In this article we will discuss about:- 1. Introduction to Taxpayers’ Rights and Obligations 2. Fundamental Rights 3. International Conventions on Human Rights 4. OECD Report 5. Charter 6. Selected Rights 7. Comments.
- Introduction to Taxpayers’ Rights and Obligations
- Fundamental Rights of Taxpayers
- Taxpayers’ Rights under International Conventions on Human Rights
- OECD Report on Taxpayers’ Rights and Obligations
- Taxpayers’ Charter
- Selected Taxpayers’ Rights
- Comments on Taxpayers’ Rights and Obligations
1. Introduction to Taxpayers’ Rights and Obligations:
Taxation is necessary to finance public expenditures. The powers granted to tax authorities as well as individuals under various legislations (e.g. administrative rulings, statute or constitution) vary widely. There is also a need for protection for taxpayers. It includes protection of personal privacy and property, as well as confidentiality and penalties.
In a constitutional democracy, taxation is governed primarily by constitutional law. It determines who is taxed, how much and for what purposes? These are questions relating to the rule of law and the powers of the judiciary and the tax administration. These questions are fundamentally political in nature both in the domestic and international context.
In the latter case, they are also constrained by international treaty obligations and the principles of public international law. The rule of law ensures that they follow the processes laid down by statute. It determines both the process of taxation and its enforcement.
A tax system must be rule-based. The rule of law requires a strict interpretation of the tax law to provide legal certainty. It also requires that the relationship between the government and its nationals be governed by law.
Moreover, the laws must be made through proper constitutional procedures by the legislature or government agencies under delegated lawmaking powers, and they must be applied uniformly. No organization or individual should be above the law. Therefore, government, its agencies and private citizens must all abide by the law.
A fundamental principle affecting tax law is that all taxes must be based on a law made by the legislature (i.e. no taxation without representation), and they should not be determined by administrative or judicial discretion.
Taxes follow the laws passed by the law-making body or the parliament of a country, and they are not be bound by the views of supranational bodies (e.g. the OECD or UN). Each country has fiscal sovereignty within its jurisdiction.
The law must define the substantive elements of the tax the taxable event, the parties subject to tax, the method or system of assessment of the tax base, the tax rates for determining the tax liability, the exemptions and the violations of tax and penalties, etc.
The law must also be interpreted by an independent judiciary, whose decisions must be binding on both the government and its agencies and the citizens. Thus, both taxpayers and tax administrations are bound by the Courts and their interpretation of the law and the Courts thereby protect the tax system and the taxpayer.
In brief, governments and their agencies must act by laws and not decrees, and they must comply with the laws passed by parliament. Taxpayers must have legal certainty. They should be able to predict in advance and with sufficient certainty the tax consequences of their actions.
Courts should be able to deem the tax laws void if they are vague. In many countries, taxpayers are entitled to organize their affairs to minimize their taxes (Examples: Australia, Belgium, India, United Kingdom, and United States).
In some countries, e.g., Belgium and France, the right to choose the least taxed option is a constitutional right. France does not allow a challenge to the tax provisions under its Constitution.
2. Fundamental Rights of Taxpayers:
Some of the fundamental rights of taxpayers include:
(a) Legal Certainty:
Legal certainty limits the power of the tax authorities. It ensures that an individual taxpayer is not subjected to abusive or arbitrary actions by the tax authorities. It allows the taxpayer to predict with some confidence his tax liabilities and obligations and entitles him to assume that these rights cannot be changed arbitrarily.
It protects taxpayers procedurally against coercive measures, breach of confidentiality and provides for the right of appeal. Legal certainty also ensures respect for the finality of legal judgments and the time limits for legal and administrations actions.
The principle of legality enforces the rule of law. The general principle of international law requires that persons are entitled to the peaceful enjoyment of their possessions, except as provided by law.
Under the constitutional law in most countries any act involving taxation must have parliamentary approval, i.e. no taxation except under the authority of law. Legal certainty ensures that taxes are imposed only when permitted by law and the taxpayers only pay the amount required by law.
