Communication from the Commission to the European Parliament, the Council AND THE European Economic and Social Committee - Tax and Development Cooperating with Developing Countries on Promoting Good Governance in Tax Matters SEC(2010)426
Date: 2010-04-21
Institutions: European Commission
Subjects: European tax cooperation, cooperation policy, developing countries, development policy, fiscal policy, international cooperation

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EUROPEAN COMMISSION 

Brussels, 21.4.2010 
COM(2010)163 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Cooperating with Developing Countries on Promoting Good Governance in Tax Matters 

Tax and Development 

SEC(2010)426 

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INTRODUCTION 

On  28th  April  2009,  the  European  Commission  issued  a  Communication  on  Promoting  Good 
Governance in Tax Matters1, to present concrete actions that could be taken to better promote the 
principles of good governance in the tax area (transparency, exchange of information and fair tax 
competition), both within the European Union and towards third countries. The general objective 
is to improve tax cooperation and tackle tax evasion and avoidance on as broad a geographical 
basis  as  possible.  This  is  also  in  line  with  the  Declarations  of  Monterrey2  and  Doha3  where 
capital  flights  and  illicit  financial  flows  were  explicitly  identified  as  a  major  obstacle  to 
mobilization  of  domestic  revenue  for  development.  According  to  a  Norwegian  government 
commission illegal money flows from developing countries totalled 641 to 979 billion USD in 
2006, thus at least seven times higher than official development assistance4. This is facilitated by 
tax  systems  vulnerable  to  harmful  tax  practices  and  non-cooperative  jurisdictions.  Addressing 
this problem requires joint efforts by both developing and developed countries to implement the 
principles  of  good  governance  in  the  tax  area,  thereby  also  enhancing  growth  prospects  and 
poverty reduction in developing countries while strengthening tax systems at global level. On 18 
May  2009,  and  taking  also  into  account  the  Commission  Communication  on  Supporting 
Developing  Countries  in  Coping  with  the  Crisis5  the  General  Affairs  and  External  Relations 
Council  invited  the  Commission  to  propose  concrete  EU  action  “on  dialogue  with,  and 
assistance  to,  developing  countries  on  promoting  Good  Governance  in  tax  matters  and  more 
effective national tax systems in order to achieve development goals”. This is also a key priority 
of G8 and G20. 

This  Communication  aims  to  improve  synergies  between  tax  and  development  polices  by 
suggesting ways in which the EU could assist developing countries in building efficient, fair and 
sustainable  tax  systems  and  administrations  with  a  view  to  enhancing  domestic  resource 
mobilisation  in  a  changing  international  environment.  The  European  Parliament  has  expressed 
strong support in this regard.  

1. 

STRENGTHENING GOOD GOVERNANCE IN TAX MATTERS IN DEVELOPING COUNTRIES 

In  many  developing  countries,  the  sustainable  provision  of  public  services  that  is  necessary  to 
achieve  and  maintain  the  Millennium  Development  Goals  (MDG)  requires  an  increase  in 
domestic revenue. Their tax-to-GDP ratio ranges between 10 to 20% as opposed to 25 to 40% in 
developed  countries.  Increasing  domestic  revenue  not  only  creates  additional  space  for 
supporting  MDG-related  spending,  it  also  allows  a  country  to  assume  ownership  for  its  policy 
choices.  As  underlined  in  the  Doha  Declaration,  mobilizing  domestic  financial  resources  for 
development  is  central  to  the  global  partnership  for  sustainable  development,  especially  in 
support  of  the  MDG.  For  the  developing  countries  this  partnership  means  enhanced  efforts  to 

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COM(2009) 201. 
Monterrey Financing for Development Conference, 2002. 
Doha Financing for Development Conference, 2008. 
Norwegian Government Commission Report “Tax Havens and Development”, June 2009.  
COM(2009) 160, 2.4.2009. 

