years in Latin American taxation CIAT: Fifty years in Latin American taxation Edited by: Inter American Center of Tax Administrations ISBN: 978-9962-647-98-0 Copyright: CIAT, 2017 Printed by: CIAT, Panama, Republic of Panama years in Latin American taxation The opinions stated in this publication, are the exclusive responsibility of the authors and do not necessarily reflect the viewpoint of the Inter-American Center of Tax Administrations, its Executive Secretariat or the countries it represents. Total or partial reproduction of this work is authorized, through any means or procedure, known or to be known, provided that it adequately quotes the source and the holders of the copyright. years in Latin American taxation Foreword pon turning half a century old, CIAT’s Executive USecretariat proudly presents the book “CIAT: Fifty years in Latin American taxation” aimed at making a significant contribution to the knowledge on tax history of its member countries and the international tax community. The book is a compilation of papers from a series of experts on tax policy and tax management who have maintained a professional relationship with CIAT. The papers review the most significant changes in the region’s tax systems and influence tax management topics. We are sure that this book will become a benchmark for generations of tax administrators for it provides a clear idea of the past scenario, the present reality and future trends in Latin American taxation. Finally, we wish to thank the authors of each paper contained in the book for their selfless contribution. Together with the Executive Secretariat, they have completed a book of great historic value. Márcio F. Verdi CIAT Executive Secretary Content Foreword vii Charts, Tables and Diagrams x Abbreviations xii Authors xv Chapter 1: Taxation over the last fifty years 1 Dalmiro Morán and Miguel Pecho Chapter 2: Taxation at the dawn of the new milennium 35 Juan C. Gómez Sabaini Chapter 3: The technological revolution 47 Raúl Zambrano Chapter 4: Tax-legal relation and administrative fiscal courts 59 Juan F. Redondo and Javier Paramio Chapter 5: Tax compliance oversight 71 José García Rios, Paulo dos Santos and Stefano Gesuelli Chapter 6: Globalization and taxpayer transactions 91 Isaác G. Arias Chapter 7: A brief history of tax transparency 107 Alberto Barreix, Jerónimo Roca and Fernando Velayos Chapter 8: Planning, management control and studies 121 Andrea Lemgruber Chapter 9: Autonomy with accountability 131 Paulo dos Santos and Juan F. Redondo Chapter 10: Professionalization and ethics 143 Luis Cremades and Alejandro Juárez Chapter 11: Tax education 153 Alejandro Juárez Chapter 12: Quo Vadis income tax? Towards the PIT-CA 163 Alberto Barreix, Jerónimo Roca and Fernando Velayos Bibliography 193 Charts, Tables and Diagrams Charts Chapter 1: Taxation over the last fifty years Chart 1: Central Government Tax Revenues in Latin America, average 1960-2014 (As a percentage of GDP) 5 Chart 2: Evolution of the tax structure in Latin America, five - year average (Percentage of Tax Burden) 10 Chart 3: Evolution of IT maximum marginal rates in Latin America (Simple averages for selected years) (Percentages) 12 Chart 4: Evolution of VAT and direct tax revenues in Latin America (Annual Data, 1970 - 2014) (Percentages) 15 Chart 5: Tax Structure in Latin American Countries (In % of total net revenue, excluding social security contributions) 32 Chart 5: Tax Structure in Latin American Countries (In % of total net revenue, excluding social security contributions) (Continued) 33 Chart 5: Tax Structure in Latin American Countries (In % of total net revenue, excluding social security contributions) (Continued) 34 Chapter 8: Planning, management control and studies Chart 1: Non-compliance with VAT (As a percentage of potential revenues) 128 Chapter 12: Quo Vadis income tax? Towards the PIT-CA Chart 1: Comparison of the Equivalent Fiscal Pressure (EFP) and Per Capita GDP of selected developed countries 167 Chart 2: Fiscal Pillars, total fiscal pressure (% GDP) and per capita income, 1970–2013. LAC and OECD Countries (% of GDP, simple averages for GDP and per capita GDP in constant 2005 US$) 167 Chart 3: Corporate and Personal Income Tax and Equivalent Fiscal Pressure (EFP), LAC and OECD Countries (2013, % GDP) 174 Chart 4 Public debt (2014) and changes in public debt (2007–2014) 180 Chart 5: Income Share of the 1% richest - Selected countries (% of GDP) 183 Chart 6: Personal Income Tax: Revenue, effective rate and share of revenue from the richest decile, selected LAC countries, 2013 184 CIAT: FIFTY YEARS IN LATIN AMERICAN TAXATION Content x Tables Chapter 1: Taxation over the last fifty years Table 1: Central Government Tax Revenues in Latin America, five-year average (Percentage of GDP) 