Some countries follow the general principle of legal certainty that the tax authorities cannot negotiate or reduce the tax liability of the taxpayer. The tax law must be strictly applied to all taxpayers. Some other countries permit it (Example: plea bargaining in the United States).
(b) Principle of Non-retroactivity:
Legal certainty also denies many states the right to make retroactive changes in the law. The taxpayer has the right to know the tax consequences of his economic decisions. Any subsequent tax change with retroactive effect is unfair and affects his rights.
Several countries do not permit legal changes with retroactive effect under their constitution or civil law unless in the overriding interest of public order (Examples: Germany, Mexico, Paraguay, Russia, Slovenia, Sweden, Venezuela), while others allow them (Examples: Australia, France, India, United States). Countries that permit it usually have some limitations.
In France, retrospective legislation cannot be penal or affect cases already decided by the Courts. The US Constitution also prohibits retrospective criminal legislation. In Germany, retroactive tax legislation is permitted where the present legal position of the taxpayer is unreasonable or the impact negligible, or where the law was unclear or technically deficient, or in cases of overriding public necessity.
Many countries treat this principle not as a binding policy but as a principle for the legislature to follow. Retroactive civil legislation is often used to close tax loopholes or to make “technical corrections” in the tax law. Retrospective legislation has been considered by the European Court of Human Rights in several cases.
In each case, it has held that the legislation was consistent with the guarantees provided in Article 1 on Protection of Property. Retroactive criminal legislation, e.g., creation of an offence or increase in criminal sanctions is normally not permitted.
(c) Principle of Equality and Taxpaying Capacity:
The principle of equality ensures that the tax law must be applied completely and impartially, regardless of the status of the person involved, without exception to all those in the same circumstances.
Equality does not mean identical but equality among persons who are in the same position. They must be equal from a legal and factual perspective as well as having the same taxpaying capacity.
This principle legitimises taxation by the government as against the citizen’s duty to finance government expenditure. However, it also limits the government’s tax-creating powers where there is no present, actual or effective taxpaying capacity. Taxes must not be confiscatory.
A tax is confiscatory if it takes up a substantial or unreasonable portion of the income of the taxpayer. It must be based on proportionality or the real economic capacity or ability to pay.
(d) Right to Due Process and Procedure and Adequate Judicial Review:
Taxpayers’ rights may be substantive or procedural. The former relates to the validity, operation and application of the tax law itself. It provides for protection from discrimination, excessive taxation and retroactive legislation.
It deals with legislative and administrative measures, collection of taxes and enforcement issues. For example, authorities are obliged by law to keep taxpayers’ data confidential and not to disclose them to third parties.
In matters of transfer pricing, disclosure is considered a crime in many countries. Exchange of tax information or its disclosure is only permitted by judicial request or under specific agreement (e.g. tax information exchange agreement or TIEA).
A taxpayer has the right to a defence in a Court of law as well as in administrative proceedings on tax matters. This right includes access to the Courts, as well as the right to be heard; the right to offer and present evidence; and the right to a duly substantiated decision. These rights do not need regulatory provisions.
(e) Some Other Rights:
According to the 1994 OECD Report, taxpayers’ rights also include the rights on exchange of tax information, such as:
i. Right to be informed of an information request and on its essential content (notification),
ii. Right to participate in the process of gathering information (consultation), and
iii. Right to appeal and to control the legitimacy of the request (intervention).
In many countries, these rights under the domestic law are also subject to International Conventions on Human Rights.
3. Taxpayers’ Rights under International Conventions on Human Rights:
Certain international conventions also ensure that taxpayers receive procedural safeguards and proportional treatment where the domestic law does not provide them or is inadequate.
Under the various international agreements on human rights, everyone has a right to a hearing within a reasonable time by a competent, independent and impartial tribunal established by law. Therefore, taxpayers have effective judicial protection of their rights under these agreements.
The main human right conventions affecting taxpayers are:
(a) European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR, 1950):
ECHR makes a specific reference to taxation in Article 1 of the first Protocol on “protection of property”.
The Article States:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by the law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other distributions or penalties”.
