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| Project Details |
| Funding Scheme : | Early Career Scheme | ||||||||||||||||||||||||
| Project Number : | 24611118 | ||||||||||||||||||||||||
| Project Title(English) : | Regularization of Tax Noncompliance: Comparative Legal Analysis and Proposal for China | ||||||||||||||||||||||||
| Project Title(Chinese) : | 稅務不合規的規則化：比較法律分析及對中國相關制度的建議 | ||||||||||||||||||||||||
| Principal Investigator(English) : | Prof Noked, Noam | ||||||||||||||||||||||||
| Principal Investigator(Chinese) : | N/A | ||||||||||||||||||||||||
| Department : | Faculty of Law | ||||||||||||||||||||||||
| Institution : | The Chinese University of Hong Kong | ||||||||||||||||||||||||
| E-mail Address : | noam.noked@cuhk.edu.hk | ||||||||||||||||||||||||
| Tel : | 39431605 | ||||||||||||||||||||||||
| Co - Investigator(s) : |
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| Panel : | Humanities, Social Sciences | ||||||||||||||||||||||||
| Subject Area : | Social and Behavioural Sciences | ||||||||||||||||||||||||
| Exercise Year : | 2018 / 19 | ||||||||||||||||||||||||
| Fund Approved : | 470,000 | ||||||||||||||||||||||||
| Project Status : | Completed | ||||||||||||||||||||||||
| Completion Date : | 31-12-2021 | ||||||||||||||||||||||||
| Project Objectives : |
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| Abstract as per original application (English/Chinese): |
該研究項目（以下簡稱“該項目”）的目的在於探索關於 - 設計“允許之前稅務不合規的納稅人改正其稅務”的專案所應考慮的因素。許多國家已經採用了稅務特赦及自願性披露的專案（以下簡稱“規則化專案”），並且這些專案的規則之間有很大的差別。由於對稅收、執行措施以及合規程度有影響，稅務不合規的規則化是一個重要的公共政策事項。儘管許多國家面臨著如何規範稅務不合規的困境，OECD的指引及相關學術文獻對那些考慮制定新的規則化專案或修改現行政策的政府所給予的幫助少之又少。 該項目的第一部分旨在填補文獻關於如何設計規則化專案的空白。規則化專案的相關文獻通常只比較特赦模式和非特赦模式，而忽略了一個重要的事實 — 沒有規則化專案的國家經常減免對那些自願披露過去稅務不合規的納稅人的懲罰。這將會在下文的分析中與關鍵性的設計考量因素，如，永久性規則化專案的合意性一起再行探討。這部分將會給政府提供在發展及評估其規則化專案時所應考慮的建議及因素。 該項目第二部分的比較法律分析將對不同國家所代表的，不同的稅務不合規的規則化方式作出檢驗。分析將專注於這些國家所採用的專案的性質和特點，以及他們如何配合及融入相應的稅務系統。這一比較法律分析可能會顯示出不同國家在設計其規則化專案時的相似性及差異。這篇分析亦可被政府及學者用於探索不同的規則化模式，以及學習他國的相關經驗。 基於前述各部分的結論，該項目的第三部分將分析中國是否應該採用正式的規則化專案，如是的話，應該怎樣架構。和許多國家不同，中國至今未有制定關於稅務不合規的正式規則化專案。在接下來的幾年，對過去稅務不合規的規則化將在中國越來越重要，因其將會透過“促進自動資訊交換的國際規則”的執行來顯著提升自身的稅法執行力。這一規則化專案的設計將體現中國稅務體系的特點。 |
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| Realisation of objectives: | The discussion below explains how these objectives were achieved in the research outputs of this project: 1. Noam Noked, Viktoria Wöhrer & Pierce Lai, Formal vs. Informal Voluntary Disclosure Policies, AMERICAN JOURNAL OF COMPARATIVE LAW (forthcoming 2023) This publication offers a comparative study of voluntary disclosure policies of various jurisdictions. It finds that nearly all countries provide noncompliant taxpayers with opportunities to rectify their noncompliance voluntarily and receive reduced penalties. This article identifies three broad categories of voluntary disclosure policies: formal and permanent voluntary disclosure programs, repeated temporary voluntary disclosure schemes, and informal voluntary disclosure practices. Importantly, the article finds that the tax authorities in countries with no formal voluntary disclosure programs frequently follow informal voluntary disclosure practices that operate as de facto substitutes for formal policies. This comparative study satisfies the second objective as it provides a comparative legal analysis of regularization programs in different countries, examining the characteristics and features of these programs in the context of the relevant tax systems. This publication also develops a set of recommendations and considerations that governments should consider when designing and assessing their regularization programs and policies. Building on the findings of the comparative analysis, the article explores the tax policy considerations in the design of voluntary disclosure policies and the choice between formal and informal voluntary policies. The article analyzes several tax policy considerations, including participation incentives, fairness, transparency, implementation and compliance costs, coordination with non-tax regulators, and other design considerations. This achieves the first objective of the project. This article has been accepted for publication in the American Journal of Comparative Law, which is internationally recognized as the preeminent peer-reviewed journal for comparative legal studies. This journal is ranked 1/37 in Comparative Law in the Washington & Lee (W&L) Law Journal Rankings. It has “A” rating in the Australian Business Deans Council (ABDC) Journal Quality List. The article was co-authored by the PI together with Dr. Viktoria Wöhrer (then-Postdoctoral Fellow at CUHK Law) & Pierce Lai (then-Research Assistant at CUHK Law). 