What is the job of a tax administration?
Tax administrations implement tax law. Their main task is to deal with taxpayers and collect the right amount of tax. The most significant taxes governed by national and/or EU tax law are Value Added Tax (VAT), Corporate Income Tax and Personal Income Tax.
In the EU, tax administrations of Member States are organised as separate agencies or are integrated into or are subordinated to the Ministry of Finance. In almost half of the EU countries, tax and customs authorities are merged.
EU national tax administrations have around 450,000 employees.
They collect, on average, 60% of the total government revenue, with significant variations among Member States, ranging from 29 % to 94 % (source: OECD data). Tax administrations are also in charge of collecting the, so-called, EU own resources for the EU budget based on VAT.
While tax administration is a competence of Member States, it is relevant for the EU as a whole. Tax administrations are among the main players for ensuring the level playing field in the Single Market because any failure to comply with tax obligations - especially tax fraud - has a distorting effect on competition. Equally, the ease of paying taxes and being compliant contribute to the competitiveness of European companies, while predictability and legal certainty encourage investment.
All tax administrations are confronted with a growing complexity of tax systems, new economic models, changing relationships with taxpayers, emerging digitalisation, data and technology and, recently, the COVID-19 pandemic.
Tax administrations in the EU have an important role to play in the internal market and need to be performant to overcome challenges of all kinds.
How does a tax administration know that it is fit for the job?
Several tools are available for tax administrations to evaluate their performance, such as the Tax Administration Diagnostic Assessment Tool (TADAT).
It is designed to provide an objective assessment of the health of key components of a country’s system of tax administration. The result of such assessment reveals where a tax administration has to take action and improve its performance through reforms.
Which EU initiatives help improving tax administrations’ performance?
Tax administrations can make use of various EU tools to design, implement and support reforms. The Commission actively supports Member States’ tax administrations in these endeavours.
Within the EU tax administrations, there is a lot of knowledge and experience available. Sharing good practices, joining forces and working closely together have proven to be efficient and effective ways of making tax administrations stronger. The Fiscalis Programme of the EU is especially designed to facilitate and finance these activities.
The Heads of EU tax administrations discuss their needs and reforms within the TADEUS informal cooperation framework. Their common projects improve all EU tax administrations’ performance and operational cooperation.
Tax administrations can also obtain support under the Technical Support Instrument (TSI) of the EU. It provides tailor-made technical expertise to EU Member States to design and implement reforms.
In addition, the Recovery and Resilience Facility (RRF) has been key for helping Member States mitigate the economic and social consequences of the COVID-19 crisis. It supports, among others, the digitalisation of tax administrations.
In which areas have the EU Commission and Member States recently been active?
The Compliance Risk Management (CRM) Guide is a handbook for EU tax administrations, recently revised to better position the compliance risk management in the digital era. The guide outlines the pillars of CRM strategies, from influencing taxpayer behaviour, over all CRM process to making optimum use of digitalisation, data and technology.
The CRM Capability Maturity Model is a tool enabling tax administrations to assess and understand their current CRM capability maturity levels, define what level they want to achieve, identify the gaps, set objectives, and identify and prioritize actions for key improvements, all with the aim of increasing taxpayer compliance and prevent non-compliance.
There is also an electronic tool designed for using the CRM CMM. It is self-guided and supports the application of the model. The electronic tool is only available to authorized people, e.g. through national contact person for risk management.
The Outcome Measurement tool in compliance risk management, is an instrument that can be helpful in a tax administration’s toolbox, as it delivers a ‘standard’ for outcome measurement in practice. It enhances a given CRM strategy by helping to describe if and to what extent the tax administration, by its actions, has achieved the desired objectives. The tool sets out the place of outcome measurement within a coherent evidence-based compliance risk management strategy, examines the strengths, weaknesses, opportunities and threats (SWOT) of outcome measurement and provides practical guidance on how to start. The report contains numerous examples of the measurement of outcomes on various levels within a tax administration (strategic, tactical and operational).”
A range of Strategic Guidelines on Trust Building in Tax Administrations (2020) were formulated to reinforce Trust-based strategies in the different EU Tax Administrations. A high degree of Trust in a national tax administration comes with a higher degree of voluntary compliance amongst taxpayers. Ensuring trust-enhancing organizational processes as well as working procedures and initiatives is key to fulfill the strategic objectives any tax administration has set for itself. The 9 thematical guidelines offer a non-exhaustive list of recommendations for any tax administration to work on both internal and external trust. The devoted website refers to the theoretical evidence in the field of tax compliance and draws up illustrative examples of trust-oriented practices across the EU-members states’ tax authorities