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Annex to Decree No. 114 of 8 June 2017 of the Minister of Finance

Estonian Tax and Customs Board Strategic Development Plan 2017-2020

Tallinn 2017

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TABLE OF CONTENTS

Table of contents ...........................................................................................................................................2

Introduction....................................................................................................................................................3

Main challenges for Estonian Tax and Customs Board strategies ...............................................................3

Mission, vision, main values..........................................................................................................................6

Strategic objectives, their definitions and indicators .....................................................................................7

Objective 1: .............................................................................................................................................. 7

We will provide simple and convenient services to taxpayers .......................................................... 7

Objective 2: ............................................................................................................................................ 12

We will provide assurances to businesses that their tax and customs affairs are in order and

ensure an equal competitive environment ......................................................................................... 12

ETCB Strategy 2017-2020 Indicator Explanations .................................................................................... 15

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INTRODUCTION

The Estonian Tax and Customs Board Strategic Development Plan 2017-2020 (hereinafter development plan) is the fourth long-term planning document of Estonian Tax and Customs Board (hereinafter ETCB), an agency under the Ministry of Finance (hereinafter MoF).

ETCB is engaged in the administration of state revenues, implementation of national tax and customs policy and protection of the society and lawful economic activity. ETCB’s costs are covered by the state budget. ETCB is accountable to the Minister of Finance who directs and co-ordinates its activities and exercises supervisory control over it. ETCB is engaged in the collection of state budget revenues relating to state taxes and customs revenues, protection of the society and lawful economic activity, implementation of tax and customs enforcement based on state tax and customs policy, implementation of tax laws, customs rules and other legislation, issuance of operating permits for gambling and lottery, gambling and lottery supervision and customer service related to tax obligations and customs formalities.

ETCB is a progressive European tax authority, largely thanks to Estonian taxpayers. Society opinion polling indicates that Estonian taxpayers see ETCB as a trustworthy government agency. The tax authority values trustworthiness very highly and ETCB is focused on maintaining and raising this quality.

The strategy period is 2017-2020. The development plan is a single comprehensive document laying out the actions necessary to accomplish ETCB’s objectives. The document provides a vision, mission, main values and strategic objectives, indicators and targets and the actions required to accomplish objectives. Achievement of objectives is evaluated based upon indicators and annual targets. Targets are mainly set based on the expectations and interests of businesses. The development plan is comprised of two strategic objectives and contributing objectives across all of ETCB’s departments1. The development plan will be updated at least annually (first quarter). Strategic and contributing objectives and targets are reviewed, actions are detailed (the development plan sets out actions more broadly, i.e. the duration is 4 years, actions are described in more detail in the annual departmental action plan). Each department has an annual action plan laying out steps to support the accomplishment of objectives listed in the strategy and performance is monitored quarterly.

MAIN CHALLENGES FOR ESTONIAN TAX AND CUSTOMS BOARD STRATEGIES

2005-2008

The tax agency and customs agency that used to operate separately under the MoF in the past were merged into a single Tax and Customs Board, effective 1 February 2004. The newly

1 Tax Audit Department, Revenue Department, Tax Department, Investigation Department, Customs Department, Service Department, Intelligence Department, Legal Department, Personnel Department, Administration Department, Internal Control Department.

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established joint agency succeeded thanks to efforts by both agencies not only related to challenges from changes in organisational structure but adaptation to new responsibilities arising from joining the European Union.

Key challenges faced by the newly established agency were to become a fair and professional partner for customers (taxpayers) in streamlining the business environment and protection of the society and economy. As part of combining services, it was essential to maintain consistency and quality in meeting customer needs and therefore ETCB adopted its primary strategic objective of becoming a customer-driven organisation. The first step was to define the key customer groups and the services related to them. This was done in line with customer expectations, as per customer satisfaction survey results. Subsequent steps entailed the design of services to meet the needs of the customer groups that in turn necessitated continuous service improvement in the form of reallocation of internal duties and resources. The former processes of the agencies were integrated into the development plan for the combined agency for the period 2005-2008 as a new mission, vision and strategic organisational framework were defined.