2. Philip Marcovici & Noam Noked, Cooperative Compliance for Individuals and Trusts: A Proposal for a Compliance Passport, 6 JOURNAL OF TAX ADMINISTRATION 33 (2021) A summarized version of this article was published as follows: Philip Marcovici & Noam Noked, Passports, please!, 5 STEP JOURNAL 60-61 (Oct. 18, 2021). This publication further advances the first objective by developing a novel proposal for a voluntary cooperative compliance program for individuals, family trusts, and private investment vehicles. Under the proposed program, the authorities of the relevant jurisdictions would determine, on a joint basis, whether the participant is in full compliance with their tax obligations and whether there are any money laundering concerns. The implementation of this proposal could enhance a culture of cooperative compliance and free up enforcement resources. For participants, it could improve privacy, increase certainty, and reduce compliance costs and distortions. As this proposal has the potential to ensure compliance while reducing costs and risks for both tax authorities and taxpayers, it deserves serious consideration. This publication appeared in the Journal of Tax Administration, which is a reputable peer-reviewed journal focusing on the study of tax administration issues. It was co-authored by the PI and Philip Marcovici, a prominent expert in international tax, wealth management, and family trusts. He is the former chair of the European tax practice of Baker McKenzie. To expand the reach of this proposal, the PI and Mr Marcovici published a summarized version of this article in the STEP Journal, which is the journal of the Society of Trust and Estate Practitioners (STEP). STEP is an international professional organization with more than 21,000 members in 96 countries, comprising trustees, wealth planners, lawyers, accountants, and other professionals in the trust and wealth management industry. The PI and Mr Marcovici made a submission based on the proposal in this article as part of a public consultation of the Financial Action Task Force (FATF) in August 2021. The FATF is the international policymaking organization that develops standards for anti-money laundering (AML) and counter-terrorist financing. Following this submission, the PI and Mr Marcovici were invited to participate and give comments in an online meeting (by invitation only) with the FATF and other stakeholders. This meeting took place in November 2021. 3. Noam Noked & Yan Xu, Proposal for Voluntary Disclosure Procedures in China, 6 JOURNAL OF TAX ADMINISTRATION 190 (2020) 4. Noam Noked & Yan Xu, A Voluntary Disclosure Mechanism: Theory, Practice and the Path in China, INTERNATIONAL TAXATION IN CHINA (2022) (in Chinese) These publications satisfy the third objective by providing a proposal for the optimal regularization of tax noncompliance in China, aiming to increase tax revenues and compliance. These publications explore voluntary disclosure policies and practices in China. They show that while China does not have formal nationwide voluntary disclosure procedures, Chinese tax authorities frequently reduce or waive penalties for taxpayers who voluntarily disclose their noncompliance and settle their unpaid taxes. This article calls for the adoption of nationwide voluntary disclosure procedures in China and explores the design considerations of such procedures. These publications were co-authored by the PI and Prof. Yan Xu (formerly an Associate Professor at CUHK Law and now at UNSW). To increase the potential impact of these publications, the PI and Prof. Xu sent them (in English and Chinese) together with cover letters to senior officials of the State Taxation Administration, China’s tax authority. The PI also shared the publications with other experts and relevant organizations. Following that, the Hong Kong Branch of STEP also sent the paper to senior officials of the State Taxation Administration and suggested that they consider the proposal for formal voluntary disclosure policies in China. | ||||||||||||||||||||||||
| Summary of objectives addressed: |
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| Research Outcome | |||||||||||||||||||||||||
| Major findings and research outcome: | Increasing tax collection is a major challenge for many governments. In addition to enforcement efforts to detect and deter noncompliance, governments have long tried to incentivize noncompliant taxpayers to rectify their noncompliance voluntarily. For that purpose, most countries have adopted a general voluntary disclosure program. However, several countries — including China and other large economies — have not done so. This project examines how noncompliant taxpayers can correct their tax affairs in countries that do not have formal voluntary disclosure policies. It also explores the tax policy considerations that countries should consider when designing their voluntary disclosure policies. This project provides a comparative study of voluntary disclosure policies in 25 countries that do not have formal voluntary disclosure programs. It shows that many of these countries implement practices that reduce or waive penalties for voluntary disclosure filers. Some countries have adopted repeated temporary voluntary disclosure schemes. The result is that nearly all countries provide noncompliant taxpayers with opportunities to voluntarily rectify their noncompliance and receive reduced penalties. The