SouthNews: Capacity building for Latin American officials on international taxation

In a context where global challenges in tax matters are getting more complex and seem to affect almost all countries in the world, in March 2021 the South Centre organized two capacity building workshops for tax officials from Bolivia and Argentina.

The first workshop was for both countries and the second only for Bolivia’s tax officials. These were conducted under the South Centre Tax Initiative (SCTI) and covered a range of topics based on the requests made by the revenue authorities of these countries.

The first workshop titled Peer Exchange on Transfer Pricing, Mutual Agreement Procedure & CBCR Risk Assessment took place from 17-19 March 2021 and focused on the ways of resolving transfer pricing disputes through Mutual Agreement Procedure (MAP) and risk assessments based on Country by Country Reporting (CBCR) data.

The second workshop titled Peer Exchange on Negotiation of DTAAS, Digital Economy and Exchange of Information was held from 29-30 March 2021 and focused on the following topics: obtaining taxpayer information through exchange of information agreements, taxation of the digitalized economy and tax treaty negotiation.

The training took place through the SCTI’s unique Peer Exchange mechanism where tax officials from developing countries share their expertise with their peers. This approach seeks to promote South-South cooperation through the sharing of best practices and innovations between developing countries, as they face similar challenges and such practices are likely to be suitable to countries in comparable circumstances. Such exercises are also a display of solidarity amongst developing countries, especially in the important area of international taxation which helps countries raise increased amounts of revenue required to address multiple development needs, particularly in the context of the COVID-19 crisis.

The peer exchanges were delivered by tax officials from the governments of Indonesia and Brazil, and experts from the United Nations Committee of Experts on International Cooperation in Tax Matters (UN Tax Committee) and the South Centre.

Indonesia’s Directorate of International Taxation, under the leadership of its Director Mekar Satria Utama, shared its expertise on transfer pricing MAP and risk assessment based on CBCR data. Mr. Utama provided an overview of the management of transfer pricing in Indonesia and its institutional framework. Dwi Astuti, Deputy Director of International Taxation for Disputes Prevention and Settlement, explained the process involved in resolving MAP disputes and in negotiating Advanced Pricing Agreements. Indonesia’s average time for closing transfer pricing MAP cases is 28.65 months, ahead of the global average of 30 months. Martha Trisan from the Directorate of International Taxation highlighted the Indonesian regulations implementing Action 13 of the Base Erosion and Profit Shifting (BEPS) Project, which relate to transfer pricing documentation, specifically CBCR. The technology architecture to receive, store and process this information was also displayed.

Ardhie Permadi, Rizki Adhi Pratama and Qivi Hadi from the Directorate of Taxation Data and Information provided a detailed demonstration of how this data was used to select candidates for tax assessments and target these towards specific transactions and jurisdictions. The officials also displayed remarkable econometric models they had developed to quantify the magnitude of outbound profit shifting in Indonesia. The models provided a ‘score’ which indicated the risk that a multinational enterprise (MNE) was engaging in profit shifting activities. This saved valuable resources which could be directed towards auditing the most risky transactions and MNEs. Arman Imran, Andri Kusdianto, Krishna Triswara Wisnu and Fajar Hidayat from the Directorate of Taxation Data and Information showcased the advanced technologies and data analytics tools being deployed in using CBCR data, including a tool to capture the networks among related parties and shareholders and a compliance risk management system that showed the cases which were supervisory and audit priorities and hence deserving of a transfer pricing risk analysis.

The government of Brazil contributed to the peer exchange in the person of Pedro Augusto Frantz, Fiscal Auditor at the Secretariat of the Federal Revenue of Brazil’s (RFB) General Coordination of Programming and Studies. He presented Brazil’s experience in obtaining taxpayer data through exchange of information agreements such as Double Tax Avoidance Agreements, Tax Information Exchange Agreements and the Convention on Mutual Administrative Assistance in Tax Matters. The mechanisms involved and techniques employed in using this information proved valuable in ensuring that billions of dollars could be collected in revenue.

Eric Mensah, Co-Chairperson of the UN Committee of Experts on International Cooperation in Tax Matters, shared his personal experience as the lead treaty negotiator for Ghana and also the Co-Chair of the UN Tax Committee. He provided valuable lessons for fellow developing countries, including the need for establishing a dedicated international tax unit, investing in training of personnel and developing a tax treaty policy and model treaty before beginning the process of negotiation.

The South Centre’s experts also made presentations on treaty negotiations, transfer pricing, digital taxation and country-by-country reporting in both workshops.

The workshops were attended by more than 130 tax officials from Argentina and Bolivia. There was a rich exchange of views and technical discussions as officials benefited from the interaction.

From the peer exchanges the participants drew their own lessons. Some of the takeaways were as follows:

Experiences in other developing countries have shown that an International Tax Unit (where it does not exist) could be highly beneficial for the country.
Timely resolution of Mutual Agreement Procedure (MAP) disputes requires adequate human resources and perhaps even a separate unit. The benefits of these are faster and more efficient dispute resolution which improves the investment climate and unlocks revenue faster.
Advanced Pricing Agreements (APAs) must be prudently negotiated and care must be taken to ensure only taxpayers who have demonstrated proper tax compliance in the past and have proper documentation are eligible.
Econometric models can be used to more efficiently process large volumes of Country by Country Reporting data for conducting better risk assessment. It will help tax authorities focus on the riskiest taxpayers and transactions and effectively allocate scarce auditing resources. The attendant revenue gains will mean they benefit from investing more resources in improving their analytical capacity for CBCR data.
More of such South-South cooperation in international tax matters can lead to further sharing of innovations by developing countries which are more practical and suitable for adoption by their peers.

The importance of more involvement of developing countries in the review and development of international tax rules was also emphasized. The South Centre Tax Initiative’s activities are driven by the conviction that increased cooperation among developing country tax officials can also help identify areas of common interest in the international tax agenda, which will enable developing countries to arrive at consensus positions for norms and mutual action at the regional and global levels.

The South Centre offers capacity building services upon request at no cost to its Member States and to other low- and middle-income countries. The South Centre also partners with developing country institutions to jointly deliver the trainings. For more information, see https://taxinitiative.southcentre.int/ and contact us: taxcooperation@southcentre.int.

Authors:
Luis Fernando Rosales, Coordinator, Sustainable Development and Climate Change (SDCC) Programme, South Centre
Abdul Muheet Chowdhary, Senior Programme Officer, South Centre Tax Initiative, SDCC Programme, South Centre
Aaditri Solankii, Intern, SDCC Programme, South Centre

SOUTHNEWS