Strategies to Strengthen the Relationship between Tax Administrations and Large Businesses Wolfgang Büttner OECD Regional Exchange Seminar Taxation of Large Businesses - Transfer Pricing Lima, Peru November 2011

2 Overview  The Forum on Tax Administration (FTA)  The FTA and Large Corporate Taxpayers  FTA Studies following the Seoul Declaration  Study into the Role of Tax Intermediaries  Large Business Compliance Management  Tax Compliance by Banks  Banks Compliance – Framework for a Voluntary Code of Conduct  Corporate Governance  Aggressive Tax Planning (ATP) and the Enhanced Engagement Context  Enhanced Engagement - Emerging Trends  Networks

3 Forum on Tax Administration (FTA)  49 participating countries  Commissioners / Heads of Tax participation  Supporting Tax Administrations worldwide  by engaging with business, tax intermediaries etc. to identify important tax administration issues and possible solutions  by developing strategies, models and approaches to deal with important tax compliance issues  by monitoring trends and key developments (e.g. technology) of major importance to revenue bodies  by sharing best practices  by producing comparative studies

4 FTA Studies Study into the Role of Tax Intermediaries (2008) Compliance Management of Large Business (including relationship building) – Experiences and Practices of 8 OECD countries (2009) Building transparent tax compliance by Banks (2009) Corporate Governance and tax risk management (2009) Addressing Tax Risks involving bank losses (2010) Framework for a Voluntary Code of Conduct for Banks and Revenue Bodies (2010) Tackling ATP through improved Transparency and Disclosure (2011)

5 Strategies and Programs to Build a Better Relationship  The value of the OECD material including the: –Guidance note published in 2004 “Compliance Risk Management: Managing and Improving Tax Compliance”; –Seoul Declaration in 2006; and, –Series of FTA studies following the Seoul Declaration is: – in the contribution they make in developing a deeper understanding of taxpayer behaviour; –being able to lay the groundwork for the development of targeted strategies which: encourage the taxpayers’ motivation to do the right thing; and constrain the motivation to resist or evade compliance

6 Strategies and Programs to Build a Better Relationship, continued  Today, many revenue bodies (e.g. Denmark, the Netherlands, New Zealand, the U.S. and the United Kingdom) have adopted enhanced relationships, or a variant of it, to guide their planning for delivering improved compliance outcomes

7 Large Business Compliance Management  Experiences and Practices of Eight countries (2009)  Building and Improving relationship between revenue body and large taxpayer is critical in promoting transparency / cooperation  One of key strategies adopted by participating countries to influence and promote large taxpayer compliance  Understanding and dealing with expectations of both revenue body and large taxpayer is important  Large taxpayers expect from revenue bodies : –Dialogue, openness, consistency, business awareness certainty, burden reduction, responsiveness, speedy resolution of issues  Real time management of compliance is a feature  Single point of contact or relationship managers

8 Strategies and Programs to Build a Better Relationship, continued Example: The ATO Approach  Australian Tax Office (ATO) works collaboratively with the large market to foster good corporate governance and support tax risk management  ATO offers practical certainty to its market through Annual Compliance Arrangements  ATO’s Lead Relationship Manager (LRM) program provides a specialized service to improve voluntary compliance and reduce taxpayer compliance costs. ATO has 19 large market taxpayers with LRMs so far

9 Strategies and Programs to Build a Better Relationship, continued Example: The ATO Approach  ATO is working with large business to provide clarity on how we identify and deal with uncertain tax positions  ATO’s primary focus is on supporting taxpayers to do the right thing. However, where we identify potential risk to revenue, our response includes a mix of service, help and active compliance processes  In ATO conducted around 100 audits and over 300 risk reviews

10 Strategies and Programs to Build a Better Relationship, continued Example: The Netherlands Approach Overview of Netherlands Approach:  Horizontal monitoring is their preferred method for supervision  The Netherlands tax administration (NTCA) manages risk in the large business area on an individual basis  The approach is to build on corporate governance and financial reporting rules requiring that companies continuously monitor their own risk, including their tax risks  The degree to which a business is open and transparent determines, to a large extent, the form and level of scrutiny of the additional monitoring

11 Strategies and Programs to Build a Better Relationship, continued Example: The Netherlands Approach  Horizontal monitoring requires that the NTCA have a clear understanding of the existence, set-up and operation of internal controls concerning tax  If a (Tax) Control Framework is solid, the monitoring focuses on the effect of internal control measures and preliminary discussions on current tax issues  For each Very Large Business “VLB” / Medium-Sized Business “MSB” a strategic individual supervision plan is in operation Risk management is not only about detecting tax evasion and applying sanctions, it is about influencing behaviour and ensuring compliance

12 Strategies and Programs to Build a Better Relationship, continued  The consensus is that building and improving the relationship between the tax administration and the large taxpayer is critical in promoting transparency and a cooperative approach to compliance  Building a relationship based on transparency, trust, and mutual understanding would have a positive impact on large business compliance

13 The Tax Administration’s Expectations  The tax administration’s expectations of large taxpayers under a cooperative approach are:  more openness;  full disclosure and transparency;  compliance with the laws;  open dialogue; and  timely response to inquiries and requests for information

14 The Tax Administration’s Views  Tax administration’s views of what large taxpayers expect from tax administrations are:  increased openness and dialogue;  greater certainty;  consistency;  clarity of roles and accountability;  timely response and good guidance;  sharing of audit plan and risk assessment; and  earlier settlement and speedy resolution of issues

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