The Article states in its second paragraph that the right of a State to enforce its tax laws is unaffected. However, it must satisfy the underlying principles of the Convention. The tax must be imposed according to the law, it must serve a valid purpose in the public or general interest, and the provisions adopted must be a reasonable and proportionate means to achieve that end.
Therefore, it is only justified when it is according to law, necessary for a democratic society, and is not disproportionate.
The Court has also dealt with several tax cases on procedural issues. They include information gathering by tax authorities (e.g., telephone taps and home searches), tax appeals and enforcement of tax liabilities.
Legal guarantees include the right to a Court or independent and impartial tribunal or, public hearing and determination within a reasonable period. In criminal cases, the taxpayer has the right to innocence, presumption of innocence, legal aid, etc.
Broadly, the Convention is consistent with the general principles of EU Law, namely effectiveness, equality, proportionality, legal certainty, and legitimate expectations and the protection of fundamental rights.
Examples of ECHR cases where no breach was found include a search of the taxpayer’s house and office, the taxpayer’s ex-wife’s house and bank premises; request for reimbursement of personal expenses of the taxpayer; exchange of information between Revenue authorities, etc.
The enforcement of tax liabilities was upheld in cases involving withholding tax, seizure of property in the taxpayer’s possession and personal liability for company’s taxes in criminal cases. The right to a fair trial under Article 6 does not include the right to silence or the right to incriminate oneself.
In Funke v France (Case 25/2/93 Series A No. 256-A), the Court found that those rights were necessary for a fair trial in a custom duty case. The law must be sufficiently clear to allow the individual to be aware of his rights and duties (Spacek v Czech Republic – Appln. No. 26449/95).
(b) United Nations International Covenant on Civil and Political Rights (ICCPR, 1966):
The Convention is supervised by the UN Human Rights Committee. Currently, of the 145 signatory states, which are party to the Covenant, 95 states recognize the right of petition. Although many of the provisions are similar to the ECHR, so far they have decided on only a few tax cases.
4. OECD Report on Taxpayers’ Rights and Obligations:
Most countries have laws governing taxpayers’ rights and obligations in relation to taxation. In 1990, the OECD Committee of Fiscal Affairs published a document entitled “Taxpayers’ Rights and Obligations – A Survey of the Legal Situation in OECD Countries”. The survey showed that the basic taxpayer rights and obligations were present in all systems.
Basic Rights and Obligations:
(i) Basic Rights:
(a) Right to be Informed, Assisted and Heard:
Taxpayers are entitled to have up-to-date information on the operation of the tax system and the way in which their tax is assessed. They are also entitled to be informed of their rights, including their right of appeal. Taxpayers can expect that the information provided to them should reflect the complexity of the tax situation, thereby enabling them to understand better their tax affairs.
(b) Right of Appeal:
The right of appeal against any decision of the tax authorities is granted to all taxpayers, and on almost all decisions made by the tax authorities, whether as regards the application of the law or administrative rulings, provided the taxpayer is directly concerned.
(c) Right to Pay no More than the Correct Amount of Tax:
Taxpayers should pay no more tax than is required by the tax legislation, taking into account their personal circumstances and income. Thus, while it is acceptable to reduce the tax liability by legitimate tax planning, governments make a distinction between this form of tax planning and forms of tax minimization, which clearly go against the intent of the legislator.
Taxpayers are also entitled to a reasonable assistance from the tax authorities so that they receive all the reliefs and deductions to which they are entitled.
(d) Right to Certainty:
Taxpayers have a right to a high degree of certainty as to the tax consequences of their actions. However, certainty is not always possible. For example, taxpayers may not always know in advance the effect of rules that are dependent on the facts and circumstances in a particular case.
In addition, tax authorities may not be obliged to provide the taxpayer with certainty in relation to the application of anti- abuse provisions aimed at taxpayers seeking to circumvent the intent of the legislation.
However, it is clearly a goal that taxpayers should be able to anticipate the consequences of their ordinary personal and business affairs. Achieving this goal is often difficult because modern tax systems are complex and evolving.
