The Inter-American Center of Tax Administrations (CIAT) supports the efforts of national governments by promoting the evolution, social acceptance and institutional strengthening of tax administrations, encouraging international cooperation and the exchange of experiences and best practices.
CIAT is a nonprofit international public organization that provides specialized technical assistance for the modernization and strengthening of tax administrations. Founded in 1967, CIAT currently has 38 member countries and associate member countries from four continents — 29 countries in the Americas, six European countries, two African countries and one Asian country.
Firmly committed to achieving measurable results, CIAT promotes integrity, transparency and ethics in an effort to prevent and combat all forms of tax fraud, evasion and avoidance and to facilitate voluntary compliance.
What CIAT does
CIAT promotes mutual assistance and cooperation among member countries by:
- Developing specialized technical assistance programs based on the particular needs and interests expressed by member countries, through technical cooperation activities.
- Encouraging studies and research projects about tax systems and administrations, promoting timely dissemination of relevant information and the exchange of ideas and experiences through general assemblies, technical conferences, seminars, publications and other appropriate means.
- Entering into headquarters agreements as per international law CIAT represents member countries' commitment to strengthening tax administrations and is based in Panama City, Republic of Panama.
Márcio Verdi shares his thoughts about the work of the Inter-American Center for Tax Administrations (CIAT) which focuses on tax administration, and particularly on sharing and collaborating amongst the 38 member countries to ensure that as a region they learn from the strongest.
Mr. Verdi is an economist and tax auditor in the "Secretaria da Receita Federal do Brasil" and currently fills the role of Inter-American Center of Tax Administrations (CIAT) Executive Secretary, coordinating the 38 diverse countries that make up the CIAT membership.
With Nolan, no stranger to the organization (he represented the United States as a CIAT member country in 2005 while she was Commissioner of the IRS' Large and Mid-Sized Business Unit) the conversation covered a wide spectrum of tax administration issues facing Latin America.
History of regional tax administration bodies
Deborah Nolan: Márcio, many of our readers are becoming increasingly aware of the work of bodies such as the OECD's Forum on Tax Administration, but may not be aware of the different regional tax administration bodies that exist, such as SGATAR, IOTA, ATAF and CIAT1.
Could you tell us a quick bit of history? And how do you operate today, how do you all collaborate together, both within the regional and with global bodies such as the OECD?
Márcio Verdi: I'd be delighted to do so, Debbie.
CIAT is a nonprofit organization founded in 1967, and currently have a membership of 38 countries. We work together on issues related to tax administration and, in some cases, on tax policy.
Our primary focus is on tax administration, though, particularly on sharing and collaborating with one another around leading practices, to make sure that as a region we can learn from the strongest.
We look at the spectrum of processes, everything from taxpayer registration and revenue collection to those things which provide business with higher levels of certainty. And so yes, in terms of tax administration, we do interact frequently with bodies such as the IMF, the World Bank, the OECD, as well as the other regional forums of tax administrators.
We have a very important — and excellent — relationship with these organizations. We meet regularly, either in specific committees or working groups who study and work on individual tax administration issues, or more widely at our General Assembly, which we will soon be holding in Ecuador.
We are a global organization with member countries from four continents, but our purpose and concentration are regional; we concentrate our purpose in Latin America and Americas challenges. But to our member countries, a key importance of CIAT is that we concentrate our purpose on tax processes and in helping our member countries achieve maturity in these processes.
We provide specialized technical assistance and we work hard to improve the exchange of information in the region and also on the exchange of leading practices between countries.
We are constantly working to try and promote social acceptance of tax administration and to strengthen tax institutions.
Some people ask me, "What makes CIAT an important organization?" For me, it's because we really concentrate our purpose on developing leading tax administration processes.
These processes aren't always the same across the region, as I'm sure your readers can understand. Issues that might at first seem simple, such as how to register taxpayers and collect taxes due from them, might seem simple at first, but this is a complex, challenging region and so it's important that we learn about leading practices from our colleagues around the world.
I'll give you a good example of this, and that's the hard work we are carrying out now in terms of electronic invoicing in our region.
We know that tax administrators would benefit from it, and we know that companies will also benefit. From the administration side, it will help us to manage VAT, and as you know, that is becoming a more important source of revenue for countries all around the world.
So, many years ago, we focused on electronic tax declarations via the internet, and now we are working on electronic invoicing, looking for higher levels of electronic accountability.
Sharing information between 38 countries
Deborah Nolan: You started off telling us how you have 38 countries under the CIAT umbrella. That must make your membership incredibly diverse. I imagine within that there are vast differences between the needs and requirements and indeed the wealth and maturity of the countries. What does that mean for you in terms of trying to develop your holistic approach when you have so many differences within the region?