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mobilise domestic resources to finance development priorities while donors have to respect their 
commitment  to  provide  long-term  and  predictable  assistance  towards  internationally  agreed 
poverty  reduction  objectives.  The  Commission  assumes  this  mutually  shared  responsibility  by 
providing  an  increasing  share  of  development  assistance  through  budget  support,  including 
through innovative aid modalities such as the MDG-Contracts concluded with a number of ACP 
countries. 

Moreover, taxation is instrumental for state-building and fostering citizenship. Good governance 
in  tax  matters  cannot  be  exported  or  imposed  from  the  outside.  Accountable  government  must 
deliver on the basic needs of citizens or risk loosing legitimacy and public support. The EU is 
committed  to  the  principles  of  ownership  of  development  strategies  and  programs  by  partner 
countries.  In  supporting  developing  countries  in  this  area,  the  EU  is  also  committed  to  the 
principles  of  mutual  accountability  laid  down  in  the  Paris  Declaration  on  Aid  Effectiveness. 
Better tax governance in developing countries will increase the willingness of EU tax payers to 
support development aid. 

1.1. 

Difficulties encountered by developing countries 

1.1.1.  Domestic factors 

When attempting to increase their domestic tax revenues, developing countries are often 
confronted with several constraints linked to: 

•  The  structure  and  competitiveness  of  their  economy  (e.g.  large  informal  sectors, 

predominance of agriculture over industry and services); 

•  Political and macro-economic instability, poor public service delivery, low quality of 
public  finance  management,  the  incidence  of  corruption,  poor  governance  and 
deficient  rule  of  law,  including  in  resource-rich  settings  and  particularly  severe  in 
countries in situations of fragility;  

•  The  features  of  the  tax  system  and  its  management  that  may  explain  the  limited 

effectiveness and responsiveness of tax reforms: 

– 

– 

– 

– 

narrow  tax  base  often  leading  to  an  uneven  distribution  of  tax  burden 
between economic factors and taxpayers; 

balance between direct/indirect taxation that may not always appropriately 
reflect the structure of the economy; 

weak link between tax policy and tax administration; 

lack  of  capacity  of  tax  administrations  to  operate  and  supervise  the  tax 
system, which can result in low tax compliance and collection. 

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1.1.2. 

International factors 

The  increasing  integration  of  international  markets  and  the  economic  globalisation  also  affects 
the effectiveness of national tax systems: 

•  Implementation of domestic tax rules becomes difficult in a world with an increasing 
geographical mobility of taxpayers, the volume of trade and capital flows and the use 
of new technologies; 

•  Transition  from  revenue  systems  largely  dependent  on  customs  revenue  to  broader 

and more modern ones create adjustment issues ; 

•  Countries  might  be  tempted  to  encourage  foreign  direct  investments  through  too 
costly  tax  incentives  and  derogations  that  often  fail  to  attract  real  and  sustainable 
investment; 

•  The  existence  of  non-cooperative  jurisdictions  and  harmful  tax  practices,  both  in 
developed  and  developing  countries,  is  detrimental  also  to  developing  countries  by 
not  only  having  a  negative  impact  on  their revenues but also by undermining good 
governance and institutional development. 

1.2. 

Supporting effective, efficient, fair and sustainable tax systems 

Efficient  and  fair  tax  systems  are  crucial  for  growth,  poverty  reduction,  good  governance  and 
state-building.  They  tend  to  result  in  higher  and  more  stable  revenues,  more  sustainable 
investments,  and  improved competitiveness of  economies.  In  particular,  the  nexus between tax 
reform  and  the  improvement  of  the  business  environment  is  critical  by  making  it  easier  for 
business  to  invest,  trade  and  create  jobs.  Moreover,  in  countries  encountering  capacity 
difficulties,  it  seems  particularly  important  to  design  tax  systems  that  are  easy  to  operate  with 
limited resources. 

Efficient  and  fair  tax  systems  are  also  essential  for  promoting  democracy  and  state  legitimacy 
since  tax  payers  tend  to  hold  their  governments  accountable.  They  help  build  a  strong  fiscal 
social  contract  between  citizens  and  their  government  at  all  levels  that  encourages  tax 
compliance,  leads  to  improved  democratic  and  economic  governance,  higher  revenues  through 
higher  economic  growth  and  broader  tax  bases,  and  allow  for  combating  tax  evasion  and 
avoidance, fighting money laundering, corruption and the financing of terrorism. 