(e) Right to Privacy:
All taxpayers have the right to expect that the tax authorities will not intrude unnecessarily upon their privacy. In practice, this is interpreted as avoiding unreasonable searches of their homes and requests for information that is not relevant for determining the correct amount of tax due.
Generally, strict rules apply to the entry into a person’s dwelling or business premises by a tax official in the course of a tax investigation and on obtaining information from third parties.
In some countries, visits to a taxpayer require the consent of the taxpayer; in the majority of countries, a signed warrant is generally required to enter the home of a taxpayer who objects to a visit by the tax authority. Similarly, strict rules apply to obtaining information from third parties on the affairs of a taxpayer.
(f) Right to Confidentiality and Secrecy:
The information available to the tax authorities on the affairs of a taxpayer is confidential and must only be used for the purposes specified in the tax legislation. Tax legislation usually imposes very heavy penalties on tax officials who misuse confidential information and the confidentiality rules that apply to tax authorities are far stricter than those applying to other government departments.
(ii) Basic Obligations:
(a) Obligation to be Honest:
If most taxpayers did not pay most of their taxes most of the time, a tax system would be placed under a severe compliance strain and governments would be unable to finance the expenditures voted for by their citizens.
Taxpayer honesty is therefore fundamental to the operation of any tax system and all systems have investigatory powers with penalties and sanctions in place to cater for instances where a taxpayer does not comply. Accordingly, taxpayers should always exercise reasonable care and diligence in attempting to comply honestly with their tax obligations.
The exercise of penalties and sanctions by Revenue authorities should take into account any evidence as to the reasons for non-compliance. Errors can arise from honest mistakes, particularly with complex tax requirements, from ignorance about tax obligations or, in some instances, from the taxpayer being prevented from complying by some event outside their control, such as a natural disaster.
Factors influencing levels of taxpayer honesty should be taken into account in the design and administration of a tax system. Perceptions about the fairness and equity of a tax system and a taxpayer’s prior treatment by officials from the revenue authority can influence their future honesty.
(b) Obligation to be Co-operative:
Modern tax systems can only function effectively if there is a high degree of voluntary compliance, keeping the need for enforcement activity to a minimum.
Co-operative behaviour on the part of most taxpayers allows the government to run the taxation system at a relatively low cost and minimizes unnecessary intrusion into taxpayer affairs and those of third parties. Hence, taxpayers are encouraged to co-operate with relevant revenue authorities in attempting to comply with their tax obligations.
(c) Obligation to Provide Accurate Information and Documents on Time:
All taxation systems use information provided by taxpayers to identify the taxpayer and to account for taxes paid or payable. Most tax systems rely on taxpayers filing particular documents on time to enable taxes to be properly recorded and debits or credits to be issued.
Thus, taxpayers should provide accurate information to Revenue authorities in accordance with the laws of relevant taxing jurisdictions. Taxpayers having difficulty in complying with this obligation should be encouraged to discuss their circumstances with their Revenue authorities, as it may be possible to allow additional time in some cases.
(d) The Obligation to keep Records:
To provide accurate information to the Revenue authorities taxpayers should keep reasonable contemporaneous records of their financial transactions. Such records also allow the Revenue authorities to verify that the information provided by a taxpayer is accurate.
Most tax systems will broadly specify what records have to be kept and for what length of time so that transaction details can be traced and verified. Accordingly, taxpayers should keep the records required by the laws of relevant taxing jurisdictions.
(e) The Obligation to Pay Taxes on Time:
All tax systems require taxpayers to pay their taxes on time. Taxpayers should always endeavour to pay their taxes in accordance with the laws of relevant taxing jurisdictions. Taxpayers who are having difficulties in complying with this obligation should be encouraged to discuss their circumstances with their Revenue authorities, as it may be possible to allow additional time for payment in some cases.
5. Taxpayers’ Charter:
The taxpayers’ charter in many countries summarizes and explains in plain language a taxpayer’s rights and obligations in relation to their tax affairs, making such information much more widely accessible and understandable.
