Co-operative Compliance and International Assurance Programs

By José A. Rozas


On 3 and 4 July 2018, the Global Tax Policy Centre (Institute for Austrian and International Law, WU) and the International Chamber of Commerce (ICC)  organized a conference at Vienna University of Economics and Business to present and discuss the results and future of some co-operative compliance programs and projects. The event gathered a selected group of tax practitioners, tax officers and scholars to discuss and better understand what is going on with co-operative relationships in  taxation.

From the OECD Forum of Tax Administrations at Seoul (2006) —where this tax trend was born— to the latest initiatives in Tax Governance encouraged by the BEPS Project, tax systems have changed considerably: the digital economy has transformed the way in which taxes are designed and levied all over the world; common reporting standards (CRS) for exchanging tax information have been implemented;  six Directives (DACs) changing multilateral assistance in the EU Tax Law have been introduced; and the dream of a Multilateral Tax Treaty has recently become a reality.

Co-operative compliance programs are no longer a strange “tax product” implemented by certain innovative tax administrations —The Netherlands, United Kingdom and Australia—, but ordinary common way to manage the tax relationships between tax authorities and large business all over the world. A significant number of pilot programs have been launched not only in Europe (Austria, Italy, Russia, Croatia), but also in North America, Asia, and some developing countries in Africa. The initiatives in this field present significant substance and form differences , and they have been applied for long enough to be evaluated.

Nevertheless, these programs still raise doubts and criticism on several issues, namely:

  1. lack of resources and reluctant employees in tax administrations;
  2. difficulties building trust and confidence amongst participants —officers, practitioners and business— or obtaining benefits and avoiding controversies between them;
  3. suspicions by some NGOs, and risk that tax privileges should be studied by the European Commission as a State Aid measure (art. 107 EUFT);
  4. the critical role in these programs of tax intermediaries —their legal status, and particular codes of conduct— who are partners of the Administrations and tax providers of their clients; and
  5. understanding these programs as a quid pro quod

However, the increasingly complex tax systems and tax procedures make it already impossible for tax authorities to attempt to manage their tax revenues without looking for co-operation with businesses, tax intermediaries, and other tax administrations. Therefore, and without a doubtco-operative compliance programs are here to stay (and grow).

Tax Control Framework (TCF) is the core of a Co-operative Compliance program. In many countries (e.g. Spain)commercial law rules on corporate governance have introduced tax risk assessment issues on the agenda of listed companies. When and how a TCF is sufficient and, even more, whether or not there should be a common standard, are matters to be discussed. However, once again, DAC6 in the EU and other similar rules —pursuant  BEPS Action 12—not make it impossible to manage mandatory disclosure rules without a TCF.

Specific needs and conditions of developing countries deeply influence how co-operative compliance programmes have been launched and managed in countries such as Ghana and Uganda. In these countries, tax consultants seem to have more trust in the programmes than the tax authorities launching them. In a sense, the ability and resources to manage the enforcement ‘sticks’ in these countries may represent a handicap. For instance, in these circumstances, the penalties to be imposed on those tax intermediaries who betray the trust given to them, were not monetary penalties, but losing their licence to work with the tax authorities.

The last session of the conference was dedicated to present and evaluate the International Assurance Program led by the OECD, with eight tax administrations and eight MNEs with their headquarters in one of the countries participating in the programme. Launched on January 2018 (to be developed on a period of 18 months) and working with data of fiscal years 2016 and 2017, the scope of this pilot programme is to set up an international co-operative compliance experience between different tax administrations and MNEs.

Although the aim of this initiative is not to display multinational advance pricing agreements (APAs) or to standardize country by country (CBC) reporting information, there may be a chance to go ahead in that direction. Instead, the main purpose is to put several tax administrations and MNEs to work together on tax risk management and the exchange of fiscal information. Working ex ante and not ex post, looking to achieve tax certainty, avoiding mistakes and controversies.

Global tax governance has been developing for the last decades. The main engine and fuel of this process are, on one hand, MNEs organizing their business in a global and digital economy, and, on the other hand, tax administrations looking to protect their resources. In this context, tax intermediaries are fighting to run tax relationships in the most efficient and fair manner. The only way to manage such a complex scenario is to work together, to co-operate (from latin, co-operare) in the same direction: transforming tax systems and tax proceedings from an adversarial style to a co-operative one.