1. OECD AND TAX POLICY
Martin Jareš

2. Overview 1. Work of the OECD in the tax area
Introduction
Double taxation
Transfer pricing
Harmful tax practices
Tax administration
Consumption taxes
Base erosion and profit shifting
2. Tax statistics and tax policy analysis
Revenue Statistics
Taxing Wages
Tax Database
Tax policy studies

3. 1. WORK of the OECD in the tax area

4. 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

5. Double taxation Countries usually tax It would lead to double taxation
income sourced in their territories
worldwide income of their residents
It would lead to double taxation
Double taxation would create disincentives to invest abroad
Countries conclude bilateral double tax avoidance treaties

6. Double taxation (2) 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
The full version has more than 2,000 pages
Lately, the fight against double non-taxation has become equally important

7. Transfer pricing
Companies can shift profits to low-tax countries using manipulated transfer prices
For example, consulting services supplied by a subsidiary in a tax haven can have very high prices in order to
decrease the tax base in the high-tax country
shift profit to the tax haven

8. 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

9. 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

10. 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?

11. 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

12. 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

13. Base erosion and profit shifting
Started in 2012 as a reaction to the financial and economic crisis
Tax avoidance has been a well-known phenomenon for decades
It became politically unsustainable to tolerate it
: 15 Actions reforming the international corporate tax system

14. Base erosion and profit shifting (2)
Changes to
double-tax treaties
OECD model tax convention (Actions 2, 6, 7, 14)
multilateral instrument (Action 15)
transfer pricing (Actions 8-10, 13)
farmful tax practices – Action 5
tax administration – Action 12
domestic legislation – Actions 2-4
Economic analysis of aggressive profit shifting
Action 11
Digital economy
Action 1

15. 2. Tax Statistics AND Tax Policy Analysis

16. Overview
Work on tax policy analyis and tax statistics is carried on by
Working Party No. 2 on tax policy analysis and tax statistics
Joint Meeting of Tax and Environment Experts
Regular statistical products
Revenue Statistics
Taxing Wages
Tax Database
Environmental Tax Database
Analysis of tax policy
Tax policy studies and Working papers

17. Revenue Statistics The Interpretative Guide defines what is tax
In the OECD classification the term “tax” is confined to payments which are
compulsory
unrequited
paid 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

18. Revenue Statistics (2) 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)

19. Revenue Statistics (3)
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
Links:

20. Revenue Statistics (4)
Total tax burden in the Czech Republic has been slightly above the OECD average

21. Revenue Statistics (5)
Czech Republic has higher share of social security contributions and lower share of personal income tax and property taxes

22. 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.

23. Taxing Wages (2)
Average and marginal effective tax rates are calculated
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:

24. 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

25. Tax Database (2) Personal taxes personal income taxes
social security contributions paid by
employees
employers
self-employed
non-tax compulsory payments
compulsory payments made to organizations outside the government sector or because they are not unrequited
measures of tax burden
average rate
marginal rate
tax wedge (income tax, employer and employee social security contributions and pay roll tax as a percentage of labour costs)

26. Tax Database (5) Corporate and capital income taxes
basic (non-targeted) rates,
small business tax rates,
corporate income taxes relating to sub-central governments.

27. Tax Database (6) Taxes on consumption
value added tax
tax rates
registration threshholds
excise duties on
beer,
wine,
alcoholic beverages,
mineral oils,
tobacco .
Link:

28. Tax policy studies Since 1999, 24 studies published
Studies deal with specific tax policy topics, e.g.
Corporate Tax Incentives for Foreign Direct Investment
Taxation of SMEs
Choosing a Broad Base-Low Rate Approach to Taxation
Tax Policy Reform and Economic Growth
Taxation and Employment
The Distributional Effects of Consumption Taxes
Link:

29. Taxation working papers
Since 2011, 29 papers published
Link:

30. Distributional effects of VAT
A project using actual household microdata analysing distribution of VAT across income deciles
Most countries have more than one VAT rate
Distributional analysis is important when assessing impacts of reduced VAT rates

31. Distributional effects of VAT (2)
VAT is regressive, i.e. richer households pay lower VAT as a percentage of their income than poorer households because the rich save more
A reduced VAT rate on necessities which represent a larger share of consumption basket of the poorer households can mitigate the regressivity

32. Distributional effects of VAT (3)
However, the study found that the highest deciles benefit most from reduced VAT rates

33. Distributional effects of VAT (4)
Average tax expenditure (in CZK) per household from all reduced rates: income deciles, Czech Republic

34. Distributional effects of VAT (5)
Average tax expenditure (in CZK) per household from reduced rates on museums and ZOOs : income deciles, Czech Republic

35. Thank you for your attention.

36. VAT carousel fraud
Carousel fraud is one of the most common types of large-scale VAT fraud schemes in the EU
usually, the goods end up in the hands of the first company, that is why it is called “carousel”
usually, many companies involved in one scheme, from several Member States
Core of the scheme:
company A sells goods to company B
company B pays the price including VAT to B
A disappears before paying VAT to the authorities
B claims the VAT it paid to A as input tax

37. VAT carousel fraud (2) Treasury Company A Company B Company D
input tax VAT 60
input VAT 80
price 400 incl. VAT 80
Company A
Company B
goods
price 300 incl. VAT 60
price 100 incl. VAT 20
goods
goods
goods
Company D
Company C
price 200 incl. VAT 40
VAT 60
input VAT 20
input VAT 40
VAT 40
Treasury