1 TAXATION OF LARGE TAXPAYER ENTERPRISES - PowerPoint Presentation

Slide1

1

TAXATION OF LARGE TAXPAYER ENTERPRISES

Taxation of Multinational Enterprises (MNEs) – A case of the Zambia Revenue Authority

By

Mr. Wisdom M. Nhekairo

Commissioner General Slide2

2

OUTLINE

Rationale for setting up the Large Taxpayer Office

Services provided by the Large Taxpayer Office

Challenges and Risks posed by MNEs

Dealing with ChallengesSlide3

3

RATIONALE FOR SETTING UP THE LARGE TAXPAYER OFFICE

It is a commonly observed phenomenon globally that a small

group of largest taxpayers account for the majority of tax take in

any given economy:

Given

this importance, a recent trend in tax administration has been to pay particular and targeted attention to this group of taxpayers, A common approach has been to establish an integrated Large Taxpayer Office.This approach is fundamentally premised on a one

stop shop

concept that provides the

ability to deal with the taxpayer conclusivelySlide4

4

RATIONALE CONT.

All

tax types

are handled from one office

Ensure adherence to standards enumerated in the taxpayer charter

Enhanced relationships with corporate taxpayers based on intimate knowledge of the industry and business Proactive approach in dealing with our taxpayersImproved Service delivery arising from a productive interaction that demonstrates insight into unique business needs.Moving away from one size fits all approachReduced administrative and compliance costs on both the taxpayer and

the

Revenue AuthoritySlide5

5

ORGANIZATION GOVERNANCE

Based on the forgoing principles ZRA made deliberate steps to Introduce

the Large Taxpayer Office (LTO) concept in he last quarter of 2008

following the Modernisation project of the Domestic Taxes Division

with the help of the IMF. The LTO is headed by a Director reporting to

the Commissioner Domestic Taxes and this office handles Income Tax,VAT and Mineral Royalty. In particular the ZRA LTO comprises fourUnits thus: Taxpayer ServicesProcessing and EnforcementAudit (Two units within this – Mining & Non Mining)Business System Support and IntelligenceSlide6

6

TAXPAYER

SERVICES UNIT

The LTO Taxpayer Services Unit performs the following functions:

Taxpayer Information – Providing timely information to clients

Registration – Processes registrations on all taxes handled by LTOTaxpayer Education – Engaging clients on topical issues affecting them and providing the necessary guidanceClient Relationship – Enhancing taxpayer relations based on mutual respect, trust and transparency.Slide7

7

PROCESSING & ENFORCEMENT SERVICES UNIT

The LTO Processing & Enforcement Unit performs the following functions:

Receipt & Processing of tax returns and payments

Taxpayer Accounting

Processing of tax refunds

Debt ManagementSlide8

8

AUDIT UNIT

The Large Taxpayer Office has two distinct audit units, that are the Mining and Non Mining Units.

The mandate of these two Units are :

Undertake Risk Based & Issue Focused Audits e.g. credibility checks

Undertake integrated audits Slide9

BUSINES SYSTEM SUPPORT & INTELLIGENCE UNIT

The LTO Business System Support and Intelligence unit performs the following functions:

Taxpayer Risk profiling

Business analysis

Implement Risk analysis in all work processes

9Slide10

TAXPAYER SELECTION CRITERIA

For a taxpayer to qualify to belong to the Large Taxpayer Office they must meet the following criterion.

Taxpayers

with turnover of K20 billion and

above;

Specialized industries or business sectors

operating in the following sectors Mining, Finance and Insurance sectors; or Multinationals with their group companies10Slide11

11

CHALLENGES & RISKS

The major challenges and risks the LTO faces include the

following:

Transfer Pricing – setting prices, conditions and terms on transactions with related parties on cross border transactions in such a way that profits arise in a country determined by the the MNE determines.

Thin Capitalisation – Exploiting tax deductible interest flows.

Hedging Transactions – Structuring complex commodity hedging transactions in such way that losses are reported in a country determined by the MNEIntragroup services - Pricing of management fees and technical services among others at non arms length basis and also whether these services have in fact been provided.Slide12

12

CHALLENGES & RISKS

Effective systems audit – Effective audit of the taxpayer’s accounting information system so at to obtain assurance on the integrity of the information provided by the accounting system.

Treaty Shopping – Incorporating parent companies in countries that have DTAs with the country of residence of the subsidiary company for the purposes of exploiting DTA provisions that have lower tax rates on certain transactions like , Interest, Royalties and Management and Consultancy fees that the parent company will undertake with the subsidiary.Slide13

13

DEALING WITH CHALLENGES

The ZRA as been using a number of methods aimed at addressing

the challenges and risks posed by MNEs:

Legislation - The tax law has provisions for limiting transfer pricing and thin capitalisation

Capacity building of staff:through training and workshops in specialised courses offered by CATA, ATAF, OECD among others.

Cooperation with other tax jurisdictions, currently the Revenue authority has an MoU with the Norwegian Tax Administration aimed at strengthening specialised large taxpayer revenue administration.Slide14

DEALING WITH CHALLENGES Cont’d

Transfer Pricing Practice note for staff to refer to during the course of their work.

Enhanced Integrated audits

Fostering enhanced relationships with taxpayers aimed at sensitizing them on various tax concerns.

14Slide15

CONCLUSION

The LTO has since scored the following successes:

Increased level of voluntary disclosures by taxpayers on tax underpayments.

Reduced cost of enforcement for the Revenue Authority.

Reduced cost of compliance for the taxpayers.

15Slide16

16

Thank You