1.2.1.  Assisting in tax reforms and strengthening tax administrations 

The  Commission  acknowledges  the  prime  responsibility  of  developing  countries  themselves  to 
improve  their  revenue  systems  and  policies,  according  to  their  own  economic  and  political 
circumstances and choices. When designing tax systems and strengthening tax administrations a 
number of challenges need to be addressed: 

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•  The appropriate level of and balance between direct and indirect taxes, the scope of 
the tax base and the tax burden distribution considering the structure of the economy, 
the potential to generate sustainable revenues, and the country's social needs; 

•  Bringing 

in 

the 

informal  economy,  productive 

investments  and  facilitating 

employment generation, notably in micro and small enterprises; 

•  Establishing  a  stable  legal  framework,  transparent  tax  systems  and  accountable  tax 
administrations as well as ensuring simplified procedures and low compliance costs; 

•  Giving  tax  administrations  the  necessary  means  to  effectively  process  tax 
information  and  ensure  tax  compliance  for  all  economic  actors,  nationals  and 
internationals alike. 

1.2.2.  Promoting domestic accountability and public financial management 

Enhancing  ownership  and  domestic  accountability  is  at  the  forefront  of  the  EU's  development 
cooperation  framework,  given  the  emphasis  put  on  the  use  of  country  systems  in  aid  delivery, 
including the use of budget support. This implies enhancing adherence to sound and transparent 
public  finances,  including  with  regards  to  revenue  flows  resulting  from  mineral  resource 
projects.6  It  is  important  to  continue  to  promote  greater  transparency  in  preparing  the  budget, 
including subsidies provided through tax exemptions, as well as the transmission to parliaments 
of  budget  execution  reports  and  audits.  More  attention  is  needed  to  strengthen  the  technical 
expertise  of  parliaments  so  as  to  enable  them  to  assess  and  meaningfully  contribute  to  the 
formulation  and  oversight  of  national  budgets,  including  on  domestic  revenues  from  resource 
extraction  and  tax  matters.  Local  authorities’  capacities  to  collect  taxes  and  to  provide 
accountability to citizens on local public spending should be strengthened.  

Non-state actors such as academia, think tanks, NGOs and media, as well as taxpayers, play an 
important role in providing public fora for informed discussions and in ensuring public scrutiny 
of tax governance.  

1.2.3. 

Strengthening transparency and cooperation in the international tax environment 

In  an  ever  globalizing  economy,  it  becomes  increasingly  difficult  for  national  tax  systems  to 
operate  efficiently  without  international  cooperation.  This  may  lead  to  tensions  on  tax 
competences, which can be solved by agreeing to international principles. 

A  number  of  developing  countries  claim  that  their  capacity  to  mobilize  domestic  revenues  is 
affected  by  international  tax  evasion  and  avoidance,  in  particular  because  of  asset  and  profit 
shifting  to  and  through  attractive  and/or  non-cooperative  tax  jurisdictions.  Since  multinational 
corporations  are  not  required  to  disclose  their  financial  data  on  a  country-by-country  basis 
enterprises may try to  lower their tax liability in developing countries notably through transfer 
pricing practices. The G20 countries agreed to work on the international application of rules of 

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The Raw Materials Initiative - COM(2008) 699, 4.11.2008. 

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transparency  in  financial  and  tax  matters  and  have  repeatedly  called  on  the  standard  setting 
institutions to come up with a single set of high quality global accounting standards.The EU is 
seeking  from  all  countries,  and  in  particular  its  partner  countries,  agreement  on  the  basic 
cooperation  principles  of  good  governance  in  the  tax  area  (transparency  of  the  tax  system, 
exchange of information and fair tax competition) that its Member States have already achieved.7 
This  would  enhance  the  capacity  of  EU  Member  States  and  their  partner  countries  to  address 
international tax evasion and avoidance, building on complementary international initiatives.  

