Transfer pricing, tax evaders and IT: HMRC UK to assist FBR on tax reform initiatives

Her Majesty’s Revenue and Customs (HMRC) UK will assist Federal Board of Revenue (FBR) on tax and customs reform initiatives encompassing development of special skills to identify cases of transfer pricing, techniques to catch tax evaders and use of IT to control tax avoidance. 

It is learnt on Monday that the memorandum of understanding (MoU) signed between the FBR and the HMRC underlines the areas where HMRC UK would provide assistance to the Pakistani tax authorities. The HMRC would help in capacity building to the FBR through the secondment of a Programme Manager to Pakistan; a series of short-term missions to be undertaken by HMRC experts and short-term learning missions of FBR staff to HMRC. 

According to the MoU, the areas of co-operation are to focus on tax and customs reform initiatives which include but are not limited to exchange of information improving mechanism for bilateral and multilateral information exchange to support FBR to meet international standards. To deal with the Transfer Pricing, HMRC would be working with the staff to develop specialist skills to help identify potential cases, develop a more consistent approach and facilitate faster handling. The HMRC would also support FBR to develop its strategic approach, advising on innovative solutions and measures to reduce opportunities for evasion and increase the likelihood that evaders, and those who make evasion possible, are to be caught. 

It would advise the FBR on how IT can be used to analyse risk, target resources to tackle tax avoidance and evasion, reduce administrative costs and enhance customer understanding, so it can take steps to influence behaviour. It would also support the FBR to develop external and internal communications strategies to support the delivery of its business objectives and wider tax reforms, in particular to address the widespread culture of non-compliance among taxpayers. HMRC would be working with FBR on the development of performance management systems to incentivise staff to drive up individual and organisational performance, provide greater value for money, and deliver a higher quality of service. 

The Programme Manager is to work with the FBR to approve a specific and detailed capacity building programme with clear objectives and deliverables. This is to include reporting arrangements for short-term missions where HMRC experts are to report to the Programme Manager and the FBR Officer co-ordinating the technical assistance. 

The capacity building programme is intended to be flexible to respond to developing priorities and the identification of requirements in additional areas. If HMRC is unable to provide the relevant expertise to meet the requirements of FBR then, the parties have to explore alternative ways of providing the expertise. 

Following is the text of the MoU signed between FBR and Her Majesty’s Revenue and Customs of the UK:Memorandum of Understanding Between Her Majesty’s Revenue and Customs of the United Kingdom of Great Britain and Northern Ireland and Pakistan Federal Board of Revenue Her Majesty’s Revenue and Customs of the United Kingdom of Great Britain and Northern Ireland (“HMRC”), and the Pakistan Federal Board of Revenue (“FBR”), Recognising the importance of increasing domestic revenues to support economic integration, stability and growth; Considering the importance of supporting countries to improve tax and customs administrations to ensure countries collect the taxes that they are due; 

Having regard to the United Nations Universal Declaration of Human Rights 1948; Having Regard to the Commonwealth Harare Declaration 1991; Having Regard to the UK-Pakistan Double Taxation Convention 1986; Also Having Regard to the work of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes; and Noting the Letter of Intent from Her Majesty’s Revenue and Customs to the Pakistan Federal Bureau of Revenue on technical assistance in tax and customs matters; Have decided the following: Section 1 – Introduction 

1) This Memorandum of Understanding (“MOU’) sets out how HMRC and the FBR propose to work together on a capacity buildin9 programme to help Pakistan achieve its objectives on tax and customs reform. 

2) This arrangement is part of HMRC and the Department for International Development’s (“DFID”) wider work on tax and customs policy and administration in developing countries. For the purposes of this MOU “capacity building” means developing or acquiring the skills, competencies, tools, processes and resources needed to improve the ability of the administration to carry out its allotted functions and achieve its objectives. Capacity building is a broad and comprehensive process involving all aspects of tax and customs administration and cannot be tackled successfully on a narrow, technical or single issue basis. 

3) The participants to this MOU have no intention to create any legally binding obligations or confer any legal rights, and nothing in this MOU is to be read as doing so. 

