies (except Malaysia, Poland and the Slovak Rep.) these powers can be extended to requests to third parties.

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With one exception (i.e. Poland) taxpayers are required to produce all records on request from revenue bodies.

Revenue bodies in most surveyed countries have broad powers of access to taxpayers’ business premises and dwellings for the purpose of obtaining information required to verify or establish tax liabilities. However, in exercising this power, a search warrant is required to enter business premises in 23 countries for any purpose and in 2 countries only in criminal cases. In the United Kingdom, a search warrant is currently required for income tax and corporation tax but not for the inspection of VAT and tax deducted from wages by employers (PAYE). From 1 April 2009 the ability to inspect without a warrant was extended to income tax and corporation tax. The searches without a warrant in Germany and the entry without a warrant in the Netherlands are only permitted during normal working hours. In France, a Judge’s order is required for all cases of search and seizure.

Revenue bodies’ access powers are more limited with regard to taxpayers’ private dwellings. A search warrant is required in over half of surveyed bodies to enter taxpayers’ dwellings for any purposes and in two countries these can only be only for fraud or criminal cases. There are exceptions in a few countries (e.g. Ireland and Hungary) that apply where parts of the dwelling are used for business purposes.

Just over half of surveyed revenue bodies require a warrant to seize taxpayers’ documents.

In just over half of OECD countries tax officials can request a search warrant without the help of other government agencies. This is less prevalent in non-OECD countries surveyed (less than half reported having this power).

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