## tltnea2019001 - Section III sets out the justifications for imposing late

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---

### Justifications for interest and tax penalties
- Interest on tax underpaid is compensatory: it seeks to compensate the government budget for the deprivation of the earning capacity of the amount underpaid.
- Tax penalties are primarily justified on deterrence grounds: they aim to increase compliance by making non-compliance costlier than any savings from it, under rational choice theory.
- Penalties can also be justified on retributivist grounds: failure to fulfill civic and social tax responsibilities is blameworthy and may warrant punishment.
- Taxpayers acting reasonably or not at fault (including adopting a reasonable interpretation of law differing from the tax authority) should not be punished.

### General design considerations for interest and penalties
- Understand taxpayer motivations: compliance is more likely where expected benefits of compliance exceed expected costs and where compliance aligns with social or personal norms.
- Combine penalties with education, tailored communication and/or rewards to enhance effectiveness.
- Make taxpayers responsible for actions of their agents; consider separate penalties for promoters of tax avoidance schemes.
- Account for constitutional, administrative, human rights and other legal constraints (e.g., prohibition of excessive fines, freedom of movement, prohibition of double jeopardy/non bis in idem, right to timely resolution and judicial review).
- When wide discretionary administrative penalty powers exist:
  - Clearly define who may exercise discretion (commonly the Commissioner or Director-General with delegated powers).
  - Accompany delegation with safeguards: transparent guidelines on increasing/decreasing/remitting penalties and taxpayers’ rights to object.
- Ensure each statutory obligation is enforceable: not every breach must attract a penalty, but each requirement should have an enforcement or compliance remedy available.

### Best practice design features for interest regimes

A. Accrual of interest
- Interest often accrues automatically; a formal assessment to notify the taxpayer or facilitate recovery should not be a pre-condition to interest becoming payable.
- Enforcement/collection of automatically accruing interest remains subject to any statute of limitations for raising assessments.
- Periodic installment regimes (e.g., quarterly with annual reconciliation):
  - Address underreporting risk via penalties for deliberate or careless underreporting or where estimate differs from actual by a threshold (for example, 20 percent).
  - Interest should accrue for reported installments not paid timely and for late payments after annual reconciliation.
  - Where installments are deliberately or carelessly underreported, interest could be imposed using adjusted instalments amounts, calculated back to original installment due dates.
- Specify calculation precision (e.g., daily or monthly balances). Example: Australian law computes late payment interest on a daily compounding basis.
- Sample generic provision in Appendix A provides for compounding daily basis.
- Liability should run from the date the tax first becomes payable (determined without regard to an extension of time that may have been granted) until payment date.
- Extensions of time protect against late payment penalty but not late payment interest.
- Power to remit part or all interest should exist for unique and limited fair circumstances.
- For adjusted assessments, interest runs from the original due date.

B. Rate of interest
- Interest on underpayment/late payment commonly higher than commercial lending rates; at minimum must compensate for lost time value of money.
- Avoid rates so low that government becomes de facto lender; avoid rates so high as to be punitive.
- Common approach: base interest on central bank lending rate or commercial lending index plus fixed percentage points; adjust periodically and sufficiently frequently (such as quarterly).
- Example: Australia imposes general interest charge at the bank bill rate plus 7 percent, with a lower uplift of 3 percent applying in the period before a reassessment is made by the tax authority.
- If interest on overpayments/refunds exceeds commercial rates, taxpayers may favor overpayment as investment; governments are generally assumed to have better credit standing, justifying lower refund interest rates.
- Limit payment of interest on refunds to cases of unnecessary delay by tax authority; example: no interest if refund paid within a prescribed period (for instance, 60 days) of application.

C. Remission of interest
- Interest on underpayments is generally not appropriate to remit, but jurisdictions may remit all or part in limited circumstances beyond taxpayer control (natural disasters, serious injury, unexpected serious health issues, technology failures).
- Power to remit interest and penalties should be exercisable separately.
- Examples: Canada allows Minister of National Revenue discretion to waive/cancel all or any portion of penalties or interest, supported by administrative guidelines. Belgium exercises wide discretion to remit late payment interest in “exceptional circumstances” subject to guidelines and judicial control.