By the end of the first strategy period, ETCB had become a trustworthy partner, valued by individual customers, the state and partner organisations. This was evidenced by high customer satisfaction levels and increasing share of online tax returns.

In conditions of a challenging economy, preparation began for the new strategic period, led by management. Analysis of the management system effectiveness and development of a new development plan resulted in an extensive structural change at the end of 2008. The former pillar-based structure was replaced with a process-based structure, accompanied by a notable reduction in the number of hierarchical levels and cost savings.

2009-2012

The year 2009 was a post-reform adaptation year as the staff had been significantly reduced. The global recession had brought about increases in tax debtors, which in turn increased workload and the importance of oversight-based processes. A high burden of day-to-day work meant that departments had to put their performance targets first and reduce their focus on development activities.

Guided by the vision and role in society, two key objectives were set for the period 2009-2012: Reduction of administrative burden for law-abiding customers through service diversification and process quality improvement and increase in compliance through development of measures for control and incentives. This strategy excluded parts related to the organisation and staff development.

In a climate where the overall European capability of implementation of EU customs projects was very low (2009), ETCB was among six EU customs administrations that was able to implement all planned changes on time. The year 2010 was focused on preparations for joining the euro. The project to join the euro was initiated at the start of the year, was subdivided into four projects and all activities were completed on time. All ETCB currency-based information systems were transitioned to the euro from 31 December 2010 to 3 January 2011. The project

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enabled separate transactions denominated in Estonian kroon and euro in ETCB information systems.

2013-2016

The long-term plan for this period had three strategic objectives: collect the state’s tax revenue, decrease the share of illicit economic activity and build an organisational culture that supports development and performance. The objective was to increase voluntary tax compliance while retaining the simplicity and clarity of tax compliance under the tax and customs legislation. The efforts were aimed at reducing the loss of state tax revenue and provide a more honest competitive environment through the reduction of tax fraud and smuggling at a moderate administrative burden.

Keywords for this period were ETCB service accessibility wherever the customer needed it – either at a physical location or online. We focused on honest customers, offering them less complexity in paying taxes and carrying out customs formalities. We advised customers on a pre-emptive basis of their obligations and pointed out their errors, giving them an opportunity to correct them. We also felt it important to maintain fair competition, therefore we focused especially on the upgrading and raising of control measures for improving tax compliance. Compared to the 2009-2012 period, an important addition is our objective to develop the organisation and support the organisational culture. This is a developmental objective aimed internally and to customers whereby we targeted the motivation and goal-orientation of our staff. We focused on cost-effective management decisions and provision of innovative solutions to customers when paying taxes and completing customs formalities.

2017-2020

The development plan for this period is centred on supporting businesses and their growth. It may at first seem puzzling how ETCB could have a role in supporting businesses and their growth. This connection is, in fact, something that we must establish and strengthen in the coming years. Forceful actions that we took in the previous strategy period were effective despite initial public scepticism. Improved inspection of fuel at the border, submission of transaction data and the employment register caused reverberation among the public and businesses. When ETCB undertook inspections of car use, it learned an unexpected lesson. The contribution among businesses in the success of the submission of transaction data and employment register was high. Newly launched IT solutions and new information helped us react faster to necessary inspections. We resolved to improve tax collection and fight the underground economy four years ago. Tax collection has exceeded expectations over the last four years, the share of the underground economy is on the decline and ETCB retains its high trustworthiness rating.

