The OECD’s Recent Efforts on Measuring and Understanding Tax Morale

On April 10, 2019, the OECD invited interested parties to provide comments on its draft working paper “What is driving tax morale – Public Consultation Document”. The public comments received is part of an ongoing effort for the OECD to understand tax morale, which measures taxpayer perceptions and attitudes towards paying and evading taxes, from the perspective of individuals and businesses.

The draft report is an update to the 2013 OECD study on “What drives tax morale?”, which provides analysis of various surveys that examine tax morale. These findings led to the 2015 release of “Building Tax Culture, Compliance and Citizenship”, which outline strategies for tax authorities to improve tax compliance, tax morale and taxpayer education.

The OECD Task Force on Tax and Development have to date taken three actions related to its work on tax morale. The group first organized and held a conference on the “Role of Tax Morale in Development” on January 25, 2019. The conference included a summary presentation of its initial findings on tax morale. The presentation separated the factors and drivers of tax morale for individuals and for businesses. Particularly for multinational enterprises (MNEs), the presenters used data from an OECD survey on tax certainty as a proxy for tax morale, which found that most companies want to comply but desire predictability. Tools described by the group to improve predictability and certainty included detailed guidance in local tax regulations, reduced frequency of changes in tax legislation and effective dispute resolution procedures. The group also released a “Statement of Outcomes” following the conference.

Next, the OECD organized an event on March 19, 2019 on “Tax Morale and Integrity in Developing Countries”, which brought together experts to brainstorm “issues of integrity, transparency and trust in the tax system, and the research, tools and approaches needed to identify and implement policies to increase tax morale.”

As mentioned above, the OECD then released its public consultation document and asked for comments by May 10, 2019. Related specifically to tax morale in business, the document included discussion on why tax morale is important, an overview of existing research (using tax certainty as a proxy for tax morale), sources of tax uncertainty, tools to foster tax certainty, lessons learned about tax morale and policy considerations for developing countries. The OECD recently published public comments to the document, which included responses from 14 participants.

Some of the common themes related to tax morale arising from business commentary included:

  • Identification of factors that may improve tax morale for businesses (i.e., investment certainty, transparency, clear compliance legislation);
  • Discussions of other ways tax morale in businesses might be evaluated beyond tax certainty, including tax compliance research, evaluating the impact key executives’ view on tax morale and measuring trust in the tax system; and
  • Recommendations to the OECD to broaden its scope to include tax morale in developed countries. Many commenters mentioned that tax morale for MNEs is also an important issue for developed countries. The public consultation document explicitly states it focuses on “developing countries where the Sustainable Development Goals (SDGs) and Addis Ababa Action Agenda (AAAA) have made clear the need to support more effective and efficient domestic resource mobilization (DRM).” Commenters highlighted that developed countries are included in many of the statistics used and SDGs are not limited to developing countries.

The OECD is expected to release a final publication on tax morale later this year and intends to update the 2015 tax strategy document on “Building Tax Culture, Compliance and Citizenship” in 2020.

Read Transfer Pricing Times – May 2019

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