Márcio Verdi: Actually, it gives us a tremendous opportunity in this regard, and in fact, perhaps in the next few months we will expand to 40 countries.
But yes, we have a huge diversity between, for example, El Salvador and Brazil, or Canada and Paraguay.
But this also brings us huge opportunity, because with such a diverse range of countries, there are always opportunities to learn from one another, and that keeps us very, very busy — we work constantly to promote and offer horizontal technical assistance, bilateral and regional cooperation.
Last year, for example, we had a strong focus on developing activities with countries from Central America, and so we had many seminars and meetings, but we also carried out these activities in close collaboration with other international organizations and countries outside of CIAT. It was a great experience, having the United States Treasury, Germany and the IMF working together in support of our efforts.
Connecting countries who can learn from each other
We try wherever we can to connect up countries where we know one can learn from the other. To demonstrate a couple of examples, we connected a Brazilian team to one in Ecuador to develop transfer pricing practices.
In another case, we did something similar between both Brazil and Ecuador and between Bolivia and Colombia in relation to electronic invoicing. And Panama and Uruguay both visited Spain in order to learn how they can improve their exchange of information units.
When Panama had the opportunity to visit Spain, they were there for two weeks, working with people with many years of experience in the exchange of information, and helped Panama to set up their new internal unit.
So when I answer your question, I do it with a big smile, because it is the diversity of our region and the common purpose of our global membership that allows us to share information so freely with one another.
Trends in tax administration
Deborah Nolan: You've just spoken on electronic invoicing and bilateral cooperation around the exchange of information. We are seeing global trends regarding tax administration, enforcement and service related to multinational enterprises. What are some of the trends that you're seeing evolve in this area?
Márcio Verdi: Well, this is a very special region in some respects, because, as you know, in many of our countries a relatively small number of taxpayers pay a large percentage of total taxes, whether they are corporate taxpayers or high net worth individuals.
Trend: enhanced service for corporate taxpayers and high net worth individuals
In Central America, for example, we have a country where they have no more than around 500 taxpayers who are responsible for more than 90% of the revenues collected.
So providing enhanced service, increased certainty and timeliness to this group is very important. One of the key focus areas is around reducing the cost of transactions.
Trend: securing the tax base
I think this is a very important issue within the region. On one side of the coin, we need to create methods and systems that allow tax administrations to reduce costs, improve their levels of certainty about collection of revenue and to collect more with less cost for the government.
At the same time, the countries also wish to reduce tax compliance costs for the taxpayer. But while providing those increased levels of certainty for large taxpayers is an important objective, it is of course just one stage on the road to good tax administration.
Let me explain that point a little more; there is not necessarily much point in creating a large business unit if you don't already know who the taxpayers are. So to a certain degree, some of our member countries are focusing on more basic processes and systems which secure their tax base more effectively instead of necessarily being focused on providing high levels of certainty through advanced dispute resolution tools and so on.
Trend: industry specialization in technology, telecommunications and financial sectors
That said, one of the things we are seeing more and more countries in the region focus on is industry specialization within their organizations.
That specialization of course is tending to reflect the types of services we are seeing grow most rapidly in the region — technology, telecommunications and the financial sector, for example.
Like anything, it's all a process, and I think a key thing to remember here is that we are probably only a couple of years into this new evolution of tax administrations sharing their leading practices and taxpayer information so readily.
For issues like getting transfer pricing right, it's going to take us some time to get fully efficient, but I do see a very clear route ahead. It might take a few years to get there, but I think we are on the right track, from the point of view of both the countries and the taxpayers.
Dispute resolution trends in member countries
Deborah Nolan: I understand what you're saying — you can have a tax administrator create a large corporate tax unit, you can have legislation that ratifies a tax treaty or a tax information exchange agreement, but it is a long-term effort, and it's all part of an overall strategy. But as companies expand their business activities into the region, one thing they are going to be looking for in addition to the integrity and fairness of the system and the cost of compliance, are better ways to obtain certainty with the tax administrator and to be able to resolve tax disputes efficiently. What are you seeing in terms of dispute resolution trends in different countries?
Márcio Verdi: This is a new and sizable challenge for us, and in my opinion we are in a greenfield position and we have work to do. Work to do, but a sense of excitement about doing it, because we do know that if we get it right, this whole "tax certainty" issue provides a foundation stone in terms of inbound investment into the region.
As you'll remember, Debbie, I was a tax officer from Brazil, and part of my role involved teaching at the Brazilian Tax Administration. I remember always teaching that care should be taken with the taxpayers.