Our current responsibility for collecting state tax revenues remains in place while tax collection as a numerical indicator will be one of our targets as part of accomplishing our objectives. It is time to focus our efforts on areas other than solely tax revenue collection as ideally this should not be the tax authority’s primary task. New information systems have notably improved tax

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compliance. It will be a huge change because our statutory responsibility is to supervise, audit and conduct proceedings. As stated, we will place our strategic focus on the businesses – the companies and supporting them better than ever because they are the key to tax revenue collection. All employees pay taxes but this can only happen after employers have created jobs for them. By “supporting businesses” we mean their day-to-day operation and the design of the optimal conditions for this by ETCB. Our support also continues to include ensuring equal conditions of competition through our engagement in our supervisory activities (audit, investigation). However, we are not defining our supervisory activities as an explicit objective. We aim to support businesses and their growth by providing services that will actually help them in their development and day-to-day operation. We address day-to-day operation and growth jointly and separately. Economic growth in an important factor for operation and growth. Growth of businesses, however, is hard to come by when economic growth stops or, worse, reverses. Support will then be even more essential to overcome the challenges.

We are assisting businesses in achieving tax compliance on a pre-emptive basis while at the same time developing a contemporary self-service system. We have begun developing a new e-ETCB. We see this as a transformative change within the public administration. We aim to develop the new e-Tax/e-Customs system in a manner that reduces contacts with us to the greatest extent possible and provides businesses with timely economic reviews. As an illustrative example, no matter how polite a letter the tax authority drafts, this only goes so far. Let us be honest, our letters do not exactly receive a warm welcome from anyone, no matter how nicely we draft them. We are working toward eliminating the need for sending letters. We would like to instil confidence that we are the first port of call for assistance in matters of taxation and customs. Our new applications must make tax compliance as simple and cheap as possible. We are developing new online solutions to benefit equal conditions of competition.

We must also continue to ensure that our talented employees are well motivated. We must re-evaluate our operations in terms of geographic location and service availability. One thing is for certain – we will continue to be represented where our customers and businesses are based.

MISSION, VISION, MAIN VALUES

Our mission2 is: We provide services and conduct tax audits to establish the best possible operating environment for taxpayers.

Our vision3 is: We support businesses and their growth.

Our main values4 are: 1. We are innovative and provide capable assistance to taxpayers.

2 We see our mission statement as a clear and concise communication of why our organisation is actually needed and what we are working for. 3 We see our vision as a future outlook that we aim to achieve. 4 Main values are beliefs that shape our perspectives, attitudes, values and rules of conduct.

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2. We value and recognise our people and develop our team.

We do the following to appreciate our staff: - Retention and development of good management quality (de-centralised decision-

making authority, management of departmental budget, management development and training).

- Promotion of employee-friendly workplace with an environment of trust (providing

flexitime, motivation, systemic training models and specialised training). - We provide training, a good working environment and tools (work and recreation

area, uniforms, equipment). - We aspire to good collaboration (inclusion, observation, feedback, role of department

in accomplishing collective objectives).

STRATEGIC OBJECTIVES, THEIR DEFINITIONS AND INDICATORS

Vision: Supporting businesses and their growth

PERFORMANCE INDICATORS AND TARGETS:

Indicator Initial level Target

2016 2017 2018 2019 2020

Doing Business index – paying

taxes component5

21st place6 Up from previous year

Up from previous year

Up from previous year

Up from previous year

OBJECTIVE 1:

WE WILL PROVIDE SIMPLE AND CONVENIENT SERVICES TO TAXPAYERS

Sub-objectives:

1.1 We will support business

PERFORMANCE INDICATORS AND TARGETS:

Indicator Initial level Target

2016 2017 2018 2019 2020

Change in value added compared to the same period of the previous year7

15.32 billion euros

Growth compared to

the same period of the

previous year8

Growth compared to

the same period of the previous year

Growth compared to

the same period of the previous year

Growth compared to

the same period of the previous year

5 Doing Business index – paying taxes component – Estonia’s ranking. Annual results.

Methodology: An annually calculated index by the World Bank, comprised of sub-indicators such as the paying taxes component. 6 Based on data from 2015. A study based on data from 2016 will be published in October 2017. 7 Change in value added compared to the same period of the previous year. Quarterly results. Methodology: Value added = Total

sales reported on Form KMD excluding tax-exempt revenue – total purchases excluding long-lived assets. 8 The objective is set depending on the year: if economic growth is expected, we are also expecting value added growth. If value added declines, it is important to track the ratio of sales to purchases.