D. Recovery of interest
- Late payment interest should apply to any amount treated as “tax” under law, including withholding tax.
- Interest payable by a withholding agent for late payment commonly remains a personal liability of the withholding agent and is prohibited from being recovered from the income recipient.

### Best practice design features for tax penalty regimes

A. Classification of sanctions
- Two primary sanction classes: administrative and criminal.
- Administrative penalties:
  - Appropriate for less egregious cases; remove burden from criminal courts; require lower standard of proof; support voluntary compliance in self-assessment systems.
  - Most suitable for detectable and consistently enforceable behaviors such as:
    - Failure to file returns or other requested information at all/in a timely fashion;
    - Failure to file returns accurately;
    - Failure to pay taxes at all/in a timely fashion;
    - Failure to register with tax authority; and
    - Failure to keep records, including invoices.
  - Design principles:
    - Be easily understood by taxpayers and easily administered;
    - Be equitable and fair (treat taxpayers equally; apply penalties consistently; provide rights of review; consider mitigating facts);
    - Be proportionate (increase penalties with culpability and harm caused);
    - Be effective while maintaining proportionality and fairness; consider graduated penalties and reward features when not making regime too complex.
- Criminal sanctions:
  - Reserved for serious infractions (tax fraud/evasion, obstructing tax officials); may include acts facilitating fraud (falsification of documents), bribery and corruption.
  - Criminal and administrative sanctions are not mutually exclusive; jurisdictions vary on prohibitions against double punishment.
  - Consider rebuttable presumptions of intent in repeated failures to file over defined reporting periods.
- Monetary versus non-monetary sanctions:
  - Monetary sanctions increase effective payment to government; design options:
    - Fixed monetary amount (“fixed penalty”);
    - Percentage based (e.g., percentage of tax saved or of taxpayer’s total income) (“percentage penalty”);
    - Graduated penalties increasing with culpability or repetition (“graduated penalty”).
  - Monetary penalties should be easy to calculate and linked to tax underpaid or refund overclaimed where appropriate; may include minimum and/or maximum.
  - Non-monetary sanctions deprive taxpayers of valued rights/benefits (suspension of business/professional licenses, travel restrictions, naming and shaming, denial of public service employment or contracts).
  - Criminal conviction is a specific non-monetary sanction with reputational and practical costs.
  - Consider insolvency, absence of enforceable assets, or persons outside jurisdiction when assessing monetary sanction effectiveness.

B. Adequacy and effectiveness of sanctions
- Apply a common penalty framework across different tax types to ensure consistent punishment for identical non-compliance acts.
- Proportionality: severity should match degree of culpability; avoid penalties so low as to lack deterrence or so high as to induce corruption, unfairness, or unenforceability.
- Use culpability and mitigating factors in penalty calibration; sample provisions in Appendix B cover false or misleading statements, underpayments, overclaimed refunds, and pure reporting obligations.
- Monetary penalty design choices reiterated (fixed, percentage, graduated) and potential hybrid models:
  - Example hybrid for late payment penalties: combination of (i) percentage of tax not paid by due date; and (ii) an element charged similar to interest, in addition to late payment interest.
  - Consider a grace period before late payment penalty becomes payable (e.g., of up to 15 days) to allow payment arrangements without a second late payment.
- Predetermined adjustments: penalty regimes may set a base amount subject to increasing or decreasing adjustments for aggravating or mitigating circumstances:
  - Increasing adjustments examples:
    - Obstruction of revenue authority (failure/delay to supply information; providing false or misleading information/documents; destroying records);
    - Non-disclosure after awareness of incorrect tax position;
    - Repeated application of same penalty provision.
  - Decreasing adjustments examples:
    - Position consistent with advice from tax authority;
    - Reliance on existing administrative practice;
    - Acting consistent with statements in approved publications/guidelines;
    - Voluntary disclosure before audit/examination or before information request (timing-sensitive within audit cycle).
- Discretionary case-by-case adjustments useful but require transparent guidelines, consistent exercise, internal/external oversight, authorization by senior officials, audit and publication of waiver/reduction cases, disciplinary/criminal consequences for abuse, and taxpayer appeal rights.
- Flat/fixed penalties suitable for behavior indirectly connected to underpayment (e.g., failure to file), possibly scaled to taxpayer’s taxable income in preceding year to maintain proportionality (example: South Africa).
- Monetary tax penalties should have same status as tax debts to enable enforcement powers and interest accrual; remain effective notwithstanding taxpayer bankruptcy.