4) This MOU does not permit any action which may risk contravention of international human rights obligations. 

5) This MOU is without prejudice to the obligations of the United Kingdom of Great Britain and Northern Ireland under the legislation of the European Union concerning its present and future obligations as a Member State of the European Union and any legislation enacted to implement those obligations, in particular but not limited to legislation concerning Data Protection and Customs, as well as its present and future obligations resulting from international agreements between the Member States of the European Union. 

Section 2 – Scope 

6) HMRC is to provide capacity building support to the FBR through: 

— the secondment of a Programme Manager to Pakistan 

— a series of short-term missions undertaken by HMRC experts 

— short-term learning missions of FBR staff to HMRC. 

7) The areas of co-operation are to focus on tax and customs reform initiatives which include but are not limited to: 

— Exchange of Information: Improving mechanisms for bilateral and multilateral information exchange to support FBR to meet international standards. 

— Transfer Pricing: Working with staff to develop specialist skills to help identify potential cases, develop a more consistent approach and facilitate faster handling. 

— Offshore Evasion: Supporting FBR to develop its strategic approach, advising on innovative solutions and measures to reduce opportunities for evasion and increase the likelihood that evaders, and those who make evasion possible, are caught. 

— Information Technology: Advising FBR on how IT can be used to analyse risk, target resources to tackle tax avoidance and evasion, reduce administrative costs and enhance customer understanding so it can take steps to influence behaviour. 

— Communications: Supporting FBR to develop external and internal communications strategies to support the delivery of its business objectives and wider tax reforms, in particular to address the widespread culture of non-compliance among taxpayers. 

— Performance Management: Working with FBR on the development of performance management systems to incentivise staff to drive up individual and organisational performance, provide greater value for money, and deliver a higher quality of service. 

8) The Programme Manager is to work with the FBR to approve a specific and detailed capacity building programme with clear objectives and deliverables. This is to include reporting arrangements for short-term missions where HMRC experts are to report to the Programme Manager and the FBR Officer co-ordinating the technical assistance. 

9) The capacity building programme is intended to be flexible to respond to developing priorities and the identification of requirements in additional areas. 

10) If HMRC is unable to provide the relevant expertise to meet the requirements of FBR then, the parties have decided to explore alternative ways of providing this expertise. 

Section 3 – Funding 

11) HMRC (through their partnership with DFID) has decided to fund the costs of the Programme Manager, short-term missions and other associated costs. 

12) The FBR has decided to fund the costs of FBR staff working with HMRC on this project. 

13) DFID has decided to fund the costs of the short-term’ learning missions of FBR staff to HMRC. 

Section 4- Implementation 

14) In order to implement this MOU, HMRC is to: 

o make available HMRC experts directly, but subject to availability and funding; and 

— facilitate short and long-term support to the FBR and to respond to the agreed priority requirements of the FBR. 

15) In order to implement this MOU, FBR is to: 

— provide sufficient advance notice of needs to allow HMRC to ensure it has sufficient staff resources available when required; 

— facilitate visas, inward visits/meetings, and in-country transport services; and 

— ensure relevant staff are available to work with the Programme Manager and short-term HMRC experts. 

Section 5 – General 

16) HMRC and FBR have decided to meet annually to review the areas of co-operation, monitor the progress of the partnership arrangement and report to key stakeholders. 

17) Any disagreement/queries arising from the interpretation of this MOU are to be referred to both the Head of EU and International Relations in HMRC and member Human Resources, FBR for resolution. If necessary, this MOU is to be amended to reflect the accepted outcome of the referral. 

18) This MOU is effective for three years from the date of signature. 

19) If any situation occurs in which, in the opinion of HMRC or the FBR, it is desirable to terminate the partnership, then HMRC and FBR are to consult on measures to resolve the problem. In the event that’ the situation cannot be resolved satisfactorily, either party may terminate the partnership by giving 3 months’ notice in writing. 

20) This MOU comes into effect upon signature (two copies of the original, one for HMRC and one for FBR) and places on record the understanding of both parties. 

Signed on behalf of Her Majesty’s Revenue and Customs (HMRC) of the United Kingdom of Great Britain and Northern Ireland, it added.