.png)
.png)
KEY POINTS
- The latest FTA report has a much more positive approach
- Tax advisers play a positive role in all the states surveyed
- An enhanced relationship of disclosure and trust could help taxpayers, their advisers, and revenue authorities alike
It could have been so different.
When the OECD Forum on Tax Administration (FTA) issued the 'Seoul Declaration' in September 2006 it didn't have much to say about tax advisers, but what it did say was far from complimentary.
It expressed 'continued concerns about corporate governance and the role of tax advisers … in relation to non-compliance and the promotion of unacceptable tax minimisation arrangements', and proposed an international study on the subject to be completed by the end of 2007.
The study team was led by HMRC, and staffed by the OECD Secretariat.
By the time the terms of reference were produced, the language had already become more nuanced, addressing issues such as: 'the role of tax intermediaries in promoting compliance and reducing non-compliance by their clients, and the risks they sometimes pose in developing tax minimisation arrangements.
The final report, discussed at the Cape Town meeting of the FTA on 10 to 11 January this year, marked an almost complete turnaround so far as professional tax advisers and large businesses are concerned.
The focus of the report is mostly on how to offer an enhanced relationship to advisers and taxpayers prepared to act in a co-operative way with revenue authorities, and on a recognition that taxpayers are the 'demand side' of aggressive tax planning.
The report recognises that there are two main consumers of aggressive tax planning: large corporates and high net worth individuals.
Due to time constraints, it has concentrated on the former only, but it seems likely that similar issues will arise with the latter.
Tripartite
The basis for the report is that there is a tripartite relationship between taxpayer, adviser and taxing authority.
There is also a fundamental, and very welcome, recognition that tax advisers play a vital role in this relationship: 'The importance of the role tax advisers play in a tax system can be tested by answering a simple question: would compliance with tax laws improve if tax advisers did not exist? The Study Team found no country where the answer to that question is yes.'
Turning to large corporate taxpayers, the report notes that they are moving away from a simple concentration on the effective tax rate across international boundaries.
While this is clearly still a key driver, and tax is still seen as a cost to be managed, these taxpayers also place a high value on agreeing their tax liabilities quickly and reliably.
Aggressive tax planning
Where advisers have engaged in aggressive tax planning, member countries have responded in a number of ways.
Historically this has tended to be a 'demand-side' intervention, trying to stop taxpayers from using avoidance schemes by closing off loopholes and changing penalties.
More recently, tax authorities have also looked at the supply side and tried to directly impact on advisers.
This can involve:
- regulation and registration, either direct with the revenue authorities or with professional bodies;
- requiring advance disclosure of tax avoidance schemes prior to the submission of tax returns;
- imposing restrictions or additional standards on the future behaviour of advisers engaged in conduct that was potentially open to legal challenge by requiring them to sign 'future compliance agreements'; and
- stiffening the penalty regimes as they apply to advisers for breaches of the law on aggressive tax planning.
Any tax authority has to decide not just which returns it does intend to audit or investigate, but also which enquiries it does NOT intend to undertake.
The report stresses the obvious advantages of doing so based on a well-structured risk management system.
The key step is then the recognition that, for compliant and low-risk taxpayers, it is in their own interests to help tax authorities to become better at risk management, because this will minimise their compliance costs.
Therefore, if tax advisers can help those clients to demonstrate the fact that they are low risk by greater co-operation and transparency with the tax authorities, they are still working in their clients' best interests — one of the welcome elements of this report is the recognition that the advisers' first duty is always to the client.
In order to carry out risk management effectively, revenue authorities need information. This means that they need methods of getting information that relates to tax risk in advance of the submission of returns. T
he report discusses ways that authorities currently approach this issue, but its clear preference is for an 'enhanced relationship' between advisers, taxpayers and revenue authorities, which it contrasts with the normal 'basic relationship'.
In the basic relationship, the taxpayers file tax returns with the minimum necessary information, and pay their tax on time. Unless required to, they do not disclose any areas of uncertainty or risk. The job of the revenue authority is primarily administrative.
Enhanced relationship
By contrast, in an enhanced relationship taxpayers will disclose, in real time rather than when the tax return is due, any information that the revenue authority would need to make a fully-informed risk assessment.
The Study Team explicitly rejects the idea that this should be based on detailed rules: the whole point is that the relationship should be based on trust and openness.
That trust is seen as part of a transparent relationship which is built and maintained, and where there is continuity.
In return the revenue authority would apply its risk management procedures in a way which recognises the value of the enhanced relationship and gives the taxpayer early certainty on tax liabilities.
It will also be commercial and proportional in its dealings with the taxpayer, displaying an understanding of their business. Large corporate taxpayers should benefit in particular from early certainty on the tax effect of complex transactions.
The turnaround from the Seoul Declaration to this vision of an enhanced relationship is dramatic, and credit for it has to go to HMRC, and to the Study Team led by Chris Davidson.
If it had been led by a different tax authority, it is quite possible that we would be looking at a document proposing the mandatory OECD-wide registration of tax advisers with their national authorities, giving them the right to prevent us practising.
There are still plenty of problems to face, not least the way in which this can be implemented for personal taxpayers and smaller businesses.
There is a real divide opening up between the treatment of the largest taxpayers and the rest of us, which has the potential to derail this vision; and I have to point out that creating enhanced relationships will initially require significant additional HMRC manpower before the benefits can be enjoyed, which cannot therefore be achieved at the same time as cutting a further 12,500 jobs.
But reading this report has left me feeling more optimistic about the future for the relationship between tax authorities and taxpayers than I have been for a long time.