Most taxpayers’ charters are a guide to the law and are not legal documents in themselves, although in some tax systems they may constitute a tax “ruling’. Generally, they would not provide additional rights or obligations other than those contained in the legislation.
The OECD has published a model Taxpayers’ Charter, which is reproduced below:
Example of a Taxpayers’ Charter:
This is only an example using elements that might be found in a taxpayers’ charter. It would need to be tailored to reflect the relevant policy and legislative environment, administrative practices and culture of a tax administration seeking to use it.
The Taxpayers’ Charter: Introduction:
In our society our tax laws require that we pay taxes and other charges in order to fund a range of government programs and community services, such as education, welfare, health, defence, law enforcement and transportation infrastructure, that help our society to function.
Your tax administration, in collecting these taxes and charges, operates on the fundamental principle that resident and nonresident taxpayers will act in accordance with the law when they are treated with respect and fairness and provided with all the information, advice, assistance and other services they need to comply with their obligations.
This Taxpayers’ Charter broadly summarizes your important rights and obligations under the tax system. We have published it to help set in place the co-operative relationship we seek with the community – one based on mutual trust and respect.
(a) Your Rights:
(i)Your Right to be Informed Assisted and Heard:
We will treat you with courtesy and consideration at all times and will, in normal circumstances, strive to:
a. Help you to understand and meet your tax obligations;
b. Explain to you the reasons for decisions made by us concerning your affairs;
c. Finalize refund requests [within … days] or [as quickly as possible] and, where the law allows, pay you interest on the amount;
d. Reply to written enquiries [within … days] or [as quickly as possible];
e. Deal with urgent requests as quickly as possible;
f. Answer your telephone call promptly and without unnecessary transfer;
g. Return your telephone call as quickly as possible;
h. Keep your costs in complying with the law to a minimum;
i. Give you the opportunity to have your certified legal or taxation adviser present during any investigation;
j. Send you, by the end of the investigation or [within … days of] or [as quickly as possible after] its completion, the relevant minutes or a written advice of the result of that investigation and the reasons for the decisions we have taken;
k. Send you, where an assessment has been issued, details of how the assessment was calculated.
(ii) Your Right of Appeal:
We will, in normal circumstances, strive to:
a. Fully explain your rights of review, objection and appeal if you are unsure of them or need clarification;
b. Review your case if you believe that we have misinterpreted the facts, applied the law incorrectly or not handled your affairs properly;
c. Ensure that the review is completed in a comprehensive, professional and impartial manner by a representative who has not been involved in the original decision;
d. Determine your objection [within … days] or [as quickly as possible] unless we require more information to do so, or the issues are unusually complex;
e. Give you reasons if your objection has been completely or partially disallowed;
f. Request further information from you only where it is necessary to resolve the issues in dispute.
(iii) Your Right to pay no more than the Correct Amount of Tax:
We will act with integrity and impartiality in all our dealings with you, so that you pay only the tax legally due and that all credits, benefits, refunds and other entitlements are properly applied.
(iv) Your Right to Certainty:
We will, in normal circumstances, strive to:
a. Provide you with advice about the tax implications of your actions;
b. Let you know [at least… days] or [as soon as possible] before the conduct of an interview or a request for the production of documents;
c. Advise you of the scope of an interview and our requirements;
d. Arrange a suitable time and place for the interview and allow you time to prepare your records.
(v) Your Right to Privacy:
a. Only make enquiries about you when required to check that you have complied with your tax obligations;
b. Only seek access to information relevant to our enquiries;
c. Treat any information obtained, received or held by us as private.
(vi) Your Right to Confidentiality and Secrecy:
We will not use or divulge any personal or financial information about you unless you have authorized us in writing to do so or in situations where permitted by law.
We will only permit those employees within the administration who are authorized by law and require your personal or financial information to administer our programs and legislation, to access your information.
(b) Your Obligations:
(i) Your Obligation to be Honest:
We expect you to:
a. Provide complete and accurate information as and when required;
b. Declare all your assessable income in your income tax return;
c. Claim only deductions, rebates and credits to which your are entitled;
d. Answer questions completely, accurately and honestly;
e. Explain the full facts and circumstances when you seek tax advice or when you request a private ruling.
