Demonstrating its expanding global reach--and reflecting the reality that tax policy in the United States is on hold pending the 2012 elections--TEI's technical committees have focused recently on tax proposals emanating from outside the United States.
Ensuring Neutrality of VAT
On September 26, 2012, Tax Executives Institute submitted a letter to the Organisation for Economic Co-operation and Development commenting on the OECD's Draft Commentary on the International VAT/GST Neutrality Guidelines. The institute's letter urged the OECD to revise the document that would strengthen the application of the value-added tax neutrality principle by ensuring that businesses do not bear either the financial burden of the tax or unnecessary administrative rules for claiming VAT refunds.
Budget deficits made worse by the economic recession have caused governments to raise VAT rates in an attempt to increase tax revenues. "The higher the VAT rate, the more important it is to get the tax right and, in particular, to ensure the neutrality of VAT systems internationally," explained TEI's International President Carita Twinem of Spectrum Brands Holdings. "The neutrality principle forms one of the foundational elements of a properly functioning VAT system. Continuing globalization of businesses has made the application of that principle more complicated and more important today than ever before."
While complimentary of the OECD's overall efforts, TEI's comments did identify areas that needed improvement. After agreeing that VAT should not be the primary influence on business decisions, TEl observed that some governments in Europe have been slow to issue refunds of overpaid VAT. When those balances become large enough and remain unpaid for long enough, TEI's letter said, they force businesses to alter their operations to avoid future overpayments of VAT to those countries. This practice runs counter to the principle of neutrality, and the Institute urged that an example be added to the Draft Commentary highlighting the inconsistency of this practice with the VAT Neutrality Guidelines.
Other issues addressed in TEI's letter include ensuring a level playing field for foreign and domestic businesses, minimization of compliance burdens, among fairly applying VAT rules in groups of countries bound by a common legal framework (e.g., the European Union).
TEI's letter is reproduced in this issue of The Tax Executive, beginning at page 397.
Greener Pastures--British Columbia's Carbon Tax
On September 14, TEI submitted a letter to the British Columbia Ministry of Finance on the Province's new Carbon Tax. The Institute urged the B.C. government to use proceeds from the tax to provide incentives for businesses that make investments in alternative fuel sources, methods for capturing emissions, or other "green" projects, and suggesting changes to make the tax more administrable.
Although other jurisdictions in the Pacific Northwest seemed poised to enact taxes or emissions trading schemes to place a price on greenhouse gas during the last decade, only British Columbia eventually did so in 2008. The legislation putting the Carbon Tax in place required the Ministry of Finance to periodically review...