A. BACKGROUND 

Mongolia received a credit from the International Development Association (IDA) for the Strengthening Fiscal and Financial Stability (SFFS) Project. The Objective of the SFFS Project has been to contribute to the Government of Mongolia’s efforts to strengthen fiscal and financial stability and improve the quality of expenditure. The project is designed into five components: (i) Strengthening Macroeconomic and Fiscal Management; (ii) Improving the Efficiency of Public Financial Management; (iii) Enhancing Financial Sector Stability; (iv) Strengthening the Social Protection System; (v) Project Management and Monitoring. The objectives are to strengthen fiscal responsibility and implementing relevant policy measures; improve fiscal discipline; strengthen the resiliency of the banking system; improve public expenditure quality in social protection, and provide support for Project implementation, coordination, monitoring and evaluation, including, inter alia, audit arrangements, reporting requirements, procurement and financial management activities respectively. For more details, please refer to the Project Appraisal Document Report No. PAD2269 .

The overall objective of Component A of the Project has been to strengthen fiscal responsibility and support the implementation of relevant policy measures toward (a) improving the quality of expenditure management, (b) strengthening macroeconomic and budget policy-making capacity, and (c) improving regulatory processes. Within this component there are also specific activities planned for furthering tax reform including by introducing the latest international taxation rules and regulations.

The Government of Mongolia has made the second tax reform in 2019 to promote investment climate, create more jobs, support small and medium sized enterprises, protect and balance the taxpayer rights and responsibilities and reduce the compliance costs. In addition to the objectives to promote and foster the economy, the tax laws also incorporate many changes to reduce tax avoidance and evasion. Furthermore, one of the key changes made to the current tax system by the second tax reform was to introduce risk-based approach to all tax enforcement activities, thereby limiting the tax inspections only to the high-risk taxpayers. Accordingly, the tax reform package was approved by the Parliament on 22 March 2019 and has been effective since 1 January 2020. 

Tax Policy Department (hereinafter referred to as “TPD”) within the Ministry of Finance was established in April of 2022 with the objective to oversee tax policy and the related implementation issues. One of the main tasks of the TPD is to identify loopholes in the laws and the administrative procedures for tax evasion and avoidance and to rectify the issues accordingly. Furthermore, the TPD is responsible for clarifying the intended purpose of the articles and provisions of the tax laws and related procedures and making respective changes for clarity when different interpretations arise in various taxpayer circumstances and the lack of clarity within the legal documents pose practical implementation challenges. 

With the spread of COVID-19 pandemic and consequent lockdowns, the issues arising in implementation of the new tax laws have been put on hold. As economy slowly recovers from the pandemic and the economic activities increase, the latest approved tax laws are now to be fully implemented thereby necessitating the TPD to evaluate the potential tax avoidance risks arising from the newly approved tax laws as well as the existing tax laws.   

As there has been no similar activities carried out in the past by the predecessor of the TPD and because the TPD was established based on internal human resources, it lacks the necessary experience and capacity to carry out such research.

Therefore, the TPD desires to work with an experienced consultant to conduct a comprehensive analysis on the potential tax avoidance risks posed both by the legal and administrative framework and to provide suggestions in mitigating the identified tax risks.

B. OBJECTIVE OF THE ASSIGNMENT

The objective of the assignment is to provide technical support to the TPD to identify and manage tax avoidance risks arising from legal and administrative frameworks. 

C. SCOPE OF WORK

Within the scope of this assignment, the consultant will perform the tasks, including but not limited to, the following:

1. Conduct a comprehensive analysis to identify potential tax avoidance risks and unintended consequences arising from certain provisions of all tax laws (Article 7 of the General Tax Law) and related regulations, and provide recommendations for mitigating the identified risks;
2. Work closely with the tax and customs authority on a daily basis on recurring tax compliance risks and identify the underlying causes; 
3. Develop a register of the above-mentioned risks for tax avoidance and evaluate the tax laws in terms of tax risks; 
4. Study common or harmful tax avoidance schemes and arrangements based on the information provided by the General Tax Authority and the Customs General Administration, and identify the underlying causes, including the related provisions within the laws and procedures, and provide recommendations on reducing the types of schemes and arrangements;
5. Assess the tax avoidance risks by industry and taxpayer segment classifications based on the General Tax Authority database;
6. Advise the TPD on the works related to the tax risk management committee; and 
7. Undertake any other tasks as reasonably requested by the Client.   

D. DELIVERABLES

1. A research report on the tax avoidance risks including recommendations on mitigating those risks; 
2. Tax policy and compliance risks register for tax avoidance developed;  
3. A report on common or harmful tax avoidance schemes and arrangements with recommendations to reduce them;
4. A report on tax risks by industry and taxpayer segmentation;
5. A report on potential risks posed by the shadow economy and recommendations on measures to mitigate these types of risks; 
6. A report on the potential risks of tax avoidance in cross-border transactions, with recommendations on measures to mitigate these types of risks; and
7. A monthly and final reports on the activities carried out together with the relevant supporting documents enclosed.

E. CONSULTANT’S QUALIFICATION/ SELECTION CROTERIA

Education: A suitable candidate should have at least a Master’s degree in a relevant field, including but not limited to, law, finance, economics, and taxation;

Experience: Candidate should have at least ten years of professional experience in taxation, finance, or economic research and analysis. A knowledge of international taxation would be an advantage;

Language skills: Working knowledge of English;

Computer literacy: Be proficient in MS Office, including Word, Excel and PowerPoint; 

Other: Excellent analytical, organizational, communication, and interpersonal skills with the ability to function effectively and collaboratively in a team environment; high integrity and accountability; and willing to work overtime when necessary.

F. SUPERVISION AND REPORTING

The Consultant will report directly to the Director General of the TPD, Ministry of Finance (hereinafter referred to as “MOF”) and will work on a day-to-day basis with officers and the local consultants of the TPD on all matters related to the assignment.

The Director General of the TPD will meet regularly with the Consultant to review progress with the work program and to resolve any outstanding issues. The Consultant will be required to carry out his tasks in line with the approved Work Plan, which will serve as a basis for measuring progress on desired outcomes and goals for the entire consultancy service.

All information provided to the Consultant will be regarded as confidential, and information shall not be shared with any outside individuals or organizations without the Client’s prior consent. 

INSTITUTIONAL ARRANGEMENTS

The TPD will provide office space and will work with the consultant on a day-to-day basis. The consultant shall be provided with all the necessary data and information to perform the tasks detailed in Section C. 

G. CONTRACT DURATION AND PAYMENT CONDITION

The assignment is expected to commence in June 2022. The total duration of the consultancy service rendered is estimated to be 10 (ten) months. 

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