EU — Council conclusions on tax and development

Coun­cil con­clu­sions on tax and devel­op­ment — coop­er­at­ing with devel­op­ing coun­tries in pro­mot­ing good gov­er­nance in tax mat­ters

3023rd FOREIGN AFFAIRS Coun­cil meet­ing — Lux­em­bourg, 14 June 2010 The Coun­cil adopt­ed the fol­low­ing con­clu­sions:
” 1. Mobil­i­sa­tion of domes­tic resources for devel­op­ment through effi­cient and fair tax sys­tems is cru­cial for sus­tain­able growth, reduc­ing aid depen­den­cy, pover­ty reduc­tion, good gov­er­nance and state build­ing, includ­ing the pro­vi­sion of pub­lic ser­vices required to achieve the Mil­len­ni­um Devel­op­ment Goals (MDGs). Effi­cient and fair tax sys­tems are inte­gral to democ­ra­cy, pro­mote state legit­i­ma­cy and strength­en the social con­tract and account­abil­i­ty between gov­ern­ment and citizens.

2. Cap­i­tal flight, includ­ing tax eva­sion and avoid­ance, and illic­it finan­cial flows have been iden­ti­fied as a major obsta­cle to domes­tic resource mobi­liza­tion. This is facil­i­tat­ed by tax sys­tems vul­ner­a­ble to harm­ful tax prac­tices and non-coop­er­a­tive juris­dic­tions, and requires joint efforts from devel­oped and devel­op­ing countries.

3. The Coun­cil wel­comes the Com­mis­sion Com­mu­ni­ca­tion on “Coop­er­at­ing with Devel­op­ing Coun­tries on Pro­mot­ing Good Gov­er­nance in Tax mat­ters” 1, and sup­ports its pro­pos­als with the fol­low­ing objectives:

a) Strength­en sup­port to tax sys­tems and domes­tic rev­enue mobi­liza­tion in devel­op­ing coun­tries, in the con­text of its broad­er efforts to pro­mote and imple­ment prin­ci­ples of good gov­er­nance and pub­lic finance man­age­ment in these countries; 

b) Pro­mote the prin­ci­ples of good gov­er­nance in tax mat­ters, work towards a trans­par­ent and coop­er­a­tive inter­na­tion­al tax envi­ron­ment and sup­port devel­op­ing coun­tries to fight against tax eva­sion and oth­er harm­ful tax practices.

4. Devel­op­ing coun­tries have pri­ma­ry respon­si­bil­i­ty for build­ing and improv­ing effi­cient and fair tax sys­tems and com­mit­ting the nec­es­sary resources there­to. The EU and its Mem­ber States will sup­port devel­op­ing coun­tries in tax pol­i­cy, tax admin­is­tra­tion and tax reforms, includ­ing the fight against tax eva­sion and oth­er harm­ful prac­tices. This sup­port may in par­tic­u­lar assist in tack­ling domes­tic and inter­na­tion­al chal­lenges that ham­per devel­op­ing coun­tries’ capac­i­ty to raise tax rev­enues with a view to sup­port nation­al reform agen­das, on issues such as to:

a. Address the ade­quate lev­el of, and bal­ance between, direct and indi­rect tax­es, the scope of the tax base and the suit­able dis­tri­b­u­tion of the tax bur­den, bear­ing in mind the country’s eco­nom­ic struc­ture, its poten­tial for gen­er­at­ing sus­tain­able rev­enues and the goal of ensur­ing social cohesion;

b. Incor­po­rate the infor­mal econ­o­my to the for­mal one, draw­ing sus­tain­able invest­ments that gen­er­ate decent work, and pro­mot­ing small and medi­um enterprises;

c. Give tax admin­is­tra­tions, includ­ing at local lev­el, the nec­es­sary means and strength­en capac­i­ty to effec­tive­ly process tax infor­ma­tion and ensure tax com­pli­ance for all eco­nom­ic actors, nation­al and international;

