The Forum on Tax Administrations (part of the OECD) initiated a program in 2008 exploring the concept of enhanced relationships between large taxpayers and revenue authorities. The first, and to some, obvious development was to morph the programme into one of co-operative compliance (see: OECD Forum on Tax Administration, Co-operative Compliance: A Frame¬work. From Enhanced Relationship to Co-operative Compliance, May 2013) and in this guise it has been successful in terms of engagement with MNE and some tax authorities, but at the time of writing only two have taken significant steps to convert discussion into action, the Netherlands and the UK.
In the context of a work on Taxpayer Rights it is not appropriate to explore the intricacies of the initiatives either in theory or in practice but it is important to identify those elements which have an impact on Taxpayer Rights and Responsibilities both in practical terms and in respect of risk.
The direction of travel of tax compliance recognises the need for digitisation, quality and speed in delivery of data and, for administrations, maintenance or reduction of costs in real terms, especially those of labour. This process can only move forward if there is confidence between taxpayer and tax administrator, consistent and reliable provision of data and the ability to handle "erratics" smoothly and quickly to prevent the development of a log jam.
Any success depends upon the direct close working of the taxpayer and tax authority and implies the side-lining of any intermediary, unless one specifically tasked to facilitate the co-operative compliance. MNE will often use in house professionals to cope with their exposure to risk, their legal compliance responsibilities. They have the facility to consult outside professionals, who maybe erstwhile intermediaries, on specific issues and where "erratics" become intractable and require litigation to achieve resolution.
The danger lies in the fact that those without in house expertise expose themselves to risks of disclosure based on ignorance and exaggerated confidence in the equanimity of the tax authority. Those with in house abilities are not without risk, though, because the degree of tax market knowledge available is limited. Moreover there will be a need to keep the close working relationship between those in house professionals and the authority under constant review because of the danger of overfamiliarity.
At present the program is seen as applicable only to large business. If it proves successful, which we presume it will, the methods used may be developed and adapted to medium sized and then small business. Unfortunately resources will not be so readily available and what is currently seen as a program that has very real benefits to both sides will increasingly become formulaic with little or no human co-operation.
The risk to Taxpayer Rights in the short term is exposure to unwarranted tax demands arising through over familiarity and incorrect or incomplete disclosures because of lack of knowledge. In the longer term, the inexorable downward pressures on administrative costs will see demands to convert the program to systems capable of application to all taxpayers regardless of size and more ominously threats to privacy and confidentiality of information.
Perhaps the best instance of the need to be vigilant and rigorous in the protection of Taxpayer Rights lies within another program run by OECD entitled Enhanced Enforcement Cooperation in Competition. Designed to counter the challenges faced by national agencies enforcing national laws against cross border practices, it envisages doing so by a program of cooperation of the agencies.
We can foresee that at some stage provisions for the automatic cross border supply of information now being introduced as part of the BEPS project will be expanded to facilitate this process, particularly when considering challenges to transfer pricing.
For us the message is clear. Enhanced cooperation will, henceforth, be an ever present feature of tax practice. We do not know all the risks, and benefits, that may come with it but we can speculate that cost driven administrations and cross border demands will put high pressure on the maintenance of the rights of taxpayers and the current aspirational endeavours of both sides. As a consequence we think all developments must be vigilantly watched and assiduously challenged where there is a threat. We consider this is a fundamental and essential role in the smooth evolution of tax practice. On the other hand, weak or no participation will result in a poor system which will fail because of its lack of inclusivity.