Guided by the EU policy of effective multilateralism, the Commission underlines the importance 
of  the  development  of  and  subsequent  compliance  with  global  principles  and  standards  on 
transparency and exchange of information. Ideally, this calls for global conventions with binding 
commitments for all treaty signatories. For the time being, efforts have to be undertaken to make 
effective  use  of  existing  regional  cooperation  frameworks  established  with,  for  instance,  the 
African,  Caribbean  and  Pacific  (ACP)  counties,  Latin  American  and  European  Neighbourhood 
regions  so  that  best  practice  in  good  tax  governance  can  be  introduced  and  broadened  at  the 
appropriate regional level. The Commission will also strengthen transparency by putting forward 
a Communication on Corporate  Social Responsibility, where  it will consider how to develop a 
system for mandatory disclosure of governance information in the annual accounting. 

Developing  countries  need  to  be  enabled  to  participate  more  effectively  in  international  tax 
cooperation  structures  and  processes.  This  would  allow  them  to  negotiate  relevant  agreements, 
including on tax information exchange, at multilateral, regional and/or bilateral level, wherever 
most appropriate and effective. 

2. 

HARNESSING EU INSTRUMENTS TO PROVIDE ENHANCED SUPPORT 

Progress in strengthening tax systems and raising domestic revenues in developing countries has 
rather been modest over the last years. The Commission believes the donor community can do 
more and make better use of the existing funds and instruments by setting up a more consistent 
approach in this area.  

The  Commission  highlights  the  importance  of  assistance,  including  technical  cooperation,  in 
designing developing countries' tax systems and implementing the principles of good governance 
in  the  tax  area.  For  example,  in  2009  the  Commission  has  disbursed  EUR  117  million  on 
ongoing activities and committed an additional EUR 49 million in new projects to support public 
financial  management,  including  tax  policy  and  administration,  in  developing  countries8.  EU 
Member States and other donors provide important support to this area as well.  

The  following  approach  should  help  enhancing  support  from  the  EU  and  the  international 
community to tax systems in developing countries. 

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COM(2009) 160 and 201, and ECOFIN conclusions of 14 May 2008. 
These amounts cover the following activities: fiscal policy and planning; support to ministries of finance; 
strengthening  financial  and  managerial  accountability;  public  expenditure  management;  improving 
financial  management  systems;  tax  policy  and  administration,  budget  drafting;  inter-governmental  fiscal 
relations, public audit, public debt.  

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2.1. 

Stepping up and improving the effectiveness of EU support to tax systems 

2.1.1. 

Introducing a more comprehensive approach to tax administration and tax reforms 

On  the  basis  of  a  comprehensive  approach  taking  notably  into  account  the  economic  situation, 
political  economy  and  the  international  environment  of  the  country,  as  well  as  broader 
governance  and  public  finance  management  contexts,  the  Commission  proposes  that  relevant 
assistance  tools  and  instruments  be  improved  and  best  use  made  of  them  in  the  appropriate 
frameworks: 

•  The  European  Development  Fund  (EDF)  for  African,  Caribbean  and  Pacific  (ACP)  States: 
when  concluding  country  and  regional  strategy  papers,  attention  will  be  given  to  the 
principles of good governance in the tax area, using the countries’ governance commitments 
as  a  basis.  There  will  be  a  greater  focus  on  domestic  revenue  and  principles  of  good 
governance in tax issues as part of countries' governance commitments and profiles. Countries 
eligible for development aid which, after assessment based on the elaboration of a governance 
profile, undertake detailed commitments (Governance Action Plan), may receive an additional 
allocation  depending  on  the  quality  of  their  commitment.  This  will  enable  a  strengthened 
dialogue in this area, including in the context of mid and end of term reviews, and Article 8 
Political Dialogue. In line with the proposals of the 2009 Communication "Promoting Good 
Governance in Tax Matters", important provisions related to good governance in tax area and 
tax reforms have been introduced in the process to revise the Cotonou Agreement.  