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Actions: 1.1.1 We will communicate with businesses more efficiently. 1.1.1.1 We will set the groundwork for fast and convenient customer service for

businesses:

We will improve service registers (VAT) and online services, including the way we welcome the customer to the online system – what they have to do and why. We will change the chain of activities with the aim of clarity and comprehensiveness;

We will display personalised information. The self-service system will be so logical in structure and intuitive that there will be no need to contact ETCB for guidance. Customers will be able to understand what they need to do unassisted;

E-ETCB tax assessment applications (with instructions) will be trilingual (Estonian, English, Russian). This will be developed based on user feedback;

Counter services at customer service offices will be convenient/meet customer needs;

The website will be multilingual, logical and contain more useful information;

Companies formed by foreigners will be provided separate customer support to improve their ease of doing business in Estonia.

1.1.1.2 We will refund companies’ working capital quickly (VAT refund claims, incl. VAT on imports):

We will only withhold the VAT refund for the period needed for examination and develop a technological solution for the partial release of the refund. We will maintain audit activities;

We will upgrade the risk management process. Businesses are welcome to share information with us on future transactions and assume greater responsibility in their selection of business partners.

1.1.1.3 We will issue binding preliminary rulings on transfer pricing by the year 2020:

We will also issue preliminary rulings on transfer pricing as the Taxation Act amendment enters into force for businesses to have certainty.

1.1.2 We will advise businesses depending on their needs. 1.1.2.1 We will draft a handbook for start-ups and provide preliminary guidance to start-

ups (incl. exporters/importers):

We will assist businesses as they engage in business, incl. tax advice on suitable form of incorporation;

We will develop and update customer-facing training formats and methodologies, train training providers. We will improve our understanding of the wishes of customers that contact us. We will provide video training in addition to classroom-based training and the first such training courses will be provided to start-ups.

1.1.2.2 We will provide training to start-ups in each county in collaboration with other organisations:

More joint training sessions will take place in counties (e.g. with Enterprise Estonia). 1.1.2.3 Businesses will be assigned a personal support person by ETCB who will assist

in handling tax and customs issues and communication with ETCB:

We will expand the Authorised Economic Operator (AEO) status currently in customs across ETCB. The Authorised Economic Operator status will qualify for priority customer service, individual consulting and training;

Support services will be provided as needed exactly when businesses need them the most.

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1.1.2.4 We will provide guidance on a pre-emptive basis to avoid errors in tax accounting:

In case of large-scale change in a business (reduction in staff numbers, drastic revenue decline, etc.), we will seek for reasons in order to offer various solutions for continuing the business where applicable;

We will keep track of those customers that have had concerns. The consultation is aimed at avoiding potential future tax manipulation;

We will provide advice on court precedent and interpretation of legislation that changed precedent;

We will pre-empt problems related to excise warehouse taxes, notice risks and pro-actively contact customers early.

1.1.3 We will increase tax knowledge among young people. 1.1.3.1 We will develop contemporary ways to educate young people about taxes and

customs:

We will add the section titled “To social studies teachers” to the website where we include relevant sources of information for teachers to use in their lessons;

We will develop a separate section to our website for young people to test their knowledge and understand the need to pay taxes;

We will work with Junior Achievement to organise video competitions for basic school students (targeted at grades 8 and 9) to raise their awareness of tax issues;

We will organise tax-related training to servicemen joining the reserves;

We will organise secondary school students’ discussion-workshops titled “Why are taxes necessary?”;

We will organise tax and customs-related exhibitions at ETCB and elsewhere.

1.2 E-ETCB will be contemporary

PERFORMANCE INDICATORS AND TARGETS:

Indicator Initial level Target

2016 2017 2018 2019 2020

E-ETCB user satisfaction as per

net promoter score9

50 or very good

Up from previous year

Up from previous year

Up from previous year

60 or excellent

Actions: 1.2.1 Replacement of tax returns with data-based information sharing. 1.2.1.1 We will develop a self-service system for convenient, mobile, uniform and

multilingual information sharing:

We will use a uniform contemporary design in order for all tax and customs applications to be consistent;

We will streamline the user interface (intuitiveness, fewer clicks).