Designing non-monetary sanctions
- Target rights/benefits valued more than money by taxpayer profile (business licenses, reputation).
- Avoid measures that impede taxpayer’s ability to pay tax debt (e.g., suspension of license, asset seizure, temporary closure, naming-and-shaming can reduce capacity to repay).
- Consider suspending imposition of non-monetary sanctions in exchange for taxpayer undertaking to pay within fixed period, with sanctions to follow upon failure.
- Non-monetary sanctions often require cooperation from other agencies (e.g., travel restrictions enforced by immigration). Ensure legal authority, capacity, integrity, and judicial review (for instance, review within 72 hours if law permits post-issuance review).

Additional administrative considerations
- Apply same statute of limitations for administrative penalties as for reassessments, except where fraud/evasion extends the period.
- Provide timely written notice explaining imposition, payment due date, interest applicability, and appeal rights.
- Ensure human rights and fair trial protections (e.g., Article 6 ECHR examples) are preserved in penalty processes, particularly for punitive regimes with greater enforcement powers.

Additional criminal considerations
- Tax crimes typically involve intentional and dishonest behavior for financial benefit; distinguish tax crimes from tax avoidance/minimization.
- Prefer specifying tax crimes in tax laws and prosecuting via public prosecutions authority; tax authority should review and recommend cases for prosecution.
- Criminal procedure rules of jurisdiction should apply to tax crimes.
- Criminal prosecution may arise for:
  - Assisting others to evade tax (aiding/abetting, conspiracy to defraud);
  - Breach of confidentiality of taxpayer information;
  - Corruption of tax officials.
- Custodial sanctions may be effective where other sanctions fail; for legal persons, derivative liability on directors can enable custodial sanctions if acts done with director consent/knowledge (effectiveness limited by corporate law requirements).
- Other criminal consequences: imposition of security bonds; community service orders; fines; additional penalties; seizure of assets under proceeds of crime/anti-money laundering laws.
- Compounding offences (pay money in lieu of prosecution) can reduce criminal system burden but raises horizontal fairness concerns; mitigate via clear guidelines on compounding circumstances.

Other factors affecting sanction effectiveness and compliance tools
- Taxpayers must understand obligations and consequences; draft tax laws and regulations in modern, easy-to-read manner.
- Certainty and consistency in application by tax authorities is crucial; perceive system as non-arbitrary.
- Robust audits and consistent enforcement increase probability of punishment and thus compliance; publicize punishment cases to reinforce deterrence.
- Common compliance strategies/tools (often legally underpinned) include:
  - International information sharing (exchange of information, joint operations, mutual assistance, bilateral tax treaties, multilateral conventions);
  - Inter-departmental/inter-agency cooperation (domestic EOI/intelligence sharing with FIU);
  - Analytical detection models (identifying outliers/anomalies);
  - Data matching (against information from investment entities, financial institutions, other regulators), including use of big data;
  - Risk profiling (focus on higher revenue risks: offshore secrecy, refund fraud, identity crime, organized crime);
  - Random audits/tax verifications;
  - Community reporting (whistle-blowers, tip-offs).

C. Voluntary Disclosure Programs (VDPs)
- VDPs incentivize disclosure of past non-compliance by offering substantial penalty reductions, increasingly used as access to taxpayer information grows.
- Interest should not be reduced for VDP participants: interest is compensatory and generally should not be waived.
- Penalty reductions under VDPs should apply only to genuinely voluntary disclosures (not where disclosure follows audit or investigation).
- VDP design elements:
  - Penalties and reductions must be substantial to attract participants, but not eliminate penalties to preserve horizontal fairness.
  - Credible and effective ongoing audit/enforcement is required to make VDP participation attractive.
  - VDPs should be well publicized.
- Failure to use VDP when available may be an aggravating factor in later penalty assessments, unless good reason for non-participation exists.

