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Tax Reforms: Experiences and Perspectives TAX REFORMS: EXPERIENCES AND PERSPECTIVES CONFERENCE PROCEEDINGS TAX REFORMS: EXPERIENCES AND PERSPECTIVES CONFERENCE PROCEEDINGS ZAGREB, 20 JUNE 2014 ZAGREB, 2014 Publisher Institute of Public Finance, Zagreb, Smičiklasova 21 http://www.ijf.hr For the Publisher Katarina Ott Computer typesetting Institute of Public Finance ISBN 978-953-6047-73-4 Institute of Public Finance, Zagreb, 2014 TAX REFORMS: EXPERIENCES AND PERSPECTIVES CONFERENCE PROCEEDINGS ZAGREB, 20 JUNE 2014 EDITORS: HELENA BLAŽIĆ, KATARINA OTT AND HRVOJE ŠIMOVIĆ REVIEWERS: DUBRAVKA JURLINA ALIBEGOVIĆ AND NIKŠA NIKOLIĆ ZAGREB, 2014 CONTENTS FOREWORD I PAPERS STJEPAN GADŽO AND IRENA KLEMENČIĆ Time to stop avoiding the tax avoidance issue in Croatia? 1 A proposal based on recent developments in the European Union SABINA HODŽIĆ AND LEJLA LAZOVIĆ‐PITA Evasion of social security contributions: the example of Croatia 25 and Bosnia and Herzegovina MAGDALENA MAŁGORZATA HYBKA Legislative proposal for controlled foreign companies regime 45 in Poland from an international perspective MIHAELA BRONIĆ AND VJEKOSLAV BRATIĆ 59 Can the efficiency of the Croatian tax authorities be improved? BIRGER NERRÉ, ALEKSANDAR DRAGOJLOVIĆ, SAŠA RANDJELOVIĆ AND MARINA DJENIĆ 79 Tax Reform in Serbia: experiences and perspectives VESNA PENDOVSKA AND ELENA NESHOVSKA Tax reforms: experiences and perspectives – 97 the case of the Republic of Macedonia HRVOJE ŠIMOVIĆ, HELENA BLAŽIĆ AND ANA ŠTAMBUK 121 Perspectives of tax reforms in Croatia: expert opinion survey MAJA KLUN 149 Slovenian experiences and lessons from tax reforms LEJLA LAZOVIĆ‐PITA 157 Income, personal income tax and transition: case of Bosnia and Herzegovina ILMĀRS ŠŅUCINS AND IEVA KODOLIŅA‐MIGLĀNE 179 Reform of labour taxes in Latvia ARTUR SWISTAK, SEBASTIAN WAWRZAK AND AGNIESZKA ALIŃSKA In pursuit of tax progressivity: lessons from VAT rate structure 197 adjustment in Poland NIKA ŠIMURINA AND MARKO PRIMORAC 219 The role of tax policy in the fiscal recovery of the European Union DIANE KRAAL 237 Tax Reform in Australia: The minerals resource rent tax TOMASZ JĘDRZEJOWICZ AND KAMILA SŁAWIŃSKA 245 Shifting from labour to consumption taxes: the impact on tax revenue volatility OLGA PALCZEWSKA Excise duties in Poland after accession to the European Union: 265 changes, impact on revenue and prospects for the future DEAN ŽUGČIĆ Evolution of tax systems in euro area crisis countries and former 275 transition economies that are now members of the European Union APPENDICES CONFERENCE PROGRAM 289 ORGANIZERS 292 DONORS 293 FOREWORD HELENA BLAŽIĆ, KATARINA OTT AND HRVOJE ŠIMOVIĆ EDITORS This year has marked the 20th anniversary of the Croatian tax reform. To celebrate this occasion, Institute of Public Finance, Zagreb; Faculty of Economics, University of Zagreb and Faculty of Economics, University of Rijeka have organized the international scientific conference Tax Reforms: Experiences and Perspectives. Croatian 1994 tax reform introduced completely new and modern „interest-adjusted“ consumption-based tax system of direct taxation. New personal income tax and corporate income tax were introduced as well as nine new excise taxes, followed by the VAT in 1998. Such a consumption-based system of personal and corporate taxation was the subject of numerous debates and confrontations of tax policy makers, academics as well as tax practitioners. With its second biggest tax reform in 2001 Croatia has abandoned interest- adjusted consumption-based tax system by reforming its personal and corporate income tax again in the direction of income-based system, introducing in effect hybrid system with income-based as well as consumption-based elements. This hybrid approach has remained in effect until today, with the slight occasional income-based or consumption-based changes. The basic conference aim was to compare experiences and draw lessons from tax reforms in different countries, particularly region countries and former transition economies that are now members of the EU. The conference was opened by the eminent keynote speakers - Gaëtan J. A. Nicodème (Head of the “Economic analysis, evaluation & impact assessment support” Unit– European Commission, General Directorate for Taxation and Customs Union), Sijbren Cnossen (Maastricht University and Erasmus University, Rotterdam) and Michael Keen (IMF, Washington). This basic conference aim was further analysed at the particular conference sessions. The prevailing topics were related to the broad tax reform issues in the region countries and new EU members. Furthermore, tax efficiency and equity, tax compliance and administration, tax avoidance and evasion were analysed. Substantial number of topics was dealing with macroeconomic aspects of tax reforms, particular in the times of