9 Indicator: net promoter score determined by e-ETCB users and measured by ETCB. Annual results, more frequent results for individual services.

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1.2.1.2 We will adopt a web-based fuel examination system:

We will develop and implement a data-based information sharing system. 1.2.1.3 We will reduce the administrative burden on businesses related to data reporting:

We will analyse the composition of data reported and automate the flow of data (Reporting 3.0);

We will provide the option to transmit data for assessment of taxes via third parties (bank transfer information on Form TSD);

We will provide an option for submitting data to ETCB in a manner that the taxpayer does not have to build an x-road connection (x-road gateway).

1.2.1.4 We provide quick online service to e-commerce customers:

We will work with the postal service operator to develop a solution where data are pre-filled when ordering goods and payment can be made immediately (additional payment solution).

1.2.2 We will develop payment solutions for payment of public claims. 1.2.2.1 We will develop contemporary payment solutions for payment of taxes:

Sending e-invoices to the bank (incl. tax notices), standing orders, initiation of credit card payment on the website. For claims for advance payment we will also send an e-invoice, information will be available from the bank. The process will function so that ETCB deducts the required amount from the bank account and no advance payment to the prepayment account will be needed, we will provide notice before and after the operation.

1.2.2.2 We will administer state monetary claims within ETCB’s purview:

A person will see their monetary obligations to the state in one place;

We will provide the option to administer local taxes on e-ETCB.

1.2.3 We will provide a review of the tax environment to businesses and include their position therein.

1.2.3.1 We will provide up-to-date reviews on the company and its macro-environment:

We will provide an option to receive an overview of the company’s ranking compared to other businesses in the same sector and/or region;

We will provide the option to obtain the tax authority’s evaluation regarding the company’s tax-related conduct.

We will provide an option to share/disclose one’s data (salaries, number of employees, revenue);

We will provide an option to compare one’s own data to that of other companies and groups of companies (income and social tax return, excise duty return, etc.).

1.2.3.2 We will influence attitudes on taxes by providing businesses the option to share their data:

We will include tax compliance in evaluating the reputation of the business;

We will provide the option for companies to share their reputation score and their tax and customs data;

We will simplify and speed up the business partner background check tool. 1.2.3.3 We will provide professional associations/sector representatives regular

enhanced sector-relevant information:

Presentations at conferences, existence of information flow;

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We will organise regular roundtable discussions with county associations/businesses, representatives of various professions, providing reviews of various sectors, information on problems and solutions.

1.2.3.4 We will develop an online system on international tax treaties:

We will process the content on international tax treaties, making them easier to use;

We will automate ETCB processes.

1.2.4 We will improve trust of ETCB through data protection and information system security.

1.2.4.1 We will engage in IT development to secure information systems:

We will advise and monitor ETCB staff to ensure secure and lawful processing of data;

We will ensure data security from analysis phase to final testing when developing information systems.

1.3 Estonia will have a good climate for international trade

PERFORMANCE INDICATORS AND TARGETS:

Indicator Initial level Target

2016 2017 2018 2019 2020

Logistic Performance Index (LPI) on customs10

29th place

Not measured

Up from previous year

Not measured

Up from previous year

Actions: 1.3.1 We will support exporters with information on customs operations of third

countries. 1.3.1.1 We will provide information on the trade rules and customs regulations of

Estonia’s main export destinations:

We will point out the information on the websites of other countries’ customs services and offer personal consulting;

In order to support the businesses that interact with customs, we will gather the information and contact details needed by businesses and enable businesses to share information on declared data to other companies looking for business partners or access to foreign markets.

1.3.1.2 We will provide statistics on Estonia’s main export destinations and overviews on export opportunities:

We will reflect information needed by businesses on market volumes.

