Co-operative Compliance:
The Political Dimension
by
Jonathan Leigh Pemberton
Co-operative Compliance Meeting
Vienna, 28 September 2015
WU Global Tax Policy Center
Co-operative Compliance – The Political Dimension
Corporate taxation, and corporate tax avoidance in particular, has featured
prominently in the political agenda across the world since the Financial Crisis.
The perception that there is one rule for rich and powerful multinational
enterprises (MNEs) and a different one for ordinary citizens, has fuelled public
anger and political pressure for reform. In many ways this has been a force for
the good, making it possible to drive forward reform of the international tax
system much more quickly than has been possible in the past. But the nature of
the current discourse raises some issues and challenges for the Co-operative
Compliance model:
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Much of the political discussion oversimplifies the issues and makes the
presentation of measured reforms and a more constructive relationship
with business much harder. In particular, it has sometimes suited
politicians to ignore the extent to which the current situation is the result
of deliberate tax policy decisions, usually motivated by a desire to be
more competitive. How can the level of the debate about these issues be
raised, given that the complexity of the underlying problems is hard for a
non-specialist audience to understand, however sophisticated they may
be.
The political debate is deliberately framed in an adversarial way, with
“bad” corporations ducking their responsibilities and needing to be
brought to book by more aggressive tax administrations wielding greater
powers. How can the Co-operative Compliance model be positioned so
that it is seen as part of the solution, rather than one of the reasons why
large business is not “paying enough”?
How is the political debate affecting the way in which senior executives
on the Boards of MNEs view taxation issues? Is it changing behaviour and
is that true for all MNEs, or only those most vulnerable to consumer
action?
There is increasing pressure on MNEs to publish more information about
their affairs (the Extractive Industries Transparency Initiative and the
Capital Requirements Directive for example) including tax. Some
countries are imposing new reporting requirements too. For the moment
Country-by-Country reports and the new transfer pricing documentation
resulting from BEPS Action 13 will be provided to governments only. Is
that likely to remain the case? What impact will increased disclosure
have on MNEs and their relationship with tax administrations? What is
the right balance between transparency and confidentiality?
For the most part, tax administrations still discuss the “success” of their
compliance programmes in terms of additional yield resulting from audit
type activity. There will be pressure on tax administrations to
demonstrate that they are translating the new international tax regime
into even more yield. The Co-operative Compliance model does not score
well in terms of traditional measures of success because many potential
tax risks and issues will have been addressed and resolved in advance of
the tax return being submitted. Overall the model should be more
successful in securing the total tax revenue due to governments but
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demonstrating this requires different measures. Are tax administrations
doing enough to improve the way in which they demonstrate that they
are achieving good compliance outcomes?
The implementation of the BEPS Action Plan requires a mix of changes to
the international agreements governing taxation and domestic law
reforms. However, it is not clear that domestic reforms will be
deliverable in every jurisdiction, at least in the short to medium term.
Will this create pressure on countries to take unilateral action, leading to
a significant increase in actual double taxation?
Are tax administrations doing enough to restore confidence in the
integrity of their decision-making processes when it comes to managing
the tax affairs of MNEs?