### 1. Late payment interest

Liability and calculation
- "Subject to subsection (8), a person who fails to pay tax on or before the due date for payment is liable for late payment interest at the prescribed rate on the amount unpaid calculated for the period commencing from the date the payment was due to the date the payment is made."
- "When calculating interest under subsection (1) in respect of an adjusted assessment, the due date for the payment of the tax is the date on which tax became payable under the original assessment without regard to any extension of time to pay that may have been granted."
- "Interest payable under this section is computed on a daily compounding basis."
- "Late payment interest payable by a person in respect of withholding tax is borne personally by the person and is not recoverable from any other person."
- "Any interest paid by a person under subsection (1) must be refunded to the person to the extent that the amount to which the interest relates is found not to have been payable."

Notices and timing exception
- "The Director-General may serve a taxpayer liable for late payment interest with notice of the amount of late payment interest payable by the taxpayer and the due date for payment."
- "A notice of the amount of late payment interest payable by a taxpayer may be included in any other notice, including a notice of a taxation assessment, served by the Director-General on the taxpayer."
- When—
  - "(a) the Director-General notifies a taxpayer in writing of the taxpayer’s outstanding tax liability under a tax law (including in a taxation assessment); and"
  - "(b) the taxpayer pays the balance notified in full within the time specified in the notification (including late payment interest payable up to the date of the notification), late payment interest does not accrue for the period between the date of notification and the date of payment."

Interaction with penalties and limits
- "Interest payable under this section is in addition to any administrative penalty imposed under sections [] or any fine imposed under sections [] in respect of the same act or omission."
- "The total amount of late payment interest payable by a taxpayer in respect of an unpaid tax liability must not exceed the amount of the liability."

Scope and definition
- "In this section, 'tax' includes customs duty and excise tax imposed under the Customs legislation but does not include late payment interest."

*Designing Interest and Tax Penalty Regimes, Tax Law IMF Technical Note 1/2019, IMF Legal Department (January 2019).*

### Section III sets out the justifications for imposing late

### tltnea2019001 - Section III sets out the justifications for imposing late

### Justifications for interest and tax penalties
- Interest on tax underpaid is compensatory: it seeks to compensate the government budget for the deprivation of the earning capacity of the amount underpaid.
- Tax penalties are primarily justified on deterrence grounds: they aim to increase compliance by making non-compliance costlier than any savings from it, under rational choice theory.
- Penalties can also be justified on retributivist grounds: failure to fulfill civic and social tax responsibilities is blameworthy and may warrant punishment.
- Taxpayers acting reasonably or not at fault (including adopting a reasonable interpretation of law differing from the tax authority) should not be punished.

### General design considerations for interest and penalties
- Understand taxpayer motivations: compliance is more likely where expected benefits of compliance exceed expected costs and where compliance aligns with social or personal norms.
- Combine penalties with education, tailored communication and/or rewards to enhance effectiveness.
- Make taxpayers responsible for actions of their agents; consider separate penalties for promoters of tax avoidance schemes.
- Account for constitutional, administrative, human rights and other legal constraints (e.g., prohibition of excessive fines, freedom of movement, prohibition of double jeopardy/non bis in idem, right to timely resolution and judicial review).
- When wide discretionary administrative penalty powers exist:
  - Clearly define who may exercise discretion (commonly the Commissioner or Director-General with delegated powers).
  - Accompany delegation with safeguards: transparent guidelines on increasing/decreasing/remitting penalties and taxpayers’ rights to object.
- Ensure each statutory obligation is enforceable: not every breach must attract a penalty, but each requirement should have an enforcement or compliance remedy available.