1.3.2 Customs clearance in Estonia will be convenient and fast. 1.3.2.1 Declaration of goods will occur on the information system without customs

declaration for Authorised Economic Operators (AEO):

10 Logistic Performance Index (LPI), customs sub-indicator – ranking. Results every two years.

Methodology: World Bank organises a survey every other year (most recently in 2016), comprising a survey where each respondent provides their assessment on the simplicity of customs procedures, infrastructure, logistics-related competence and logistics service quality, shipment tracking options, delivery accuracy and competitiveness of international cargo transport on a scale of 1 to 5 where 1 is very low and 5 is very high.

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A customs declaration will not be necessary for each shipment, customs duties will be payable periodically.

1.3.2.2 Customs declarations can be submitted prior to the arrival of goods in Estonia (incl. link to security data sharing declaration):

Goods can be declared at border customs offices, reducing the duration of export and import goods customs control;

Low-risk goods declared for release into free circulation can be collected already at the border point. We will retain inspections on entry.

1.3.2.3 We will expedite customs inspection through customs equipment (x-ray equipment, license plate identification cameras and x-ray image sharing system BAXE):

We will enable cargo transporters to quickly cross the border by ensuring effective inspection using new x-ray technology;

We will involve communities to stop the distribution of smuggled goods. 1.3.3 Logistics costs will be competitive. 1.3.3.1 We will provide statistics to companies (average costs, customs clearance etc.)

and information (options for licenses/concessions etc.) for logistics cost optimisation:

We will provide personalised quotes to customers that do not use existing options (e.g. release on the border);

We will provide information on transport – what the cost is for transport from any country (e.g. declarant fee);

We will proactively offer various licenses to businesses (application in e-ETCB);

We will offer simplified procedure to businesses holding multi-warehouse permits. 1.3.3.2 We will simplify transit procedure and offer alternatives for transporting goods

under customs supervision:

Simpler procedures for transporting goods from customs warehouse to the border and from warehouse to warehouse.

1.3.3.3 Businesses will be able to use centralised customs clearance in Estonia to declare goods located in any EU Member State:

We will develop information sharing with other EU Member States to examine goods declared in Estonia but located in another country.

1.3.3.4 We will collect import VAT on VAT return:

We will expand the options for reporting import VAT on the VAT return to avoid the business having to pay import VAT and ask for a refund.

OBJECTIVE 2:

WE WILL PROVIDE ASSURANCES TO BUSINESSES THAT THEIR TAX AND

CUSTOMS AFFAIRS ARE IN ORDER AND ENSURE AN EQUAL COMPETITIVE

ENVIRONMENT

Sub-objectives:

2.1 Improved cooperation has raised tax compliance

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PERFORMANCE INDICATORS AND TARGETS:

Indicator Initial level Target

2016 2017 2018 2019 2020

ETCB’s estimated tax loss ratio to taxes collected

(VAT, social tax, income tax withheld)11

2.87% (tax loss 157.14

million €)

Reduction of tax loss.

Increase in tax receipts

Reduction of tax loss.

Increase in tax receipts

Reduction of tax loss.

Increase in tax receipts

Reduction of tax loss.

Increase in tax receipts

Actions: 2.1.1 Interaction between Estonian Tax and Customs Board and taxpayers will be based

on trust. 2.1.1.1 We will provide education days and roundtable discussions to businesses to

improve the tax environment:

We will have knowledge of the local business environment;

ETCB will reach consensus with audit firms and tax advisors and other countries’ tax authorities in significant taxation issues;

We will draft administrative acts using less complex language;

We will transition from direction-based texts to informative texts;

We will update the design of notices/documents. 2.1.1.2 We will work with county media to share information:

We will use local publications to share information. 2.1.1.3 Taxpayers will receive continuous information on tax proceedings they are

involved in:

The examination process will be paperless, we will use contemporary solutions for obtaining testimony and making inspections. People will be able to track the examination process online;

We will provide an option for quick notification of inspection of goods, provision of customer feedback, submission of additional documents, incl. as a smartphone application;

Debt proceedings information will be accessible to taxpayers;

We will simplify and expedite proceedings of violations at border points. 2.1.2 We will focus our attention on growing the future tax base. 2.1.2.1 Businesses will be able to use our help in ensuring the correctness of their tax

accounting:

Taxpayers will be able to verify the data they have submitted;

We will develop checklists/tests/tax risk calculators for businesses to obtain assurances that their tax accounting is correct.