observations that nearly all countries reduce penalties for voluntary disclosure filers and that informal practices operate in certain countries as de facto substitutes for formal voluntary disclosure programs have important policy implications. The project analyzes several tax policy considerations such as participation incentives, fairness, transparency, implementation and compliance costs, coordination with non-tax regulators, and other design considerations. This analysis shows that formal schemes have several advantages over informal practices. The project offers an in-depth analysis of China’s voluntary disclosure policies. It shows that while China does not have a nationwide voluntary disclosure policy, the Chinese tax authorities have been following voluntary disclosure practices under which taxpayers who voluntarily disclose their past noncompliance and pay the required taxes are subject to reduced or no penalties. Local tax authorities have been following voluntary disclosure practices that vary across localities. The project calls for the adoption of nationwide voluntary disclosure procedures by the State Taxation Administration and discusses key design features of such procedures. The project also develops a novel proposal for a voluntary cooperative compliance program for individuals and family trusts. Under the proposed program, the authorities of the relevant jurisdictions would determine, on a joint basis, whether the participant is in full compliance with their tax obligations and whether there are any money laundering concerns. The implementation of this proposal could enhance a culture of cooperative compliance and free up enforcement resources. | ||||||||||||||||||||||||
| Potential for further development of the research and the proposed course of action: |
More research is needed on the optimal design of voluntary disclosure policies. This project shows that the tax policy question which has been the focus of the literature — whether governments should reduce penalties for voluntary disclosure filers — has been answered in the affirmative by nearly all countries. Thus, a key question for future research is the optimal design of voluntary disclosure policies. The PI intends to build on this project to further analyze this question in future publications. The PI is currently working on an article focusing on design features (other than the penalty level) that affect the incentives to file a voluntary disclosure. More work is also required in assessing the voluntary disclosure policies of specific countries. This project provides a detailed country-specific analysis of China. Future work could follow this approach by offering in-depth analyses and recommendations for more countries. The PI will continue working on these important aspects of tax administration and compliance | ||||||||||||||||||||||||
| Layman's Summary of Completion Report: | Some people fail to comply with their tax obligations. In addition to trying to detect and penalize noncompliant taxpayers, many governments implement policies to encourage noncompliant persons to report their noncompliance voluntarily and get back into full compliance. These policies are typically referred to as voluntary disclosure programs. Voluntary disclosure filers are usually subject to lower penalties than noncompliant taxpayers who got caught. However, several countries including China do not have voluntary disclosure programs. How can taxpayers rectify noncompliance in these countries? By studying the practices in 25 countries with no formal programs, this project shows that nearly all countries provide opportunities to rectify noncompliance voluntarily and receive reduced penalties. The project contends that, from a societal perspective, formal voluntary disclosure policies have several advantages over informal practices: they are fairer, more transparent, more cost-effective, and provide stronger incentives to participate. The project offers an in-depth analysis of China’s voluntary disclosure policies. It calls for the adoption of nationwide voluntary disclosure procedures and discusses key design features of such procedures. Lastly, the project develops a novel proposal for a voluntary cooperative compliance program for individuals and family trusts which could enhance a culture of cooperative compliance and free up enforcement resources. | ||||||||||||||||||||||||
| Research Output | |||||||||||||||||||||||||
| Peer-reviewed journal publication(s) arising directly from this research project : (* denotes the corresponding author) |
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| Recognized international conference(s) in which paper(s) related to this research project was/were delivered : |
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| Other impact (e.g. award of patents or prizes, collaboration with other research institutions, technology transfer, etc.): |
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| Realisation of the education plan: | |||||||||||||||||||||||||
| SCREEN ID: SCRRM00542 |