Taxpayer Rights and the Role of a Taxpayers' Charter

In December 1948, in the aftermath of the World War II, motivated by a desire to reflect the sanctity of human life and an understanding of the need to protect the individual against the overarching power of the state, the United Nations General Assembly adopted the Universal Declaration of Human Rights. Article 17 states: “Everyone has the right to own property alone as well as in association with others. No one shall be arbitrarily deprived of his property.”

In 1950 the newly formed Council of Europe drafted and adopted the equivalent European Convention on Human Rights (ECHR). Very shortly thereafter, the council supplemented the ECHR with a first protocol. Article 1 of the protocol provides:

The U.K., rather belatedly, enacted the ECHR into domestic law as the Human Rights Act 1998. Schedule 1, Part II reproduces, word for word, article 1 and its first protocol from the ECHR.

Then, in 2000, the Charter of Fundamental Rights of the European Union was published to bring all the various human rights guarantees established in the laws, court decisions, and other legal records of the EU and its member countries and incorporate into a single document. Presenting the charter on its website, the European Commission explains:

• all the rights found in the case law of the Court of Justice of the EU;

• the rights and freedoms enshrined in the European Convention on Human Rights;

• other rights and principles resulting from the common constitutional traditions of EU countries and other international instruments.

• data protection;

• guarantees on bioethics; and

• transparent administration.

The charter is consistent with the ECHR, and article 17 of the charter states:

In 2004, a few years after the charter was first published, officials decided to take the necessary steps to make the charter legally binding. Although this has now been done, there is some confusion as to the actual effect of the charter. The U.K. government was clear that it would do no more than codify existing rights and that it would not extend to rights beyond the competence of the EU, meaning it would not extend to taxation laws. The U.K. and Poland entered into a protocol, number 30, which, in the words of the U.K. negotiator, Lord Goldsmith: “[Protocol 30] is not an opt-out but a guarantee. An explicit confirmation that in relation to the UK and UK law, the limitations and constraints on what it is and what it will do will be strictly observed.”¹

 

The International Monetary Fund

The IMF in Part IV, “Assurances of Integrity,” of its Manual on Fiscal Transparency (2007), writes under the heading “Fiscal Activities Should Be Subject to Effective Internal Oversight and Safeguards” that:

Under the heading “Explicit Legal Basis for Revenue Collection,” the manual declares:

 

The Role of Charters, Past and Present

Charters have a long history as part of the quest to balance the power of government and other public authorities against the legitimate rights of the citizen.

A very early example was Magna Carta, which in 1215 sought to restrict the powers of the English King John. It was described by Lord Denning, possibly the most renowned British judge of the 20th century, as “the foundation of the freedom of the individual against the arbitrary authority of the despot.”

As was noted above, in the aftermath of the World War II the U.N. General Assembly adopted the Universal Declaration of Human Rights in 1948. Shortly afterward, in 1950, the newly formed Council of Europe adopted the ECHR. Both documents lay down the principle that everyone is entitled to the peaceful enjoyment of their own possessions, of which they cannot be deprived except by rule of law. While there is no explicit mention of taxation in the U.N. document, the first protocol to the ECHR explicitly states that it is legitimate for countries to levy taxes.

Forty years later, as tax systems began to require more involvement from the taxpayer and demand more cooperation between taxpayer and tax administrations with, for instance, the impending arrival of self-assessment, governments began to consider more targeted charters to cover the rights of taxpayers.

Taxpayers’ charters have been described by Philip Baker QC as “a short, accessible statement of the basic rights [and obligations] of taxpayers in dealing with the tax authorities.”

The OECD said much the same thing in its 2003 publication “Taxpayers’ Rights and Obligations — Practice Note”:

It is somewhat disappointing that the OECD has not been more involved in taxpayer rights issues in the past few years, but I am hopeful that this may change in the future.