### Best practice design features for interest regimes
A. Accrual of interest
- Interest often accrues automatically; a formal assessment to notify the taxpayer or facilitate recovery should not be a pre-condition to interest becoming payable.
- Enforcement/collection of automatically accruing interest remains subject to any statute of limitations for raising assessments.
- Periodic installment regimes (e.g., quarterly with annual reconciliation):
  - Address underreporting risk via penalties for deliberate or careless underreporting or where estimate differs from actual by a threshold (for example, 20 percent).
  - Interest should accrue for reported installments not paid timely and for late payments after annual reconciliation.
  - Where installments are deliberately or carelessly underreported, interest could be imposed using adjusted instalments amounts, calculated back to original installment due dates.
- Specify calculation precision (e.g., daily or monthly balances). Example: Australian law computes late payment interest on a daily compounding basis.
- Sample generic provision in Appendix A provides for compounding daily basis.
- Liability should run from the date the tax first becomes payable (determined without regard to an extension of time that may have been granted) until payment date.
- Extensions of time protect against late payment penalty but not late payment interest.
- Power to remit part or all interest should exist for unique and limited fair circumstances.
- For adjusted assessments, interest runs from the original due date.

B. Rate of interest
- Interest on underpayment/late payment commonly higher than commercial lending rates; at minimum must compensate for lost time value of money.
- Avoid rates so low that government becomes de facto lender; avoid rates so high as to be punitive.
- Common approach: base interest on central bank lending rate or commercial lending index plus fixed percentage points; adjust periodically and sufficiently frequently (such as quarterly).
- Example: Australia imposes general interest charge at the bank bill rate plus 7 percent, with a lower uplift of 3 percent applying in the period before a reassessment is made by the tax authority.
- If interest on overpayments/refunds exceeds commercial rates, taxpayers may favor overpayment as investment; governments are generally assumed to have better credit standing, justifying lower refund interest rates.
- Limit payment of interest on refunds to cases of unnecessary delay by tax authority; example: no interest if refund paid within a prescribed period (for instance, 60 days) of application.

C. Remission of interest
- Interest on underpayments is generally not appropriate to remit, but jurisdictions may remit all or part in limited circumstances beyond taxpayer control (natural disasters, serious injury, unexpected serious health issues, technology failures).
- Power to remit interest and penalties should be exercisable separately.
- Examples: Canada allows Minister of National Revenue discretion to waive/cancel all or any portion of penalties or interest, supported by administrative guidelines. Belgium exercises wide discretion to remit late payment interest in “exceptional circumstances” subject to guidelines and judicial control.

D. Recovery of interest
- Late payment interest should apply to any amount treated as “tax” under law, including withholding tax.
- Interest payable by a withholding agent for late payment commonly remains a personal liability of the withholding agent and is prohibited from being recovered from the income recipient.

### Best practice design features for tax penalty regimes
A. Classification of sanctions
- Two primary sanction classes: administrative and criminal.
- Administrative penalties:
  - Appropriate for less egregious cases; remove burden from criminal courts; require lower standard of proof; support voluntary compliance in self-assessment systems.
  - Most suitable for detectable and consistently enforceable behaviors such as:
    - Failure to file returns or other requested information at all/in a timely fashion;
    - Failure to file returns accurately;
    - Failure to pay taxes at all/in a timely fashion;
    - Failure to register with tax authority; and
    - Failure to keep records, including invoices.
  - Design principles:
    - Be easily understood by taxpayers and easily administered;
    - Be equitable and fair (treat taxpayers equally; apply penalties consistently; provide rights of review; consider mitigating facts);
    - Be proportionate (increase penalties with culpability and harm caused);
    - Be effective while maintaining proportionality and fairness; consider graduated penalties and reward features when not making regime too complex.
- Criminal sanctions:
  - Reserved for serious infractions (tax fraud/evasion, obstructing tax officials); may include acts facilitating fraud (falsification of documents), bribery and corruption.
  - Criminal and administrative sanctions are not mutually exclusive; jurisdictions vary on prohibitions against double punishment.
  - Consider rebuttable presumptions of intent in repeated failures to file over defined reporting periods.
- Monetary versus non-monetary sanctions:
  - Monetary sanctions increase effective payment to government; design options:
    - Fixed monetary amount (“fixed penalty”);
    - Percentage based (e.g., percentage of tax saved or of taxpayer’s total income) (“percentage penalty”);
    - Graduated penalties increasing with culpability or repetition (“graduated penalty”).
  - Monetary penalties should be easy to calculate and linked to tax underpaid or refund overclaimed where appropriate; may include minimum and/or maximum.
  - Non-monetary sanctions deprive taxpayers of valued rights/benefits (suspension of business/professional licenses, travel restrictions, naming and shaming, denial of public service employment or contracts).
  - Criminal conviction is a specific non-monetary sanction with reputational and practical costs.
  - Consider insolvency, absence of enforceable assets, or persons outside jurisdiction when assessing monetary sanction effectiveness.