•  The  Development  Cooperation  Instrument  (DCI)  and  the  European  Neighbourhood  Policy 
and  Partnership  Instrument  (ENPI):  Specific  attention  will  be  paid  to  effectively  integrating 
domestic  revenue  and  good  governance  in  tax  matters  principles  into  the  programming, 
implementation  and  monitoring  of  national  and  regional  envelopes  in  accordance  with  the 
priorities  of  the  Strategic  Documents,  including  in  the  context  of  the  relevant  political  and 
policy dialogues structures established with the partner countries.  

•  Support  for  national  oversight  bodies,  parliaments  and  Non-State  Actors,  to  produce  and 
disseminate quality work about tax fraud and its impact, to ensure public scrutiny of public 
financial  management,  including  tax  governance  performance,  and  to  assist  in  policy 
formulation, where appropriate and feasible. 

This  enhanced  and  broadened  focus  on  tax  matters  requires  building  up  more  expertise  at  EU 
level and more coherence in the allocation and use of resources. 

2.1.2. 

Supporting multilateral and regional initiatives 

Where appropriate, support to multilateral and regional initiatives on tax administration and tax 
reforms  should  be  granted.  The  Commission  welcomes  regional  fora  such  as  the  African  Tax 
Administration  Forum  and  the  Inter-American  Centre  of  Tax  Administrations,  which  aim  at 
promoting improvements in tax administrations through sharing experiences, benchmarking and 
peer  reviewing  best  practices.  The  Commission  will  consider  financial  support  to  these 
initiatives, inter alia through intra-ACP regional funds.  

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The  Commission  considers  that  support  for  IMF  regional  technical  centres  for  the  provision 
demand-driven and targeted technical cooperation on tax administration to developing countries 
should be enhanced. In addition, support is being considered, also by EU Member States, for the 
IMF  Revenue  for  Development  Trust  Fund  to  extend  technical  cooperation  on  revenue 
management to developing countries.  

In resource-rich settings, the Commission, notably through the EDF, and Member States should 
reinforce  support  to  the  Extractive  Industries  Transparency  Initiative  (EITI)  which  has  been 
instrumental in strengthening governance by improving transparency and accountability, through 
the disclosure of government revenues and company payments from resource extraction. 

2.1.3. 

Strengthening public financial management in the context of budget support 

The  architecture  of  budget  support  programs  facilitates  policy  dialogue,  performance 
measurement and capacity development in order to improve revenue systems and collection. The 
processes  and  tools  developed  for  public  financial  management  (PFM)  are  also  relevant  for 
revenue  mobilization.  The  Public  Expenditure  Financial  Accountability  (PEFA)  framework, 
which includes indicators on revenue, offers one avenue for this. As regards ACP countries, the 
revision of the Cotonou Agreement streamlines institutional development and capacity building 
support to tax reforms and good governance in tax matters and creates incentives to commit to 
public  financial  management  reforms,  including  in  the  revenue  area,  in  order  to  be  eligible  to 
budget support.  

The  EU  should  encourage  partner  governments  to  develop  reform  programs,  including  in 
resource-rich  settings  and  in  the  context  of  support  to  local  authorities  that  clearly  state  the 
objectives  in  terms  of  tax  policy  and  tax  administration  reforms.  A  structured  reform  program 
will facilitate the transition from fragmented projects to a more coordinated donor approach.  

2.1.4.  Deepening regional integration 

Regional integration is crucial for developing countries and a key feature in EU cooperation. The 
creation of custom unions and the adoption of Common External Tariffs in several areas, and the 
signature of Economic Partnership Agreements with the EU bring significant economic benefits 
for the partner countries, but also new challenges, in particular the need to shift the resource base 
from the external common tariffs towards other  types of taxation. Regional organizations have 
adopted  convergence  macroeconomic  criteria  including  tax  revenue  objectives,  have  worked 
towards  harmonized  VAT  rates  and  codes  of  investment  and  have  provided  guidance  on 
strengthening  other  forms  of  taxation,  increasing  efficiency  of  cross-border  tax  services  and 
addressing  transparency.  The  Commission  considers  that  support  should  be  enhanced  for 
furthering the process of regional integration in partner regions, notably through the appropriate 
indicative programs implemented in partnership with the regional organisations concerned.  