 

The U.K. Experience of Taxpayers’ Charters

The U.K. first adopted a taxpayers’ charter in 1986. It was introduced because the revenue department’s level of service had become extremely poor. For example, mail was not being opened, let alone answered, and the phones were not being answered in good time. The incoming chairman of the Inland Revenue Board, Sir Anthony Battishill, saw the introduction of a charter as a means to address this dismal level of service provision. At the time, the introduction of a charter was resisted by those working in the department who thought that “the man in Whitehall knows best” and believed that giving rights to the taxpayer was neither appropriate nor necessary.

The original (1986) charter was updated in 1991 when the Conservative government in power under Prime Minister John Major worked to introduce “citizen’s charters” for all major government bodies.

In 1990 there was a consultation on citizen’s charters, and other government departments were very interested to learn from the experience of Inland Revenue and HM Customs & Excise, each of which already had a charter.

The aims of these public sector body charters were twofold:

• to enable consumers to judge acceptable standards of service for the particular institution; and

• to advise consumers on how to go about complaining and obtaining redress if the service provided fell below this benchmark.

By the end of that government’s term in 1997, more than 40 public authority charters were in place in the U.K.

The new Labour government, which came to power in 1997, had different ideas concerning how to ensure good performance by government departments. The charters were abandoned and, in some instances, replaced by performance targets and charter marks, a quality improvement tool that includes awards for excellence in customer service.

It was only when a later U.K. government enacted new tax enforcement powers in 2008, following the merger of the two revenue departments — Inland Revenue and HM Customs & Excise — to form HM Revenue & Customs in 2005, that the government considered the question of a new successor charter. There were two consultations, in 2008 and 2009, and a new charter was introduced toward the end of 2009.

Some confusion was created by the then chair of HMRC, Mike Clasper, who took office in August 2008 and who came from the private sector. Clasper, who left HMRC in 2012, was keen to introduce the equivalent of a mission statement for HMRC; as a result, HMRC published “Purpose, Vision and Way” in 2008, which was difficult to distinguish from “Your Charter,” published at the end of 2009. “Purpose, Vision and Way” was quietly dropped in 2016 when the second, and current, iteration of “Your Charter” was published.

Notably, the title of the new 2009 charter was not “Taxpayer Charter,” but “Your Charter.” This title reflects HMRC’s more broad-ranging role, which, by 2009, included responsibility for making social security payments in addition to collecting taxes.

 

Recent Legal Authority for ‘Your Charter’

When the new U.K. charter was being formalized in 2009, the government agreed, under pressure, that there should be statutory underpinning for Your Charter.² This appears in section 92 of Finance Act 2009. Therein, the government declares that the charter must “include standards of behavior and values to which [HMRC] will aspire when dealing with people in the exercise of their functions.” Further, it states that HMRC must regularly review the charter, publish revisions when appropriate, and produce an annual report “reviewing the extent to which [HMRC] have demonstrated the standards of behavior and values included in [Your] Charter.”

The 2015-2016 Annual Report includes a statement on page 6 in which I set out the new challenges for the committee that has been established by HMRC to oversee its performance against “Your Charter” standards.

 

What Should Taxpayers’ Charters Cover?

There are several legitimate questions about the nature and role of charters, including:

• Should taxpayers’ charters have a statutory basis?

• Should they include obligations as well as rights?

• Are rights and obligations linked? Is the fulfilment of obligations a sine qua non for rights being available?

• Should a taxpayers’ charter spell out issues of culture and appropriate behaviors for officials?

In my view, a taxpayers’ charter should include the following basics:

• required behaviors for tax officials;

• use of appropriate systems;

• taxpayers’ right to challenge or complain about the tax administration if outcomes are less than optimal;

• rights of appeal and the ability to obtain redress; and

• appropriate monitoring and public reporting.

 

Supranational Taxpayers’ Charters

 

The European Union

The European Union carried out a public consultation in 2013 and then debated for the next three years before publishing Guidelines for a Model for a European Taxpayers’ Code in November 2016.