d. Analyse pub­lic finance impli­ca­tions of the tax ben­e­fits giv­en by devel­op­ing coun­tries to attract investment;

e. Sup­port for nation­al over­sight bod­ies, Par­lia­ments and their tech­ni­cal exper­tise, and non­state actors, so as to enable them to assess and mean­ing­ful­ly con­tribute to for­mu­la­tion and over­sight of nation­al bud­gets, includ­ing of domes­tic rev­enues from tax col­lec­tion and from resource extrac­tion, to ensure pub­lic scruti­ny of pub­lic finan­cial man­age­ment, as well as to the fight against tax fraud and its impact.

5. The archi­tec­ture of bud­get sup­port pro­grammes and activ­i­ties facil­i­tates the use of pol­i­cy dia­logue, per­for­mance mea­sure­ment and capac­i­ty sup­port to strength­en tax sys­tems and to increase the domes­tic rev­enues. The pro­ce­dures and tools designed for PFM (Pub­lic Finance Man­age­ment) are also rel­e­vant for improv­ing rev­enue mobi­liza­tion. The Pub­lic Expen­di­ture Finan­cial Account­abil­i­ty (PEFA) frame­work, which includes indi­ca­tors on rev­enue, offers one avenue for this. 

c. Reduc­ing incor­rect trans­fer pric­ing prac­tices, includ­ing by pay­ing spe­cial atten­tion to the devel­op­ment of local audit capac­i­ties. The EU will pro­mote research on inno­v­a­tive approach­es to help devel­op­ing coun­tries to assess lia­bil­i­ties of their tax­pay­ers at low cost, and sup­port the adop­tion and the imple­men­ta­tion of the OECD Guide­lines on Trans­fer Pricing;

d. Pro­mot­ing asset recov­ery by, inter alia, sup­port­ing the Stolen Assets Recov­ery (StAR) ini­tia­tive which is regard­ed as a valu­able ini­tia­tive in this field;

e. Inter­na­tion­al Finan­cial Insti­tu­tions (IFIs):
• Fol­low­ing inter­na­tion­al com­mon cri­te­ria con­cern­ing invest­ments in non-coop­er­a­tive juris­dic­tions accord­ing to the G20 State­ment. Progress made in this field by the EIB should serve as a bench­mark. IFIs must car­ry out a broad based due dili­gence to avoid that EU funds are being used direct­ly or through Off­shore Finan­cial Cen­ters, so-called tax havens or any oth­er juris­dic­tion, for the pur­pose of evad­ing tax pay­ment to ben­e­fi­cia­ry coun­tries and EU Mem­ber States or in con­nec­tion with tax fraud and avoid­ance;
• Includ­ing in the Reports on Obser­vance of Stan­dard and Codes (ROSCs) (i) whether or not a coun­try is com­mit­ted to the exchange of tax infor­ma­tion and (ii) whether or not a coun­try treats fraud as a crim­i­nal offence that requires a report such as it is the case with mon­ey laundering.

9. Par­tic­i­pa­tion of devel­op­ing coun­tries in the struc­tures and pro­ce­dures of inter­na­tion­al tax coop­er­a­tion should be strong­ly encour­aged. The Coun­cil sup­ports the adop­tion and imple­men­ta­tion of inter­na­tion­al stan­dards cur­rent­ly dis­cussed in inter­na­tion­al fora, includ­ing in the Unit­ed Nations and the OECD, with a greater involve­ment of devel­oped coun­tries, emerg­ing economies and devel­op­ing coun­tries, and with a stronger involve­ment of all in the Inter­na­tion­al Tax Dia­logue and Inter­na­tion­al Tax Compact.

10. The Coun­cil will review progress in imple­ment­ing these actions and calls on the Com­mis­sion to facil­i­tate this process by cov­er­ing these aspects in the Mon­ter­rey report.” ———————————- 1 Doc. 8891/10

Coun­cil of the Euro­pean Union 

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