crises, optimal tax structure as well as consumption versus labour tax burden. In accordance with authors’ preferences and limitations some of the articles presented at the conference are not present in this volume. However, the readers can see the scope of articles and topics in the program at pp. 289-291. These conference proceedings have been edited in appreciation of participating researchers’ effort to contribute to the qualitative research of tax reforms in different countries. Most of them come from the (post)transition countries, with the similar problems concerning not only taxation, but also general, issues. We really do hope that the variety of tax topics will help I H. BLAŽIĆ, K. OTT, H. ŠIMOVIĆ: FOREWORD researchers, students, experts and general public to get the insight into the complex problems of tax systems and policies of (post)transition countries. We also hope that the experience of other countries could be helpful in the everlasting search for the appropriate solutions in developing the efficient and equitable tax system. II TIME TO STOP AVOIDING THE TAX AVOIDANCE ISSUE IN CROATIA? A PROPOSAL BASED ON RECENT DEVELOPMENTS IN THE EUROPEAN UNION STJEPAN GADŽO, UNIVERSITY OF RIJEKA, FACULTY OF LAW, RIJEKA IRENA KLEMENČIĆ, INSTITUTE OF PUBLIC FINANCE, ZAGREB JEL CLASSIFICATION: K34 ABSTRACT The paper takes a tax policy perspective in analysing the approach to tax avoidance in Croatia and expounding its existing shortcomings. It is argued that Croatia is yet to develop a coherent legislative framework suitable for curbing tax avoidance in an equitable, efficient and simple way. One instrument that has hitherto been ignored is the general anti‐avoidance rule (GAAR), keystone of anti‐avoidance policy in other countries. Authors propose the introduction of a specific GAAR – based on recent developments in the European Union (EU) – in Croatian tax legislation. This proposal is supported by multiple tax policy arguments. Special emphasis is placed on the requirements of legal certainty, a traditional weak spot of Croatian tax system. The proposal is put in the context of persistent quest for sustainable public finance system in times of crisis. Keywords: tax avoidance, tax abuse, general anti‐avoidance rule, GAAR, EU tax law, wholly artificial arrangements, tax policy 1 INTRODUCTION “The avoidance of taxes is the only intellectual pursuit that still carries any reward.” (J.M. Keynes)1 Ever since its comprehensive reform in 1994 the Croatian tax system has exhibited distinct lack of coherent approach to tax avoidance. While global trends have been followed in introducing numerous targeted anti‐avoidance rules (TAARs), there is a gaping absence of statutory provisions which are able to curb more complex tax avoidance schemes. Legislative instruments that fit this purpose are the so‐called general anti‐avoidance rules (GAARs), recently on the rise in a number of countries (Ernst & Young, 2013), largely due to growing concerns about wealthy individuals and multinational corporations (MNCs) not paying their “fair share” in the financing of public services. Tax avoidance currently ranks high on the tax policy agenda worldwide, as evidenced by the G8 and G20 meetings of 2013 and other 1 As cited in Perrou (2006). S. GADŽO, I. KLEMENČIĆ: TIME TO STOP AVOIDING THE TAX AVOIDANCE ISSUE IN CROATIA? A PROPOSAL BASED ON RECENT DEVELOPMENTS IN THE EUROPEAN UNION developments at the regional and international level (e.g. OECD's project on tax base erosion and profit shifting). The institutions of the European Union (EU) have also taken the initiative in this area, stressing the need for a uniform anti‐avoidance approach in all of the EU member states. One of its envisaged cornerstones is the “EU GAAR”, as proposed by the European Commission (EC) in its non‐binding recommendation of 2012. The proposal is based on the anti‐avoidance approach developed by the EU judiciary in the past, which has had severe influence on member states' national legislation. Due to the lack of EU institutions’ competence in tax matters, the proposal's effects are contingent on the national tax policy choices of each member state. This paper takes on tax policy perspective in expounding that the time has come for the introduction of a GAAR – modelled after the EC’s proposal – in Croatian tax system. Arguments go beyond traditional examination of GAAR’s influence on efficiency and equity, paramount tax policy objectives. GAAR’s potential in recovering public revenues lost to tax avoidance activities and in narrowing the tax gap via improvement of tax compliance levels is highly important in the era of fiscal consolidation. Therefore, its introduction gives a strong signal to the country creditors that the government is acting responsibly in imposing and collecting
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