The code is nonbinding for the EU member states, but the general principles underpinning the relationships between taxpayers and tax administrations are set out under the following headings:

• lawfulness and legal certainty;

• nondiscrimination and equality of taxpayers;

• presumption of honesty;

• courtesy and consideration;

• respect of law;

• impartiality and independence;

• fiscal secrecy and data protection;

• privacy; and

• representation.

These fundamental principles are supplemented by activities under the following headings:

• providing information and guidance to taxpayers;

• services to taxpayers;

• key service standards;

• interpretations of a general nature; and

• advance rulings.

The model recognizes that there will also be occasions when the tax authority and a taxpayer have differences of opinion. There need to be mechanisms to resolve differences, including:

• an internal appeal process;

• court or tribunal review; and

• the right to complain.

 

OECD

As briefly mentioned above, the 2003 OECD practice note on taxpayer rights and obligations sets out rights and obligations that the organization believes are appropriate to include in a taxpayers’ charter. The paper notes that, while they may not be explicitly acknowledged via a charter, all tax systems within the OECD guarantee taxpayers the right:

• to be informed, assisted, and heard;

• to appeal;

• to pay no more than the correct amount of tax;

• to certainty;

• to privacy; and

• to confidentiality and secrecy.

These are coupled with obligations to:

• be honest;

• be cooperative;

• provide accurate information and documents on time;

• keep records; and

• pay taxes on time.

 

Confédération Fiscale Européenne

Over the past five years the Confédération Fiscale Européenne (CFE), a group of professional tax organizations from 21 European nations, has worked with other global organizations to survey practices involving taxpayers’ charters in more than 40 countries.

In 2016 the CFE published a model taxpayers’ charter (updating a 2013 version) intended to “foster a relationship of mutual trust, respect and responsibilities” between taxpayers and tax authorities.

This model taxpayers’ charter is very broad-ranging. Its 37 articles cover many of the characteristics of a good tax system. Article 4 contains the basic principles that act as a foundation for the more specific provisions in the other articles.

These 10 basic principles that underpin the rights of the taxpayer in the CFE model taxpayers’ charter are:

• integrity and equality;

• certainty;

• efficiency and effectiveness;

• appeal and the right to dispute resolution;

• appropriate assistance;

• confidentiality and privacy;

• payment of the correct amount of tax;

• representation;

• proportionality; and

• honesty.

The CFE model charter also sets out 10 taxpayer responsibilities, including being truthful, providing information, being cooperative, making payment, and complying with the law.

 

Practical Protection of Taxpayer Rights

Returning to “Your Charter” in the U.K., the mission statement of HMRC, published in February 2016, states that HMRC “want to give you a service that is even-handed, accurate and based on mutual trust and respect. We also want to make it as easy as we can for you to get things right.”

The International Fiscal Association (IFA) included “Practical Protection of Taxpayer Rights” as one of the two main subjects for its 2015 congress in Basel, Switzerland. Twelve research areas were identified, and reporters from 41 countries researched the situation in their countries regarding the 12 areas listed below. General reporters Baker and Pistone then asked the country correspondents to complete an 82-part questionnaire to allow them to identify best practices and minimum standards for protecting taxpayer rights.

IFA and the International Bureau of Fiscal Documentation, of which Pistone is the academic director, have now established an Observatory of Human Rights to follow up the work done at the 2015 IFA congress and track developments in individual countries against the minimum standards and best practices identified in 2015.

The 12 areas researched in the IFA study were:

• identifying taxpayers, issuing tax returns, and communicating with taxpayers;

• issue of tax assessments;

• confidentiality;

• normal audits;

• more intensive audits;

• reviews and appeals;

• criminal and administrative sanctions;

• enforcement of taxes;

• cross-border procedures;

• legislation;

• revenue practice and guidance; and

• institutional framework for protecting taxpayer rights, including a charter.