Closing Remarks by Mr. Tamaki, OECD Deputy Secretary-General at the Second Meeting of the OECD Global Forum on Value Added Tax (VAT)
Tokyo, Friday, 18 April 2014
(As prepared for delivery)
Ladies and Gentlemen:
It is an honor to be here with you to conclude the second meeting of the OECD Global Forum on VAT. I would like to begin by thanking the government of Japan for hosting this event. Japan’s warm hospitality has been very evident throughout the past few days and the Japanese colleagues have done an exceptional job of organising such a unique event that many of us will remember for years to come.
I am delighted to see that this meeting has brought together more than 250 experts representing around 100 delegations from jurisdictions and international organisations around the world, as well as business representatives and top academia.
I welcome the dialogue and debate that has occurred over the past two days. It has been intense, extremely constructive and conducted in a genuinely inclusive spirit.
Your discussions have been stimulating and highly productive. Each of you will leave this Forum with new insights, reflections and conclusions.
I would like to focus briefly on three key findings of this Forum.
First, the international community is making excellent progress towards a more coherent VAT treatment of international trade.
Jurisdictions often use different VAT rules to determine which jurisdiction has the right to tax a cross-border transaction or they apply different interpretations of similar rules. Against the background of the strong growth in cross-border trade and the spread of VATs globally, these differences have led to considerable risks of double taxation and unintended non-taxation, creating severe obstacles for international trade and investment and hindering economic growth. Policy action to address this issue was urgently needed, and the OECD has therefore made it a key priority to develop consensus around internationally agreed principles for a coherent application of VAT to international trade.
The OECD has recently completed Guidelines on key aspects of VAT design and operation in business-to-business trade, which were discussed intensively at this Global Forum. These Guidelines provide standards on the neutrality of the VAT in international trade and on the coherent application of VAT to cross-border trade between businesses. I was delighted to learn that these discussions have resulted in the endorsement of the Guidelines by the Global Forum as a global standard! This represents a very significant step towards a more coherent and consistent application of VATs to international trade and reduced risks of double taxation and non-taxation. I congratulate you all on this historical achievement and I strongly encourage you to use these Guidelines as a point of reference when evaluating and developing your VAT rules and administrative practice.
The OECD now continues work on Guidelines for a more effective and coherent application of VAT to cross-border sales of services and intangibles to final consumers. This is another important area where unco-ordinated VAT regimes result in growing revenue risks for governments and distortion of competition between local and foreign businesses. This therefore needs to be addressed urgently. These Guidelines will be finalised in 2015 in time for their presentation for endorsement at the next meeting of the Global Forum in November 2015. The OECD will continue its inclusive process for the development of its VAT/GST Guidelines, involving all stakeholders worldwide. It is only by involving all stakeholders that a truly international standard can be developed and applied.
Second key finding of this Global Forum: VAT fraud has become a truly global issue. Effective strategies to combat VAT fraud need to build on strong international co-operation.
The message here is clear. VAT fraud has become more complex and increasingly international, involving companies around the world and complex cross-border structures. We have heard at this Global Forum that VAT fraud does not only affect government revenues, but that it can also distort entire markets such as the energy markets and the trade in carbon credits.
Given the increasingly international scope of VAT fraud, we need strong international co-operation to counter these criminal attacks on our VAT systems. We must ensure that tax authorities are informed as early as possible about fraud schemes and allow them to combat these schemes through the exchange of information with other countries. We must give tax authorities the opportunity to learn from successful strategies implemented by others to detect and address fraud. The case presented by the Portuguese Deputy State of Secretary during the Forum is an excellent example of the benefits of this type of information exchange. There is also considerable scope for improved mutual co-operation in the area of enforcement. This could notably include assistance in recovery and the organisation of simultaneous audits.
In this context, it is extremely important to note that the Convention on Mutual Administrative Assistance in Tax Matters, which has now been signed by over 60 countries and jurisdictions, also covers VAT matters and therefore provides an excellent platform for developing such improved international co-operation.
VAT fraud is clearly a key priority for many countries and the OECD stands ready to help governments establish effective and targeted countermeasures, including mechanisms for increasing information exchange and mutual co-operation.
The third and final point that I want to highlight is that the equity impact of VAT clearly remains a concern for countries around the world. We must continue efforts to address distributional concerns while safeguarding the efficiency of VAT in raising revenue.
It is widely accepted that a VAT can be regressive. A VAT can place a disproportionate burden on poorer households who spend a large part of their income on necessities. The response by many countries has often been to alleviate this burden by implementing reduced rates of VAT. It is widely known, however, that that reduced rates of VAT are a very costly means of alleviating the regressive effects of a VAT. This is because all consumers, not only low income households, benefit from these lower rates. This has now been demonstrated in more detail by new OECD research. This research also shows that a more effective and less costly way to provide assistance to low income households is to target any relief through the use of direct cash transfers, notably through the income tax or benefit system.
The political reality, however, is that policymakers may often see no other option than to use reduced rates, particularly in countries where the transfer mechanisms are not sufficiently developed to provide targeted transfers. While this political reality needs to be recognised, we must continue to encourage policymakers to look for balanced solutions that address equity concerns while at the same time enhancing the revenue efficiency of VAT systems. The OECD stands ready to assist policymakers in this challenging exercise!
Ladies and Gentlemen:
The global reach of VAT means that countries around the world have an interest in policy exchange and development of best practices. VAT is a major source of revenue for governments and the design of VAT regimes can thus have a significant impact on a country’s economic performance.
Let’s continue our efforts for more efficient and equitable VAT systems and for common standards to ensure their coherent application in an increasingly integrated global economy. You can continue to count on the OECD to help you design, promote and implement policies to foster growth and employment and to build stronger and fairer economies.