(ii) Your obligation to be co-operative:
We expect you to co-operate with tax administrators and treat them with courtesy, consideration and respect, as we do in our dealings with you.
(iii) Your obligation to provide accurate information and documents on time:
We expect you to:
a. File correct returns and documents within time limits specified;
b. Provide complete and accurate information by certain dates;
c. Take reasonable care in preparing your tax returns, documents and information;
d. Inform us of relevant events such as incorporation, opening a business, correspondence address changes, moving the place of business, ceasing business, with required taxpayer identifiers in a timely manner so that we can administer tax legislation properly, efficiently and effectively.
(iv) Your obligation to keep records:
We expect you to:
a. Keep sufficient records and books to enable you to meet your tax obligations;
b. Keep sufficient records and books for the required retention period;
c. Take reasonable care in preparing your records and books;
d. Allow us access to records and books so that we can check your tax obligations.
(v) Your obligation to pay taxes on time:
We expect you to:
a. Pay the full amount of your taxes by the due dates;
b. Pay the full amount of any balance outstanding resulting from assessment or reassessment;
c. Help us develop a mutually acceptable payment arrangement if you cannot pay any outstanding balance in full and have exhausted all reasonable possibilities of obtaining the necessary funds by borrowing or rearranging your financial affairs;
d. Withhold and remit by due dates all taxes withheld or collected on behalf of others;
e. Advise us as soon as practical if some event beyond your control has affected your ability to pay your taxes on time so that appropriate arrangements can be put into place to assist you.
(c) Risks of non-compliance with the obligations:
If you do not meet your tax obligations the law may provide for penalties and/or interest to be imposed, and prosecution action may be taken in more serious cases.
6. Selected Taxpayers’ Rights:
(a) The principle of legality should apply to provide a legal basis for the imposition of taxes, duties, fees and charges. There should be no discrimination between taxpayers in the same position. A principle of proportionality should underlie the tax system.
(b) Where an administrative discretion is given, it should be authorized by law. The exercise of discretion should be based on reasons that are applied consistently, fairly and impartially.
(c) Taxpayers should have the right to pay only the amount of tax required by law. Taxpayers that overpay tax should be entitled to a full refund with interest. Revenue authorities should be under an obligation to inform taxpayers if they find that they are entitled to tax relief, deductions or refunds that the taxpayers have not claimed.
(d) The rules governing the tax system should be published, together with the rights of taxpayers in an accessible form. The Revenue authorities should publish their operational guidelines. Where the interpretation of the law is uncertain. Revenue authorities should also have discretion to take test cases to the Courts.
(e) Tax rules should be certain. If a provision is absurd, ambiguous, contradictory, or does not make sense, it should apply to the taxpayer’s benefit. Tax rules should not have retrospective effect unless they are reasonable, proportionate and serve a legitimate purpose.
(f) Where taxpayers can show that there are genuine and reasonable circumstances that prevent them from complying with the terms of the law, the Revenue authorities should have the discretion to grant appropriate relief.
(g) Revenue authorities should administer the tax system so that all sectors of society are required to fulfill their obligations under the tax rules.
a. There should be an administrative body charged with the administration of the tax system which operates in accordance with general principles of good governance.
b. Revenue authorities should be accountable and operate within an effective system of quality assurance. This should include publication of taxpayers’ rights and obligations and an internal and external dispute resolution process that includes an ombudsman.
c. Revenue officers should access taxpayer information only when required to do so in the performance of their duties. Unauthorized access and unauthorized browsing should be an offence. So too, should be any unauthorized release of taxpayer information to a third party.
d. Revenue officers should be subject to secrecy provisions. Taxpayer information should be treated as completely confidential. Revenue officers should act honestly and ethically.
e. Whenever a taxpayer is entitled to a decision or action by the Revenue authorities, either it should occur within a specified period or within a reasonable time. Revenue officers should not draw an adverse inference simply because a taxpayer chooses to exercise his available rights.