Yes, they are looking to pay less and we are looking to collect more, but if you both carry out your work in an open and transparent manner, then the likelihood is that you are both going to enjoy the journey a lot more.
"Enhanced relationships" between taxpayer and tax collector brings transparency, openness
I think that has never been truer, and we are certainly seeing that "enhanced relationship" message delivered by bodies such as the OECD. So yes, we are in a greenfield position in the region, and I know there is a lot of interest in developing all the tools and processes that support this enhanced relationship concept.
If I come back to the big issue of transfer pricing, in the region we don't have many examples of safe harbors, and so we don't have good examples of shared costs or shared processes, and so I think that this will be a new and big challenge for the next few years. As you noted, multinationals and big companies are looking for new countries to operate in, and the countries are looking for these companies in order to help them support prosperity.
Multilateral exchange of information agreements
Deborah Nolan: Alongside the enhanced relationship model, the OECD also has another effort designed to increase the cooperation and collaborative effort of its countries in tax administration through multilateral exchange of information agreements, which in turn will facilitate joint audits and multilateral exchange of information. Are there any efforts in that direction among the CIAT member countries?
Márcio Verdi: Yes, we are working in this direction. In fact, we will be presenting during our administrative session at our next General Assembly a proposal to start development of a multilateral exchange of information agreement among CIAT member countries.
Proposal to start an exchange of information agreement among CIAT member countries
Our idea is to create a working group who in less than a year will present a proposed multilateral tax agreement. In the region we really have only one or two countries who are actively working to sign tax information exchange agreements outside of agreements to avoid double taxation.
In Brazil, my country, we have only one exchange of information agreement, with Argentina. I'm not talking about agreements to avoid double taxation; I'm not talking about Article 26.
I'm talking about exchange of information agreements. So Brazil has one with Argentina, and Argentina has others with Chile, Peru and Canada, and nothing more.
This is why to me, in terms of exchange of information agreements, the word is greenfield.
But again, I come back to a point I made earlier, and that is for many countries there are so many priorities. Many are working hard to improve collection levels, reduce the compliance burden, and have many, many problems. So we need to do all we can to help them access more information for less effort.
So if we can propose a multilateral exchange of information agreement, maybe it will be easier for each country to use that instead of holding discussions on a country-by-country basis. If we don't go down this route, it might take 20 years to develop a net of information that is as robust. We just can't afford to wait that long, for many reasons.
Deborah Nolan: Do you have a sense of which countries you believe should participate in that multi-lateral agreement?
Márcio Verdi: Yes, I would say that perhaps all countries should, but of course the reality is that we must allow exceptions. If we define a very rigid proposal, I would say that the likelihood is that no more than three or four countries will sign it. So we need to make sure that such a proposal is flexible enough to meet the requirements of many more countries in our region, but at the same time, we need it to be robust enough to be useful. It's a fine balancing act.
It's the same kind of thing around collections. I can't see many possibilities to sign a multilateral agreement that includes rigid points allowing countries to collect revenues from another country in their country or to allow auditors from other countries to come for auditing or even sending auditors abroad.
But for now I certainly hope that we can go some way down that road, perhaps introduce something with a capping system. So, my hope is that we can sign all countries up to one single agreement, but allow some form of exceptions to exist.
Vision for the future
Deborah Nolan: You've used the phrase "greenfield" a couple of times, Márcio, and you've also talked about an interest in developing tools and processes that support certainty for business. Where do you see all of this going? Do you have a vision for the region that you could share with us?
Márcio Verdi: There are so many things that make up such a vision, but I think I would be remiss if I didn't talk about our needs and our vision in terms of the human resources which will help support our journey.
Focus on careers of the tax professionals
I think this human resources question is one of the most important in the Latin American region. When people ask me, "What type of tax administration should we develop — should we focus on collection, on cross-border issues, on other processes?" I typically say to them it doesn't really matter, just focus on developing the quality and treatment of your human resources.
You need to focus on the selection, the guarantees, the salary, the career paths of our people. Let me give you an example, my home country of Brazil.
At the federal level there are 30,000 tax administration employees and more than 15,000 tax auditors.
Take these tax auditors — why are they content to live their life as a tax auditor in the public sector? Why don't they resign and go and work in the private sector? Because they have guarantees for what they are doing, they are doing public service and because they have a good salary.
In some countries, we really are not rewarding our people well enough and so we don't attract the right people and in turn, we can't generate the right levels of tax revenue. It's all a vicious circle, but at the same time, if we break this pattern, then we can make it into a virtuous circle instead.
We need the best and brightest people who can help us develop world class tax administrations.
That's the first part of my vision.
Use information technology
Another priority is to increase and improve our use of Information Technology (IT).
