Co-operative Compliance:
Practical Challenges
by
Jonathan Leigh Pemberton
Co-operative Compliance Meeting
Vienna, 28 September 2015
WU Global Tax Policy Center
Co-operative Compliance – Practical Challenges
The successful implementation of the Co-operative Compliance model poses
some practical challenges. A number of these are described below but, as before,
participants may well be able to identify other practical problems that need to be
addressed.

One of the practical problems that participants in co-operative
compliance programmes have identified is the gap between “the tone at
the top” and day to day experience. Generally speaking this is seen as a
problem within tax administrations. At senior levels there is a clear
commitment to the concept and the obligations it places on the tax
administration. However, at the operational level there is much less
readiness to offer the expected responsiveness and openness and early
certainty. In some cases there may be a similar disconnect between the
attitude at Board level in a business and the day-to-day practice of the tax
team. How is this gap best bridged? Has the trend for more of the top
management of tax administrations to be drawn from outside the tax
world increased the gap between leaders and tax practitioners? Does the
demographic of tax professionals in tax administrations have an effect
(because most tax professional dealing with large businesses will have
been used to operating in a traditional, adversarial context)?

Are the incentives for MNEs set correctly? For example, is it commercially
more advantageous to be low risk, or to take a higher risk position but be
transparent about it, in the expectation that some of the positions taken
will be accepted as correct by the tax administration?

Do tax administrations have the capacity to manage co-operative
compliance programmes successfully? The skills required include
traditional tax expertise but also additional inter-personal skills that may
not have been regarded as important in the past.

Real-time discussion of tax issues is an acknowledged advantage of the
model. However, how do tax administrations guard against being drawn
into tax planning by the taxpayer, particularly when discussing
transactions in contemplation and alternative ways in which these might
be structured?

Are tax administrations able to work effectively with one another in a
multi-lateral co-operative compliance arrangement? How do they align
the periods and issues they are looking at?

The Tax Control Framework is central to the proposition that the model is
based on justified trust and is therefore something that stakeholders can
trust as an effective means of delivering tax compliance. Do tax
administrations have the skills and tools they need to assess the design
and operation of these frameworks by MNEs?

In many countries there is a legacy of open enquiries, audits and disputes
involving large businesses. In some cases these issues cover several years
and are often highly complex. Moving to a co-operative relationship
generally involves a shift to real-time discussion of new issues and a
concerted effort to clear any backlog of open issues. For the tax
administration and taxpayer this represents a significant investment of
scarce resources. How is the transition to be managed effectively when
most tax administrations are working with limited resources?

How should tax administrations measure the success of Cooperative
Compliance programs in the near and long term?