WU VIENNA UNIVERSITY OF ECONOMICS AND BUSINESS GLOBAL

WU - VIENNA UNIVERSITY OF ECONOMICS AND BUSINESS (GLOBAL TAX POLICY CENTRE) WORKSHOP ON “COOPERATIVE COMPLIANCE: BREAKING THE BARRIERS” WU CAMPUS, VIENNA, 14 -15 APRIL, 2016 COOPERATIVE COMPLIANCE – PERSPECTIVES FROM GHANA. BY NII AYI ARYEETEY TECHNICAL ADVISOR (TAX POLICY UNIT) MINISTRY OF FINANCE, ACCRA, GHANA

THE COOPERATIVE COMPLIANCE CONCEPT q. Establishing a relationship between tax authorities and businesses based on transparency and justified trust, to minimize conflicts Ø Efficiently managing conflicts that may arise. q. Strengthening the linkages between good tax compliance and cooperate responsibility. q. Cooperative Compliance Model – Main features: ØCapabilities required of tax administrations in providing early tax certainty to taxpayers ØImplications for participating taxpayers in providing high levels of disclosure and transparency

THE “CC” MODEL AND THE TAX ADMINISTRATION q Providing early tax certainty to taxpayers – attributes required of tax administrations: Ø Commercial Awareness, Ø Impartiality, Ø Proportionality, Ø Openness through disclosure and transparency, Ø Responsiveness v Underlining features: ü Governance – An effective system of internal Governance, ü Strategic fit with the administration's overall compliance strategy in terms of organizational mission and operational targets.

COOPERATIVE COMPLIANCE MODEL: OBLIGATIONS OF THE TAXPAYER q. A commitment to provide Disclosure and Transparency q. Disclosure: providing the tax administration with ALL information needed to make fully informed risk assessment of the tax issues arising from tax returns and from specific transactions, events or judgments of the business. q. Transparency: existence of a robust tax control framework within which the individual acts of disclosures take place

KEY COMPONENTS OF A ROBUST TAX CONTROL FRAMEWORK Ø Tax Strategy : explicitly documented and owned by senior management. Ø Comprehensiveness: must encompass all transactions and positions/judgments capable of affecting the tax liabilities of the enterprise. Ø Responsibility: Board and top management must take responsibility for the design, implementation and effectiveness of the tax control framework.

KEY COMPONENTS OF A ROBUST TAX CONTROL FRAMEWORK (Cont’d) Ø Governance: existence of an explicit set of rules for identifying, reporting and addressing transactions, positions and events that may result in noncompliance and/or need to be the subject of a disclosure. Ø Testing: regular processes for testing and maintaining compliance with the policies and processes of the control framework. Ø Assurance to external stakeholders including the tax administration that tax risks are properly controlled and that tax returns and disclosures of the taxpayer are reliable.

COOPERATIVE COMPLIANCE MODEL IN GHANA? ? ? q No formally-structured Cooperative Compliance Model in place q Several features of the Cooperative Compliance concept are however applied within the tax administration system. q Current Strategic Plan of the Ghana Revenue Authority (2015 -2017) has the following Strategic Goals: Ø Optimal revenue collection in a cost effective manner; Ø Responsive Client Service; Ø Compliance with Statutory non-revenue obligations; Ø A transparent tax environment to enhance Voluntary Compliance; Ø A professional and credible organisation q Some specific Strategies/Activities of the Strategic Plan reflect some Cooperative Compliance principles.

GHANA: OVERVIEW OF CURRENT APROACH TO COMPLIANCE - BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE q Relationship between Ghana Revenue Authority (GRA) and large business taxpayers: ØIn-between “Adversarial” and “Cooperative” q Tax risk management: Ø GRA systematically applies a manual system and an electronic system to assess the risk levels of taxpayers Ø Taxpayers are risk-profiled based on a set of identifiable risk parameters which are assigned scientific-based risk indices and used to determine the overall risk levels of taxpayers. Ø Same concept applied for both the manual and

OVERVIEW OF CURRENT APROACH TO COMPLIANCE (BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE) – Cont’d Ø Criteria applied in deciding on which taxpayers or tax issues to be audited include; ü Type/Nature of business sector, ü Business turnover ü Complexity of business operating systems, ü Business structure- branches, related persons, group membership, ü Quality/Capacity of management, ü Ownership and Control ü Use of the services of professional tax, legal, or management consultants ü Compliance history (e. g. submission of returns, tax payments, outcomes of previous audits etc. ) ü Taxpayers’ internal control systems,

