Wouter Bossu, Mr. Cory Hillier, and Mr. Wolfgang Bergthaler
Recent financial crises including the ongoing one caused by the COVID-19 pandemic have consistently drawn attention to the need to strengthen the quality of public debt management in emerging markets and developing countries. Deeper and more efficient domestic government debt markets—being, a key segment of the LCBM for many emerging markets and developing economies—play a key role in reducing financial vulnerability to shocks and enable governments to finance critical economic and fiscal policy measures in response to them. Policymakers and international organizations have long recognized that developing and strengthening LCBMs is a key policy prescription to sound public debt management. Robust legal and regulatory frameworks are recognized as being critical building blocks for the structure, development and functioning of LCBMs. This Working Paper seeks to outline a strategically anchored methodology that can be applied to design, build and implement the legal and tax foundations for the development of LCBMs that would adequately address common challenges and impediments.
This Technical Assistance report focuses on Ukraine’s distributed profit tax, voluntary disclosure of assets, and Base Erosion and Profit Shifting Work Program implementation. The recommendations largely favor simplifying rules, improving the definition of basic concepts, eliminating potential loopholes, and adhering more closely to international standards in some cases. Thus, for the sake of simplification, the report recommends that Controlled Foreign Corporation rules should apply to the ‘first onshore’ person rather than having to trace them back to the ultimate beneficial owner in Ukraine. Also, it recommends that the proposed interest deduction limitation should eliminate the carry-forward currently permitted, limit deductions to net interest expense and exempt the financial sector from this limitation. Some key definitions can be improved too. The report suggests that if there is an urgent need to promote private investments, the accelerated depreciation tool should be applied for plant and machinery and structures housing them for say another five years.
This paper explores that in developing economies, sufficient tax revenue is necessary to finance spending on health care, education, and infrastructure—all of which are prerequisites for economic growth and development. However, it is not simply the revenue ratio that matters; the quality of the revenue system is also essential for delivering fair and efficient outcomes. To design a revenue system that fosters sustainable economic and social development and enjoys broad public support, it is essential for tax reform proposals to be carefully assessed, quantitatively analyzed, and openly debated. This requires that decision makers and all stakeholders in the debate have access to the best available facts, data, and independent evidence-based analysis, including about the impact of tax reforms on revenue, the income distribution, and economic performance. The central institutional actor in the decision making process—the executive—is best supported in this process by what is generally called a tax policy unit (TPU). TPUs are tasked to guide and inform the tax policy debate, based on facts, independent data analysis, and multidisciplinary efforts.
This paper focuses on the corporate income tax (CIT) regime that features a high statutory rate but low revenue productivity, as well as a bias toward debt financing, ineffective size-dependent regimes, and inefficient tax incentives. Profit-insensitive taxes are comparatively high. Anti-tax-avoidance rules are strong, but risks to outbound profit shifting remain. Tax uncertainty is another concern. At the individual level, the system of taxing wealth and capital income is complex, with distortions from differential taxation across savings instruments. To address some of these issues and make the tax system more supportive of growth and job creation, the government plans to reduce the CIT rate, further cut the labor tax wedge, unify taxes on capital income, and narrow the wealth tax. Staff’s analysis suggests that complementing these reforms with measures to remove inefficient tax incentives, further reduce the debt bias, address disincentives to company growth, and streamline the taxation of long-term savings could enhance their impact on competitiveness, revenues, and growth.
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Armenia’s Third Review Under the Extended Arrangement, and Request for Waiver and Modification of Performance Criteria (PC). Growth in Armenia is expected to remain subdued as recession in Russia continues and as the base effects of the 2015 one-off factors dissipate. The program performance has been broadly satisfactory. All end-December 2015 PCs, except for the fiscal deficit PC, and all the continuous PCs were met. The fiscal deficit PC was missed by 0.3 percent of GDP. The IMF staff supports completion of the review and the authorities’ request for a purchase in an amount equivalent to SDR 15.65 million.
Advance tax rulings are a common feature of mature tax systems. The tax systems of the United States, the United Kingdom, the Netherlands, Germany, Australia, and South Africa all have established ruling practices. Taxpayers can obtain an advance tax ruling in nearly all OECD member countries. Increasingly, many non-OECD countries are also offering advance tax rulings. An advance tax ruling regime seeks to promote clarity and consistency regarding the application of the tax law for both taxpayers and the tax authority. However, there are also inherent risks associated with the proliferation of granting confidential advance tax rulings which are not published or otherwise reported. This Tax Law IMF Technical Note focuses on designing an advance tax ruling regime in the nature of private tax rulings.
Tax avoidance continues to attract attention globally with strong support for tax law reform at all levels. This Tax Law IMF Technical Note focuses on some of the key design and drafting considerations of one specific legal instrument (being, a statutory general anti-avoidance rule (GAAR)) which is often considered by authorities to combat unacceptable tax avoidance practices. A GAAR is typically designed to strike down those otherwise lawful practices that are found to be carried out in a manner which undermines the intention of the tax law such as where a taxpayer has misused or abused that law. However, the objective of combating unacceptable tax avoidance can itself make the legal design of a GAAR complex. This is simply because the phrase “tax avoidance” means different things to different people. Whatever the form of a GAAR, it should give effect to a policy that seeks to strike down blatant, artificial or contrived arrangements which are tax driven. However, the GAAR should be designed and applied so as not to inhibit or impede ordinary commercial transactions. This Tax Law IMF Technical Note discusses and explores how drawing a line between those arrangements which should be caught by the GAAR is a matter of degree and can be delicate.