a. Taxpayers should have the right of access to information held about them by the Revenue authorities, except in limited circumstances.
b. Revenue authorities should only gather specific information about an individual taxpayer that is relevant to the bona fide assessment to tax or to social security where that falls within their responsibility.
c. Revenue authorities should rely on an assessment to charge tax. Where they make the assessment, Revenue authorities should include details of how the tax payable was calculated, together with any fines, penalties or interest levied. There should be a time limit for Revenue authorities to amend a taxpayer’s assessment, provided there is no reasonable evidence of fraud or evasion.
d. Revenue authorities should provide advance rulings on how they will treat transactions or arrangements. Advance rulings either should be binding on the Revenue authorities or subject to the general right of estoppel against them. Advance rulings should be consistent in their interpretation and application of the tax rules both between taxpayers and to the same taxpayer over time.
Audit, Investigation and Enforcement:
a. There should be specific statutory authorization for tax audits and investigations, specifying reasonable and proportional limits. Choice of taxpayers for audit should be reasonable and non-discriminatory.
b. Taxpayer audits by the revenue authorities should be free from interference by the executive or other branches of government. Taxpayers should be given prior notification of an audit and the opportunity to request postponement of the audit if they have good reasons.
c. Clear guidelines should set out audit procedures, the rights and duties of the taxpayer during an audit, the settlement practices of the revenue authorities and the avenues for objection and appeal against assessments arising out of the audit.
d. Taxpayers should be advised of their right to have professional representation during the audit. Taxpayers should have the right to request the recording of all audit interviews. An audit should not interfere unreasonably with the proper running of a taxpayer’s business or cause it to suffer commercial loss as a direct result of the audit activity.
e. During the audit the taxpayer should be given the opportunity to discuss matters arising in the audit with the tax auditor. There should be a discussion of the final issues arising out of the audit that will affect the tax assessment.
f. Negotiations should take place under proper, fair and consistently applied settlement processes. There should be clear guidelines, procedures and approvals for Revenue authorities to provide information or assistance under an information exchange or mutual assistance agreement.
g. Powers of the Revenue authorities to search premises and seize assets should be subject to strict limits, and should be used as a last resort. Search of a private dwelling should require a warrant or similar document from a Court, magistrate, or equivalent independent official.
h. Except in special circumstances, the taxpayer should be informed before the search or seizure occurs. Searches should take place during normal business hours or by appointment, unless the circumstances are exceptional. Searches should not normally extend to persons.
i. Where assets are seized, or information is taken, a receipt should be given that includes the name and authority of the seizing officer. Where possible, originals should remain with the taxpayer and information required by Revenue authorities should be copied and certified, if necessary.
j. Taxpayers should have the right to claim privilege on any confidential communications to which this right applies. Privilege can be extended to the clients of any tax adviser, who provides advice about the legal interpretation or application of tax rules.
k. Tax collection and enforcement procedures should be documented clearly and simply, and provided to the affected taxpayers. Taxpayers should be given appropriate notice, and reasonable time to comply with demands for payment before enforcement measures are taken. These measures should be exercised in proportion to the tax payable.
l. There should be clear guidelines governing extensions of time to pay with appropriate monitoring mechanisms to ensure fairness. There should be clear criteria and procedures for the decision to pursue criminal sanctions against a taxpayer.
m. Revenue authorities should be empowered to negotiate the collection of tax and application of enforcement procedures where the taxpayer can show hardship. The onus of proving hardship in such cases must be reasonable.
n. In tax matters, taxpayers should have the right to representation, be advised of that right and given the opportunity to exercise it. There should be a clear basis for the imposition of penalties and interest. The mutual assistance agreement should set out procedures to ensure taxpayers are provided with adequate protection.
a. Taxpayers should have the right to object to assessments and to appeal to a Court or administrative tribunal of independent status within a reasonable time. The right of appeal should apply to as wide a range of decisions and actions of the Revenue authorities, as possible. Taxpayers should be informed of their right and any time limits that apply.