B. Adequacy and effectiveness of sanctions
- Apply a common penalty framework across different tax types to ensure consistent punishment for identical non-compliance acts.
- Proportionality: severity should match degree of culpability; avoid penalties so low as to lack deterrence or so high as to induce corruption, unfairness, or unenforceability.
- Use culpability and mitigating factors in penalty calibration; sample provisions in Appendix B cover false or misleading statements, underpayments, overclaimed refunds, and pure reporting obligations.
- Monetary penalty design choices reiterated (fixed, percentage, graduated) and potential hybrid models:
  - Example hybrid for late payment penalties: combination of (i) percentage of tax not paid by due date; and (ii) an element charged similar to interest, in addition to late payment interest.
  - Consider a grace period before late payment penalty becomes payable (e.g., of up to 15 days) to allow payment arrangements without a second late payment.
- Predetermined adjustments: penalty regimes may set a base amount subject to increasing or decreasing adjustments for aggravating or mitigating circumstances:
  - Increasing adjustments examples:
    - Obstruction of revenue authority (failure/delay to supply information; providing false or misleading information/documents; destroying records);
    - Non-disclosure after awareness of incorrect tax position;
    - Repeated application of same penalty provision.
  - Decreasing adjustments examples:
    - Position consistent with advice from tax authority;
    - Reliance on existing administrative practice;
    - Acting consistent with statements in approved publications/guidelines;
    - Voluntary disclosure before audit/examination or before information request (timing-sensitive within audit cycle).
- Discretionary case-by-case adjustments useful but require transparent guidelines, consistent exercise, internal/external oversight, authorization by senior officials, audit and publication of waiver/reduction cases, disciplinary/criminal consequences for abuse, and taxpayer appeal rights.
- Flat/fixed penalties suitable for behavior indirectly connected to underpayment (e.g., failure to file), possibly scaled to taxpayer’s taxable income in preceding year to maintain proportionality (example: South Africa).
- Monetary tax penalties should have same status as tax debts to enable enforcement powers and interest accrual; remain effective notwithstanding taxpayer bankruptcy.

Designing non-monetary sanctions
- Target rights/benefits valued more than money by taxpayer profile (business licenses, reputation).
- Avoid measures that impede taxpayer’s ability to pay tax debt (e.g., suspension of license, asset seizure, temporary closure, naming-and-shaming can reduce capacity to repay).
- Consider suspending imposition of non-monetary sanctions in exchange for taxpayer undertaking to pay within fixed period, with sanctions to follow upon failure.
- Non-monetary sanctions often require cooperation from other agencies (e.g., travel restrictions enforced by immigration). Ensure legal authority, capacity, integrity, and judicial review (for instance, review within 72 hours if law permits post-issuance review).

Additional administrative considerations
- Apply same statute of limitations for administrative penalties as for reassessments, except where fraud/evasion extends the period.
- Provide timely written notice explaining imposition, payment due date, interest applicability, and appeal rights.
- Ensure human rights and fair trial protections (e.g., Article 6 ECHR examples) are preserved in penalty processes, particularly for punitive regimes with greater enforcement powers.

Additional criminal considerations
- Tax crimes typically involve intentional and dishonest behavior for financial benefit; distinguish tax crimes from tax avoidance/minimization.
- Prefer specifying tax crimes in tax laws and prosecuting via public prosecutions authority; tax authority should review and recommend cases for prosecution.
- Criminal procedure rules of jurisdiction should apply to tax crimes.
- Criminal prosecution may arise for:
  - Assisting others to evade tax (aiding/abetting, conspiracy to defraud);
  - Breach of confidentiality of taxpayer information;
  - Corruption of tax officials.
- Custodial sanctions may be effective where other sanctions fail; for legal persons, derivative liability on directors can enable custodial sanctions if acts done with director consent/knowledge (effectiveness limited by corporate law requirements).
- Other criminal consequences: imposition of security bonds; community service orders; fines; additional penalties; seizure of assets under proceeds of crime/anti-money laundering laws.
- Compounding offences (pay money in lieu of prosecution) can reduce criminal system burden but raises horizontal fairness concerns; mitigate via clear guidelines on compounding circumstances.