8 Table 2: Evolution of general rate for VAT in Latin American countries (Percentages) 11 Table 3: Income levels for the application of minimum and maximum Personal IT Rates in selected Latin American countries (Times per capita GDP) 14 Table 4: Rates, revenues and productivity of TFT in Latin America - Year 2014 18 Table 5: History of tax codification in Latin America 20 Table 6: Degree of autonomy of TAs in Latin America 23 Table 7: Central Government Tax Revenues as percentages of GDP (Social Security Contributions not included) 1960-1979 period 29 Table 7: Central Government Tax Revenues as percentages of GDP (Social Security Contributions not included) 1980-1999 period (Continued) 30 Table 7: Central Government Tax Revenues as percentages of GDP (Social Security Contributions not included) 1980-1999 period (Continued) 31 Chapter 2: Taxation at the dawn of the new milennium Table 1: Main reforms in TAs 42 Table 2: Reforms to Social Security Systems in Latin America 46 Chapter 5: Tax compliance oversight Table 1: Tax revenue concentration in some CIAT member countries 82 Diagrams Chapter 12: Quo Vadis income tax? Towards the PIT-CA Diagram 1: Spectrum of Territoriality and World Income 176 Diagram 2: Personal income tax-comprehensive and accrual, PIT-CA 179 CIAT: FIFTY YEARS IN LATIN AMERICAN TAXATION Content xi Abbreviations AIX Advanced Interactive eXecutive (IBM operating system) GIZ German Cooperation Agency APA Advanced Pricing Agreements GDP Gross Domestic Product ATAF African Tax Administration Forum HNWI High net worth individuals CAN Andean Commonwealth of Nations SAR Honduras Revenue Administration Services BCRA Argentine Republic Central Bank AIT Ibero-American Association of Fiscal or Administrative Justice PLC Arm’s Length Principle Courts ADB Asian Development Bank AS400 IBM midrange computer platform ATM Asynchronous Transfer Mode IPTU Imposto sobre a Propriedade Predial e Territorial Urbana BEPS Base Erosion and Profit Shifting ICTs Information and Communication Technologies DIPRES Budget Directorate of Chile SITER Information System of Relevant Economic Transactions CRA Canadian Revenue Authority IEF Institute of Fiscal Studies of Spain CARTAC Caribbean Regional Technical Assistance Centre CITAF Inter-American Center of Financial Taxation and Administration CSS Cascading Style Sheets (language to describe document CIAT Inter-American Center of Tax Administrations presentation) IDB Inter-American Development Bank COBOL Common Business Oriented Language IGA Inter-Governmental Agreements CRS Common Reporting Standard IAS International Accounting Standards COMJIB Conference of Ministers of Justice of Ibero-American Countries FIIAPP International Foundation of Public Administration and Policy CFC Controlled Foreign Corporations for Ibero-America COSEFIN Council of Finance Ministers of Central America, Panama and IMD International Institute for Management Development the Dominican Republic ILO International Labour Organization CBCR Country-by-Country Reporting ITD International Tax Dialogue CSP Cross System Product (IBM software product) LAFTA Latin American Free Trade Association DB2 Database 2 (IBM data base manager) LATINDADD Latin American Network on Debt, Development and Rights Oracle Database Manager from Oracle Corporation. LUISS Libera Università Internazionale degli Studi Sociali DFID Department for International Development – United Kingdom MNEs Multinational Enterprises Government SENASA National Agrifood Health and Quality Service of Argentina DEC Digital Equipment Corporation pcPPP Per Capita Purchasing Power Parity DIAN Directorate of Tax and National Customs of Colombia RGPS Regime Geral de Previdência Social DOS Disk Operating System (IBM operating system) CAPTAC-DR Regional Technical Assistance Center for Central America, DTA Double Taxation Agreements Panama and the Dominican Republic EITC Earned Income Tax Credit RA-FIT Revenue Administration Fiscal Information Tool ECLAC Economic Commission for Latin America and the Caribbean SAFIRA Sistema Integrado de Emissão de Auto de Infração EFP Equivalent Fiscal Pressure ACL Software product from ACL Services Ltd. ESAF Escola de Administração Fazendária ADABAS Software product from Software Ag EC European Commission MERCOSUR Southern Common Market EC European Community AECID Spanish Agency of International Cooperation for Development EEC European Economic Community SOD Supply and Demand System DEI Executive Directorate of Revenues of Honduras TA Tax Administration EET Exempted-exempted-taxed TADAT Tax Administration Diagnostic Assessment Tool AFIP Federal Administration of Public Revenue of Argentina AEAT Tax Administration State Agency of Spain FATF Financial Action Task Force against Money Laundering TAs Tax Administrations FIU Fiscal