2.1.5. 

Improving donor coordination 

The Commission intends to improve donor coordination at EU and international levels. 

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At  EU  level,  the  EU  Code  of  Conduct  on  Complementarity  and  Division  of  Labour  in 
Development  Policy9  presents  guiding  principles  on  division  of  labour.  These  principles, 
including  the  notion  of  lead  donorship  and  delegated  cooperation/partnership  arrangements, 
should  be  applied  to  the  tax  area.  The  Commission  and  the  Member  States  should  coordinate 
support to government priorities taking into account specific expertise and avoiding overlapping.  

An  effective  division  of  labour  at  donor  level  in  general  and  among  EU  partners  in  particular 
allows  for  properly  targeted  tax  governance  assistance  while  fully  respecting  aid  effectiveness 
principles.  Close  collaboration  with  the  European  Investment  Bank  (EIB),  and  coherence 
between EU policy priorities in the tax area and relevant EIB and other International Financing 
Institutions (IFIs) interventions should be further ensured10. 

At  international  level,  donor  coordination  in  relation  to  tax  assistance  should  also  be  further 
improved notably through the International Tax Dialogue (ITD), members of which include the 
European Commission, the IMF, OECD, the UN, and the World Bank. 

2.2.  Working 

towards  a 

transparent,  cooperative  and 

fair 

international 

tax 

environment 

The  Commission  is  convinced  that  tax  evasion  and  avoidance  cannot  be  addressed  properly 
without  international  tax  cooperation  in  an  environment  where  developing  and  developed 
countries can benefit from and contribute to international initiatives.  

2.2.1.  Enhancing the participation of developing countries in relevant international fora 

It is necessary to support developing countries in their fight against illicit outflows and a stronger 
involvement of developing countries in international tax dialogues and cooperation, including in 
the standards setting process. International tax standards for cooperation should also be discussed 
in a forum where developing and developed countries are both represented.  

To this end, the Commission supports stepping up international dialogue and cooperation in tax 
matters,  notably  through  a  broader  participation  of  developing  countries  in  the  OECD  Global 
Fora  on  Transparency  and  Exchange  of  Information  and  on  Development,  respectively. 
the  OECD 
the  Commission  encourages  enhanced  cooperation  between 
Furthermore, 
Development  Assistance  Committee  and  the  Committee  of  Fiscal  Affairs,  the  United  Nations 
Committee  of  Experts  on  International  Cooperation  in  Tax  Matters,  the  International  Tax 
Dialogue, and, as an informal platform, the International Tax Compact.  

Concrete steps have already been taken under the ongoing revision of the Cotonou Agreement to 
support ACP countries to participate in international tax cooperation structures and to implement 

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10 

COM(2007) 72. 
IFIs must carry out a broad-based due diligence in order to avoid that any EU funds are used directly or 
through intermediaries in Offshore Financial Centres, so-called tax havens or any other jurisdiction, for the 
purpose of evading tax payment to beneficiary countries and EU Member States or in connection with tax 
fraud and avoidance. 

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best  practices  in  tax  matters,  including  the  principle  of  transparency  and  exchange  of 
information.  

2.2.2. 

Supporting adoption and implementation of international standards 

The  Commission  considers  that  EU  action  should  focus  on  encouraging  and  supporting 
developing countries to adopt and implement international standards in the tax area. 

With regard to the principles of good governance in tax matters: 

•  The Commission will further seek their adoption through relevant agreements between the EU 

and its partners in line with the ECOFIN conclusions of 14 May 2008; 

•  The Commission will provide support for their adoption and implementation at regional and 

national levels, including through technical cooperation where requested, including by:  

•  Strengthening  capacities  to  conclude  and  implement  Tax  Information  Exchange 
Agreements  (TIEA)  and,  where  appropriate,  Double  Taxation  Conventions  (DTC), 
including through multilateral mechanisms;  

•  Adapting  the  legal  framework  and  improving  tax  administration  capacity  as 

appropriate; 

•  Sharing  experience  in  international  tax  cooperation  gained  through  applicable 
instruments  such  as  the  EU  Savings  Taxation  Directive,  in  order  to  explore  the 
relevance  and  feasibility  of  multilateral  agreements  and  automatic  exchange  of 
information for developing countries. 