2.1.2.2 We will develop an option to forecast businesses’ behaviour:

We will create analytical models enabling forecasting of future behaviour.

11 Ratio of ETCB’s estimated tax loss to reported tax liability, calculated by ETCB. Quarterly results. Methodology: Bottom-up tax

loss is calculated based on data reported by companies on Forms KMD and TSD. Tax losses are calculated for VAT, income tax withheld and social tax, which are compared with the reported tax liability of the same taxes.

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2.1.2.3 We will offer flexible solutions to taxpayers facing payment difficulties:

We will implement flexible instalment plans;

We will increase direct communication with taxpayers to resolve problems. 2.1.2.4 We will harmonise tax and customs guarantees:

We will evaluate individual tax risks based on their overall risks, preferring a less burdensome guarantee for the person.

2.2 Competition fairness will increase in business

PERFORMANCE INDICATORS AND TARGETS:

Indicator Initial level Target

2016 2017 2018 2019 2020

Share of the underground economy of

tax receipts12

7.10%

Under 7.1% Under 7.1% Under 7.1%

Under 7.1%

Actions: 2.2.1 We will ensure fair competition. 2.2.1.1 We will investigate tax crimes:

We will map the tax environment annually with criminal risks affecting protection of the society, based on which the targets of criminal proceedings are based;

We will develop the methods of collection and analysis of operational information and ensure contemporary technical resources;

We will participate in international groups for cooperation on crime and promote cross-border operational information sharing;

We will develop our capability to detect proceeds of crime. 2.2.1.2 We will examine the transfer of income abroad:

We will increase supervision;

We will advise the companies. 2.2.1.3 Organisation of public procurement will support law-abiding businesses:

We will propose to businesses upon drafting procurement terms and entry into contract to ensure the correctness among participants in tax affairs (e.g. tax secrecy waiver, approval for subcontractors);

We will provide an option for contracting authorities to conduct background checks on participants easier and faster.

12 Share of the underground economy of tax receipts. Annual results. Methodology: Ratio of tax gap to budgetary tax receipts; the tax gap includes the following estimated tax losses: VAT + social tax + income tax + excise duties (fuel, tobacco, alcohol). Tax gap is determined based on the top-down method and is broader than the bottom-up calculation, also containing the portion that cannot be calculated using tax returns.

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Annex 1 To decree by the Minister of Finance

ETCB STRATEGY 2017-2020 INDICATOR EXPLANATIONS

ETCB’s vision: Supporting businesses and their growth

Indicator: Doing Business index – paying taxes component – Estonia’s ranking. Annual results.

Methodology: An annually calculated index by the World Bank, comprised of sub-indicators such as the paying taxes component. The paying taxes index is in turn comprised of the following sub-indicators:

1. Payments (number annually) – the indicator accounts for the number, frequency and channel of tax return submissions and payments. The number of times the company pays taxes and contributions in a year is the number of different taxes or contributions multiplied by the frequency of payment (or withholding) for each tax. Estonia’s indicator based on data from 2015 was 8;

2. Time (hours per year) – time to prepare, file returns and pay taxes for the three largest taxes (corporate income tax, VAT, taxes on labour). Estonia’s indicator based on data from 2015 was 84 hours per annum, which was divided as follows:

VAT: 33 hours per annum;

Social tax: 31 hours per annum;

Income tax on dividends (20 hours per annum). 3. Total tax rate (as % of profit) – the ratio of the sum of all taxes payable by companies to the

company’s profit. Based on data from 2015, Estonia’s indicator was 48.7%.