There is so much we can learn from the leaders within our region and from countries elsewhere in terms of implementing the right IT solutions to our challenges.
I really think that if we can get this area right, we have a win-win situation. We improve our overall efficiency and reduce our costs of collection and we reduce the overall costs and efforts related to compliance for companies and individuals.
One of the key areas we can use technology in our region is to help us identify and capture those informal parts of the economy that are not currently part of the tax base. The more hard data we collect and analyze by using technology, the more we can bring these people into the tax base where they should be.
And once they are in, we can keep them in, keep them paying what they rightly owe, and then use those increased collections to further improve our human resources. It's all connected.
Deborah Nolan: Márcio, this publication is delivered around the world and is read by tax directors, board members, audit committee members, CEOs, CFOs and corporate development officers, and in a number of cases they will be a stakeholder in the decision-making processes around where their company invests and expands market reach.
Are there any closing comments that you would want to provide to them about CIAT and your region?
Márcio Verdi: Let me use a dance analogy, Debbie; in our region, we have many different styles of dance. We have the rumba, the salsa, the tango and the samba.
And I don't know what they prefer, but some are dances that you dance alone, some are dances for which you need a partner. And in the case of tax administration, we need to partner together to make sure the experience is the best it can be for both parties.
What I'm saying is if a multinational company would like to discuss with a tax administration methods to share costs around the region, they should be ready to collaborate.
Of course, to me as a tax auditor, as Executive Secretary of CIAT, it's easy to understand and to support the idea that you might have a big central cost center in one country, but you want to share these costs around the region.
We understand this.
At the same time, maybe you'd like to share profits, or maybe you'd like to use methods like profit costs. But the point, again, is that to discuss these methods with the tax administrations, the multinational must be prepared to open their dates, to prove to the tax authority the cost or the profits they would like to share.
It's hard to accept a shared cost for the tax if we don't know what the total cost is
What is difficult for us at the moment, though, is that it's hard for us to accept a shared cost for the tax if we don't know what that total cost amounts to.
So I think our main challenge is to start sitting together and discussing those issues more, and we are open to it.
That may be an overly simplistic way of answering the question, but I'm trying to answer it as honestly as I can. Many countries ask, for example, why Brazil uses different methods to control transfer pricing?
The answer is because Brazil cannot use the traditional methods not because the method is not good. The method is perfect. But sometimes when you go out and you visit a company and you are auditing a company, you just can't find information from the headquarters. So, if you come to us ready to be transparent and open, we will help you.
It's a very complex issue.
In Latin America and Caribbean countries, we are approving a lot of legislation on the exchange of information. But if we don't have a partner, if multinationals don't want to collaborate, it will be difficult in the future to reduce controversy. It will be difficult to approve safe harbors.
Are CIAT member countries open to having dialogue with multinationals?
Debbie Nolan: Thank you, Márcio. Tax administrators want large multinationals to pay the tax that is rightfully due, and large multinationals want tax administrators who are transparent and who have processes that are fair, efficient, that have integrity and treat similarly situated taxpayers the same.
We need a shared agreement that tax is a shared responsibility between tax administration and the private sector.
So your point about partnering and needing two people to tango I think is very, very essential to making sure that that happens. My experience is that in times of change, engaging the stakeholder at various levels is essential to the quality of the result and the process for both the taxpayer and the tax administrator. This discussion has focused on the rapid changes in the Americas. What is your view about the receptivity of CIAT member countries to open up a dialogue with large multinational companies?
Márcio Verdi: I think in our region, we don't necessarily have this culture at this moment, but we do realize that we need to build it.
Each time a tax administrator thinks that if it opens the door to discuss policy or methods of tax administration, the end result will be a reduction of the tax base.
So in order to protect their tax base, the countries practice self-defense. But I think there are ways to develop a dialogue, we've seen it work in other countries and there are innovative techniques that we can start looking at.
No one wants controversy, no one wants disagreement and certainly no one wants a situation to end up in litigation.
I know that in a lot of countries, the tax administration maintains good relationships with the private sector by creating stakeholder groups who can represent business.
I think that's a very good practice, and it's something we should be encouraging. I think we at CIAT have a key role to play in bringing this kind of thing to life. We need to lead the parties together, to coordinate these discussions, at least at first, and I think that is a great example of exactly the kind of thing we should be doing. The more we can do that, the quicker we can start to adjust culturally.
A good agreement, a good culture, it will reduce transaction costs, it will reduce evasion and, I hope, it will allow us to free up our valuable human resources to work on more ways to deliver taxpayer service.
1For more information on tax administration, please see the article “Who's working with whom” in the October 2010 issue of this publication.