The Commission will encourage research on innovative approaches to the implementation of the 
OECD transfer pricing guidelines by developing countries, such as assistance by other countries 
in applying rules, or joint tax audits by developing countries' administrations. The Commission 
also considers that strengthening assessment capacities in tax administrations of partner countries 
is necessary regarding the application of the arm's-length principle. 

In order to enhance transparency and facilitate access of relevant data by tax administrations in 
developing  countries,  there  is  an  increasing  interest  in  a  country-by-country  reporting  (CBCR) 
standard  for  multinational  corporations  operating  in  developing  countries.  The  Commission 
supports  the  timely  conclusion  of  ongoing  work  being  done  by  the  OECD  with  respect  to  a 
CBCR  guideline,  which  should  then  be  referred  in  the  OECD  Guidelines  for  Multinational 
Enterprises  and  in  the  OECD  Principles  of  Corporate  Governance.  Moreover,  the  Commission 
supports  research  work  currently  undertaken  by  the  International  Accounting  Standards  Board 
towards  the  possible  inclusion  of  CBCR  in  an  International  Financial  Reporting  Standard  for 
extractive  industries  and  encourages  further  investigation  into  other  methods  which  could  be 
used to help developing countries authorities to correctly assess, at low cost, the tax liabilities of 
their taxpayers. 

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3. 

CONCLUSIONS AND RECOMMENDATIONS 

The Commission proposes to: 

•  Strengthen support to domestic revenue mobilisation in developing countries, in the context of 
its  broader  efforts  to  strengthen  good  governance  and  public  finance  management  in  these 
countries, by: 

–  Increasing the effectiveness of the support to developing countries' capacities to raise 
domestic revenues in line with the principles of good governance in the tax area. This 
will be done in particular through a more comprehensive approach in support of tax 
reforms  and  administration,  increased  support  to  demand-driven  regional  and 
international  capacity  development  initiatives,  including  EITI  and  IMF  initiatives, 
and better donor coordination at EU and international levels;  

–  Making best use of relevant dialogue and assessment tools, e.g. governance criteria, 
profiles,  action  plans,  for  ensuring  an  effective  monitoring  of  domestic  revenue 
issues and good governance commitments in the tax area;;  

–  Better  integrating  tax  issues  when  assessing    budget  support  eligibility    and 

supporting Public Financial Management reforms; 

–  Strengthening monitoring capacities in developing countries in the fight against illicit 

financial flows, including through support to non-state actors; 

–  Supporting  regional  institutions  and  countries  engaged  in  economic  regional 
integration  and  trade  liberalisation,  and  strengthening  their  capacity  to  improve 
domestic tax revenue mobilisation. 

•  Promote the principles of good governance in tax matters, and support developing countries to 

fight against tax evasion and other harmful tax practices, by:  

–  Encouraging  and  supporting  closer  cooperation  between  relevant  OECD  and  UN 
bodies  when  developing  international  standards  of  tax  cooperation,  taking  into 
account the specific needs and capacities of developing countries; 

–  Including, as appropriate, a specific reference to strengthening tax systems and to the 
principles  of  good  governance  in  the  tax  area  in  all  development  cooperation 
agreements with third parties; 

–  Providing technical cooperation to developing countries committed to the principles 
of good governance in the tax area to enable them to conclude and implement TIEA 
and, where appropriate, DTC; 

–  Supporting the adoption and implementation of the OECD transfer pricing guidelines 

in developing countries; 

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–  Supporting ongoing research on a country-by-country reporting requirement as part 
of  a  reporting  standard  for  multinational  corporations,  notably  in  the  extractive 
industry. 

EN 

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