Social tax – 37.22%;

Income tax on dividends – 7.91%;

Land tax – 1.89%;

Unemployment insurance payments – 0.78%;

Tax on fringe benefits – 0.75%;

State fee on sale of property – 0.09%;

Heavy vehicle tax 0.04%; 4. Postfiling index – duration of VAT refund, duration of corporate income tax audit. Based on

data from 2015, Estonia’s indicator was 98.6%.

Notes: Based on data from 2015 (i.e. included in the 2017 report), the paying taxes section assigned Estonia a score of 88.04 (DTF score (distance to frontier), measured in percent of distance to the maximum result), therefore it was ranked 21st. Estonia’s score from one year earlier was 87.89 and ranking was 19th.

Objective 1: We will provide simple and convenient services to taxpayers

1.1 We support business/entrepreneurship

Indicator: Change in value added compared to the same period of the previous year. Quarterly results.

Methodology: Value added = Total sales reported on Form KMD excluding tax-exempt revenue – total purchases excluding long-lived assets.

Notes: In 2016, value added was 15.32 billion euros (increase of 2.13% year-on-year). Value added in the first quarter of 2016 amounted to 3.19 billion euros. The objective is set depending on the year: if

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economic growth is expected, we are also expecting value added growth. If value added declines, it is important to track the ratio of sales to purchases. If purchases grow faster than sales, this could either entail stocking or an uptick in fraud.

1.2 E-ETCB will be contemporary

Indicator: e-ETCB Net Promoter Score. Measured by ETCB. Annual results, more frequent results for individual services.

Methodology: the net promoter score is based on the fact that when someone recommends something to their friend, they assume responsibility for the quality of what they have recommended. The net promoter score scale is from 0-10 where 0-6 indicates detractors, 7-8 are passives and 9-10 are promoters.

Results of the net promoter score are displayed within the range of -100 to +100%:

Excellent: +100 to +60%

Very good: +59% to +20%

Good: +19% to 0%

Satisfactory: -40% to -1%

Poor: -41% to -70%

Terrible: -71% to -100%

Notes: the initial level of the net promoter score based on 2016 was 50 or very good.

1.3 Estonia will have a good climate for international trade

Indicator: Logistic Performance Index (LPI), customs sub-indicator – ranking. Results every two years.

Methodology: World Bank organises a survey every other year (most recently in 2016), comprising a survey where each respondent provides their assessment on the simplicity of customs procedures, infrastructure, logistics-related competence and logistics service quality, shipment tracking options, delivery accuracy and competitiveness of international cargo transport on a scale of 1 to 5 where 1 is very low and 5 is very high.

Notes: The 2016 survey indicated that Estonia’s overall LPI score was 3.36, ranking Estonia 38th. However, if we break out the portion only addressing customs, Estonia ranks 29th with a score of 3.41.

Objective 2: We will provide assurances to businesses that their tax and customs affairs are in order and ensure an equal competitive environment

2.1 Improved cooperation has raised tax compliance

Indicator: Ratio of ETCB’s estimated tax loss to reported tax liability. Quarterly results.

Methodology: Bottom-up tax loss is calculated based on data reported by companies on Forms KMD and TSD. Tax losses are calculated for VAT, income tax withheld and social tax, which are compared with the reported tax liability of the same taxes.

Notes: Estimated tax losses for 2016 (VAT, income tax withheld, social tax) were 157.14 million euros, accounting for 2.87% of the reported tax liability (VAT, income tax withheld, social tax).

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2.2 Competition fairness will increase in business

Indicator: Share of the underground economy of tax receipts. Annual results.

Methodology: Ratio of tax gap to budgetary tax receipts; the tax gap includes the following estimated tax losses: VAT + social tax + income tax + excise duties (fuel, tobacco, alcohol). Tax gap is determined based on the top-down method and is broader than the bottom-up calculation, also containing the portion that cannot be calculated using tax returns.

Notes: the tax gap is calculated by ETCB annually in the fourth quarter for the previous calendar year. In 2015, tax gap accounted for 7.1% of taxes collected in the budget.