OVERVIEW OF CURRENT APROACH TO COMPLIANCE (BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE) – Cont’d Ø Openness of the criteria for audit selection: ü Criteria and audit procedures documented in the Audit Manual and operational directives and are known to audit staff, ü Knowledge of the Criteria by the business community is generally very limited Ø Allocation of audit resources (staff capacity, time and logistics) is based on the determined risk levels of taxpayers; more resources allocated to taxpayers with higher risk levels. Ø Personal targets for tax auditors based on additional revenue to be assessed? : - Applicable, due to current staff performance appraisal system where audit assessments raised constitute a significant KPI for audit staff.

OVERVIEW OF CURRENT APROACH TO COMPLIANCE (BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE) – Cont’d q Commercial awareness: Ø Technical training programs frequently organized but there are no structured staff capacity-building programs targeted specifically at building up “commercial awareness” in specific business types/sectors. Ø Pre-audit preparations – routinely carried out by audit staff in line with the Audit Manual and operational directives; Ø Limited in-depth study of industry-specific characteristics of taxpayers’ business environment. Ø Industry-specific trends and indices are generally applied in audit assessments.

OVERVIEW OF CURRENT APROACH TO COMPLIANCE (BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE) – Cont’d q Impartiality – the audit process and outcomes: Ø Audit process involves standard work programs and subjected to a scheme of supervisory reviews and approvals to ensure consistency. Ø A mix of Management Assurance procedures (including audit re-performance) applied for checks and balances to guarantee impartiality of decisions taken and fairness of audit outcomes. Ø Audit findings/decisions and assessment are discussed with taxpayers before audit closure. Ø Industry-specific trends and indices are applied generally in computation of audit assessments. Ø The Tax laws provide opportunities for taxpayers to object to audit outcomes with structured appellate procedures.

OVERVIEW OF CURRENT APROACH TO COMPLIANCE (BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE) – Cont’d q Impartiality- Alternative Dispute Resolution (ADR) : Ø There as yet no definite provisions in the tax laws for ADR mechanisms/procedures. Ø Tax disputes are generally settled by negotiation/mediation between GRA and the aggrieved taxpayer, often involving taxpayer’s tax/legal representative. q Responsiveness Ø The tax laws provide time limits for responses to taxpayers’ submissions and requests. This is complimented by the GRA Service Charter. Ø The tax laws provide some discretionary powers for extension of the time limits by GRA and conditions for such

OVERVIEW OF CURRENT APROACH TO COMPLIANCE (BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE) – Cont’d q Openness and transparency of tax administration: Ø The tax law has provisions for taxpayers to obtain legally binding advance/early tax rulings from the GRA. Ø A taxpayer may apply in writing to the GRA for a private ruling with respect to a transaction proposed or entered into by the taxpayer. Ø GRA is obliged to communicate such private ruling in writing to the applicant within a specified period. Ø A private ruling is binding on both taxpayer and the GRA and may be amended or revoked by the GRA under defined circumstances.

OVERVIEW OF CURRENT APROACH TO COMPLIANCE (BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE) – Cont’d q Openness and transparency of taxpayers Ø Taxpayers are obliged by law to provide specified additional information in submission of returns (e. g. under the transfer pricing rules/procedures) Ø Taxpayers may also make voluntary disclosures of additional information to the GRA. Ø Mandatory disclosure rules: ü The legal framework provides for disclosure of related party transactions including transactions pertaining to transfer pricing, income splitting, thin capitalization issues.

OVERVIEW OF CURRENT APROACH TO COMPLIANCE (BASED ON THE COOPERATIVE COMPLIANCE QUESTIONNAIRE) – Cont’d q Openness and transparency of taxpayers mandatory disclosure rules: ü The GRA can request additional information, including from third party sources, in suspected cases of tax avoidance and may re-characterize transactions determined to be aggressive or abusive. ü Ghana’s Revenue Administration Law, the Income Tax Act, 2015 (Act 896) and the Transfer Pricing Regulations 2012 (LI. 2188) provide further details. v A definite Cooperative Compliance Model would be a useful addition to the operational strategies of the GRA within the scope of the current Strategic Plan and beyond.

END OF PRESENTATION THANKS FOR YOUR ATTENTION AND PARTICIPATION niiayiaryeetey@yahoo. com