EU Emphasizes Tax For Developing Economies

June 15, 2010 International Tax CooperationTaxation in EU

European Flag in front of the European Council building Justus LipsiusAt a recent meeting, the Council of the European Union (CEU) reiterated its stance on the importance of adequate and well-structured tax systems for developing nations.

On June 14th the CEU released notes on the conclusions reached at the 3023rd Foreign Affairs Council Meeting, held in Luxemburg. The meeting yielded 10 points on the subject of cooperation with developing nations in promoting good governance in tax matters.

According to the CEU, a fair and efficient tax system underpins state legitimacy, and strengthens the social contract and sense of accountability between the Government and citizens. With this sentiment in mind, the CEU recommended that developing economies mobilize national resources for increased development through efficient tax systems which promote sustainable growth and reduces aid reliance. Creation of adequate tax systems would also address the issue of illegal capital flight and tax avoidance.

The CEU stated that developing nations bear primary responsibility for the creation of their own tax systems. Although the release also confirmed that the EU and its member states will provide support to developing nations in overcoming domestic and international obstacles while revising national tax landscapes. The Council also emphasized the importance of the EU introducing the use of “a programmatic and comprehensive approach to support demand driven tax administration reforms” when rendering assistance to developing countries. EU member states were also encouraged to support previously established tax assistance organizations, like the Centro Inter-Americano de Administraciones Tributarias and the African Tax Administration Forum. In regards to mineral and resource-rich nations, the EU was recommended to support the Extractive Industries Transparency Initiative, which the CEU considers to be an effective tool in promoting economic transparency.

Internationally, developing nations should be encouraged to participate in the pre-established structures of international tax cooperation and transparency. Specifically, the Council was in support of the active adoption of internationally agreed upon standards for taxation and tax information exchange, as presented by the Organization for Economic Cooperation and Development and the United Nations.

Emphasizing the importance of support for nations revising their tax systems, international economic analysts have agreed that developing nations need even further administrative and planning assistance in developing tax systems on par with current international standards and appropriate to current economic conditions. Specifically, researchers pointed to recent tax changes in Kenya, which have been labeled by international analysts as inadequate for Kenya’s economic state and ignorant of current international moves towards broadened tax basses and lessened emphasis on income taxation. According to international economists, the changes would have been optimized if Kenya was rendered adequate assistance in redesigning and implementing optimal revisions.

Photo by TPCOM

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