b. The conduct of the appeal should be subject to due process and a fair hearing. Taxpayers should be able to make initial complaint to an independent person. Taxpayers and the Revenue authorities should be in an equal position before the independent review body. Taxpayers must be given sufficient information on which to base their appeal.
c. Taxpayers should have the right to complain to an ombudsman on administrative and procedural matters not involving the interpretation and application of the tax rules. The ombudsman should have the power to make orders to protect taxpayers and to report to a party independent of the government with some powers of action, such as parliament. The ombudsman should have the right to initiate enquiries.
d. In a successful appeal, taxpayers should have the right to compensation for legal costs and expenses that they have incurred. They should also have the right to compensation for personal or economic loss resulting from any actions taken by the tax authorities without lawful authority or cause. Compensation should be available for inadvertent, as well as intentional or reckless actions.
Secondary Administrative Rights:
a. Revenue authorities should make available publications that explain the tax rules clearly and simply. They should publish any requirements for taxpayers to apply for a tax identification number and should use education programs, particularly catering to the young, the illiterate and new migrants.
b. There should be special provision made by Revenue authorities for speakers of foreign languages, for taxpayers in remote areas, or for taxpayers with disabilities or special needs to understand and meet their tax obligations. Published service standards should set out benchmarks by which taxpayers can judge the service they receive.
c. Revenue authorities should provide assistance to taxpayers. They should also clearly identify their complaint procedures and provide easy access to them for taxpayers.
7. Comments on Taxpayers’ Rights and Obligations:
Despite the safeguards under the domestic constitutional law as well as international conventions, the level of taxpayer protection vis-a-vis the tax administrations varies widely. In many countries there is little specific protection given under the law to taxpayers’ rights.
It is usually covered by the general law. Often, it excludes a judicial review of the actions of tax authorities (Examples: Australia, France), as well as encourages the Courts to interpret the law in favour of the tax authorities.
Moreover, the answers on several questions are still unclear.
i. Are taxpayers’ rights violated if a State shares fiscal information on its taxpayers with another State when he is not a party to the international process? Does the taxpayer have the right to be informed, as well as heard, in such cases?
ii. Is a mutual agreement between tax authorities, in principle, binding on the taxpayer? Generally, a taxpayer is not a party to a possible agreement under OECD MC Article 25.
iii. Does the principle of non-discrimination have any influence in tax law? Can tax administration impose different levels of penalties on different taxpayers with the same type of violation? (Article 26 of ICCPR and Article 14 of ECHR prohibits discrimination in taxation.)
iv. Does the Rule of solve et repete (i.e., obligation to make advance tax payments prior to appeal) affect a taxpayer’s rights? Is it a violation of a fair trial in tax matters? Can a taxpayer self-incriminate?
v. How effective is the principle of legal certainty in protecting taxpayers’ rights relating to tax planning? In particular, should retroactive changes in tax law be encouraged to counter tax anti-avoidance? Etc.
According to Professor Bentley, taxpayer protection has become a priority in recent years due to:
(a) The increasing complexity of tax laws and their real or perceived threat to the individual;
(b) The desire of revenue authorities to improve taxpayer compliance and revenue collection; and
(c) The direct and indirect influence of international tax treaties and agreements. Revenue authorities need the cooperation of taxpayers to improve compliance and provide more efficient tax administration.
Tax systems should be both fair, and seen to be fair, and the compliance procedures should not be cumbersome. Most taxpayers are law-abiding citizens and prepared to pay their taxes if they are lawful and reasonable.
There should also be adequate provision for settling tax cases by negotiation to avoid lengthy monetary and time costs, based on a prudent business approach on both sides. Tax authorities in many countries need to be more customer-focused towards the taxpayers, and take a business-like and non-adversarial approach.
Many countries have developed a charter of taxpayers’ rights, which follows a taxpayer-focused approach. These rights are often linked to taxpayers’ responsibilities under the law or under administrative measures.
“Good tax behaviour is not the sole responsibility of taxpayers and their advisors. If the whole tax system is to work properly, we also need coherent tax legislation and a Revenue administration that enforces the law fairly and with common sense”.