Other factors affecting sanction effectiveness and compliance tools
- Taxpayers must understand obligations and consequences; draft tax laws and regulations in modern, easy-to-read manner.
- Certainty and consistency in application by tax authorities is crucial; perceive system as non-arbitrary.
- Robust audits and consistent enforcement increase probability of punishment and thus compliance; publicize punishment cases to reinforce deterrence.
- Common compliance strategies/tools (often legally underpinned) include:
  - International information sharing (exchange of information, joint operations, mutual assistance, bilateral tax treaties, multilateral conventions);
  - Inter-departmental/inter-agency cooperation (domestic EOI/intelligence sharing with FIU);
  - Analytical detection models (identifying outliers/anomalies);
  - Data matching (against information from investment entities, financial institutions, other regulators), including use of big data;
  - Risk profiling (focus on higher revenue risks: offshore secrecy, refund fraud, identity crime, organized crime);
  - Random audits/tax verifications;
  - Community reporting (whistle-blowers, tip-offs).

C. Voluntary Disclosure Programs (VDPs)
- VDPs incentivize disclosure of past non-compliance by offering substantial penalty reductions, increasingly used as access to taxpayer information grows.
- Interest should not be reduced for VDP participants: interest is compensatory and generally should not be waived.
- Penalty reductions under VDPs should apply only to genuinely voluntary disclosures (not where disclosure follows audit or investigation).
- VDP design elements:
  - Penalties and reductions must be substantial to attract participants, but not eliminate penalties to preserve horizontal fairness.
  - Credible and effective ongoing audit/enforcement is required to make VDP participation attractive.
  - VDPs should be well publicized.
- Failure to use VDP when available may be an aggravating factor in later penalty assessments, unless good reason for non-participation exists.

*Source: tltnea2019001 - Section III sets out the justifications for imposing late (PDF chapter/section).*

### 1.      Late payment interest

### 1. Late payment interest

### Liability and calculation
- "Subject to subsection (8), a person who fails to pay tax on or before the due date for payment is liable for late payment interest at the prescribed rate on the amount unpaid calculated for the period commencing from the date the payment was due to the date the payment is made."
- "When calculating interest under subsection (1) in respect of an adjusted assessment, the due date for the payment of the tax is the date on which tax became payable under the original assessment without regard to any extension of time to pay that may have been granted."
- "Interest payable under this section is computed on a daily compounding basis."
- "Late payment interest payable by a person in respect of withholding tax is borne personally by the person and is not recoverable from any other person."
- "Any interest paid by a person under subsection (1) must be refunded to the person to the extent that the amount to which the interest relates is found not to have been payable."

### Notices and timing exception
- "The Director-General may serve a taxpayer liable for late payment interest with notice of the amount of late payment interest payable by the taxpayer and the due date for payment."
- "A notice of the amount of late payment interest payable by a taxpayer may be included in any other notice, including a notice of a taxation assessment, served by the Director-General on the taxpayer."
- When—
  - "(a) the Director-General notifies a taxpayer in writing of the taxpayer’s outstanding tax liability under a tax law (including in a taxation assessment); and"
  - "(b) the taxpayer pays the balance notified in full within the time specified in the notification (including late payment interest payable up to the date of the notification), late payment interest does not accrue for the period between the date of notification and the date of payment."

### Interaction with penalties and limits
- "Interest payable under this section is in addition to any administrative penalty imposed under sections [] or any fine imposed under sections [] in respect of the same act or omission."
- "The total amount of late payment interest payable by a taxpayer in respect of an unpaid tax liability must not exceed the amount of the liability."

### Scope and definition
- "In this section, 'tax' includes customs duty and excise tax imposed under the Customs legislation but does not include late payment interest."

_Designing Interest and Tax Penalty Regimes, Tax Law IMF Technical Note 1/2019, IMF Legal Department (January 2019)._

---


_Source: https://www.imf.org/-/media/files/publications/tltn/tltnea2019001.pdf_