The Tax Inspectors Without Borders initiative sends tax experts to developing countries to help them boost their audit capacity and their tax take
This article was first published in the July/August 2017 international edition of Accounting and Business magazine.
Demand is growing for a programme that helps developing countries build up their tax audit capacity. A joint initiative of the Organisation for Economic Co-operation and Development (OECD) and the United Nations Development Programme (UNDP) set up in July 2015, Tax Inspectors Without Borders (TIWB) sees tax experts work side by side with local officials in developing and emerging markets. Through mentoring and advising, visiting experts not only help tax administrations tackle complex tax cases (such as those involving multinational corporations), but also build capacity, especially in tax audits.
James Karanja, head of TIWB’s Paris-based secretariat, says: ‘TIWB is a niche initiative offering complementary assistance to ongoing tax capacity-building programmes by means of a very practical, hands-on approach to development of skills in the area of tax audits.’ The idea is that ‘recruits learn best and build confidence by working on real situations under the watchful eye of their more experienced counterparts’.
The approach is working, Karanja says. ‘The growing demand for this sort of assistance has clearly demonstrated that [it] is addressing a gap in the realm of skills development for tax administrations in developing countries.
‘Besides increasing the knowledge and confidence of local tax auditors in conducting transfer pricing audits, the expert guidance provided has in some audits already resulted in increased revenue collected. Broader benefits, such as greater certainty for taxpayers and encouragement of a culture of compliance through more effective enforcement, are anticipated and will be determined as the programmes progress.’
There are no minimum or maximum periods for a TIWB audit assistance programme. They are, however, primarily short-term, with the expert providing intermittent on-site assistance. Each visit lasts at least a week, and the expert revisits at intervals, providing, for example, eight to 12 weeks’ audit assistance over a six to 12-month period. Experts may be currently serving in a national tax administration or recently retired. Karanja says TIWB currently has ‘an even mix of serving and retired officials’ and ‘a growing list of partner administrations willing to release their experts’.
The budget for a programme varies widely and depends on whether the expert is still working or retired, the cost of living in and travelling to the host country, the length of stay and whether it is full-time or periodic. While the host administration picks up the bill, TIWB funding is available, and partner administrations often cover deployment costs for their experts.
‘A limited number of countries are willing to commit their own funds towards paying for expert deployment costs,’ Karanja acknowledges, but various donors and partners help cover costs where budget constraints would leave the tax administration in the host country unable to meet the bill.
The improvements in tax audit knowledge and skills that result from the TIWB initiative have increased tax revenues; on average, the tax take of low-income countries is only 15% of GDP. An April 2016 progress report on TIWB directly linked more than US$185m raised in additional revenue for developing countries to the pilot phase of the project. Senegal alone reported an additional US$12.3m in tax income stemming from its TIWB programme. No surprise then that Karanja notes that the development community sees TIWB as ‘a viable means of providing technical assistance, as it directly empowers developing countries with the ability to generate resources domestically to finance their own development’.
The results of TIWB audit assistance to date are impressive, with more than US$278m extra revenue in total collected around the world up to April 2017. The current programme cycle, covering an expected 100 deployments, runs until the end of 2020, when the TIWB mandate will come up for review.
TIWB currently has programmes running in 13 African countries (see box on opposite page). ‘Demand for TIWB assistance is extremely high amongst governments around the world, but especially in Africa, given ongoing resource mobilisation challenges combined with high investment needs,’ Karanja says. The World Bank and the African Tax Administration Forum are providing auxiliary support for some of these programmes.
One such programme is in Liberia, where the economy is still recovering from a long-running civil war in the 1990s and early 2000s and from the Ebola virus outbreak. Darlingston Talery, domestic tax commissioner at the Liberia Revenue Authority (LRA), says: ‘One or two years ago, our audit programme was… randomly done, our audit cases were randomly selected. We were not auditing the multinationals because we did not have the expertise to audit them.’ There was, however, a belief among LRA officials that some multinationals operating in Liberia were evading tax. Talery says TIWB officials helped Liberian tax officials to identify the issues requiring more detailed attention and advised on how to handle them. A retired UK tax official, Colin Clavey, has been advising on the financial information to target, and how best to source that data, assess potential tax liabilities and plan a technical strategy; Clavey also sits in on audit meetings.
B Al-Dennis, natural resource unit supervisor at the LRA, says there is a clear long-term benefit: ‘What they are doing now is transferring skills. They are not just doing the audits for us. We all make inputs.’ And Liberia’s president Ellen Johnson Sirleaf has said that TIWB will help the LRA ‘become more efficient in managing our tax system’ and ensure more ‘revenue to support our development’.
Many TIWB programmes use tax experts from developed countries, but Karanja says: ‘We would like to encourage more women and experts from countries in the southern hemisphere to participate as a way of promoting diversity and south-south co-operation [where one developing country helps out another].’ Only two of the 21 ongoing TIWB programmes involve southern experts, and the secretariat is making every effort to promote more such cooperation.
One south-south TIWB initiative involves the Kenya Revenue Authority (KRA), which has sent an official to assist the Botswana Unified Revenue Service (BURS) as part of a programme that began in January. Karanja says: ‘Although the initiative is in its early stages, we are very pleased that Kenya already has showed its great commitment to send out its officials to assist other countries on the African continent.’
The other south-south initiative is an Asia project, where TIWB has been helping officials at Sri Lanka’s Inland Revenue Department (IRD) to build effective international tax auditing skills, particularly in transfer pricing, and to develop tax base erosion and profit-shifting (BEPS) auditing skills. Karanja says past technical capacity shortages have hampered IRD efforts to address BEPS and transfer pricing issues: ‘In 2014, the IRD asked the OECD to provide a long-term training programme on transfer pricing and international tax issues.’ An OECD tax expert – a former Colombian official – is organising workshops and has provided TIWB-style assistance on anonymised audit cases. This has helped IRD officials to counter crossborder tax avoidance and collect appropriate taxes from multinational enterprises, he says.
Meanwhile, in an Americas programme, TIWB tax consultants are training core staff from the technical, operations, legal and strategic departments at Tax Administration Jamaica (TAJ), as well as the tax policy and revenue appeals division of the ministry of finance. To date, about five training workshops with advance pricing agreement experts from Britain and Germany have been held. A TAJ note says the two-year upskilling programme will help local tax administrators responsible for the implementation and administration of transfer pricing provisions.
Bertha Rinjeu in Nairobi, Munza Mushtaq in Colombo, Colin Steer in Kingston, Jamaica, and Sara Lewis in Brussels, journalists
"What they are doing now is transferring skills. They are not just doing the audits for us. We all make inputs"