Tax Commissioners Meet to Discuss Relationships
01 September 2009
Posted by: Author: TaxTalk
Tax Commissioners Meet to Discuss Relationships
South Africa hosted the fourth meeting of the Organisation for Economic Co-operation and Development (OECD)’s Forum on Tax Administration in Cape Town in January, bringing together more than 130 participants from around 40 countries.Tax commissioners from OECD and non-OECD countries met to discuss how to enhance the relationship between revenue bodies, taxpayers and tax intermediaries.
The meeting was held at the Westin Grand Cape Town Arabella Quays, and was chaired by SARS Commissioner Pravin Gordhan. It focused on three related issues:
•new trends in global business and wealth management and the implications for revenue bodies;
•the conclusions and recommendations of a which was launched in 2006;
•exploring ways to assist African tax administrations to develop their capacity to raise the funds required to meet the Millennium Development Goals.
In his opening address, Finance Minister Trevor Manuel said that changing tax policies had been a significant factor in driving rising inequality in the world."Our world needs a set of rules that are simple, transparent and equitable to differentiate legitimate competition between countries from the steps and measures that make tax evasion or avoidance easier," he said.
Manuel said that although multinational enterprises were an essential element of the global economy, some of them engaged in behaviour "aimed at one purpose - the minimisation of tax ".For the global trade system to work in the long term, everyone, including the multinationals, had to recognise that such behaviour was likely only to result in a backlash, a retreat to protectionism and inevitably to a world that was poorer. Smaller, poorer countries with less sophisticated tax administrations could not be expected to have the expertise to unravel complex structures that multinationals and other large companies put in place to minimise tax.
The OECD had led the way in fostering partnerships between countries in response to many of these global "public goods" issues.
Report on intermediaries study
The report on the study undertaken by the OECD was released at the meeting in Cape Town. In the executive summary of this report it was stated that all the countries participating in the OECD’s Forum on Tax Administration (FTA) recognised the impact of aggressive tax planning on tax administration, although in some countries this was far more prevalent than in others. Aggressive tax planning is one of the risks revenue bodies have to manage in order to collect the tax due under their tax systems.
Aggressive tax planning typically requires the involvement of tax professionals – in accounting firms, law firms or other tax advisory firms, in financial institutions or in large corporate taxpayers’ tax departments.
As advisers, tax intermediaries play a vital role in all tax systems, helping taxpayers understand and comply with their tax obligations in an increasingly complex world.But some of them are also designers and promoters of aggressive tax planning, a role that has a negative impact on tax systems.
The study team considered the different approaches FTA countries are using to respond to tax intermediaries’ involvement in aggressive tax planning, and concluded that to understand and, more importantly, to influence the behaviour of tax intermediaries, a broader view was needed.Tax intermediaries represent the supply side of aggressive tax planning, but large corporate taxpayers, tax intermediaries’ clients, set their own strategies for tax-risk management and determine their own appetites for tax risk. They are the ones who decide whether to adopt particular planning opportunities.
Taxpayers represent the demand side of aggressive tax planning.
The study considered the tripartite relationship between revenue bodies,taxpayers and tax intermediaries.The study team’s conclusion was that there is significant scope to influence the demand side – at least in relation to large corporate taxpayers, the taxpayer segment that was the principal focus of the study.
The full report can be downloaded at www.oecd.org.KPMG responds to the FTA report Loughlin Hickey, Global Head of Tax at KPMG (and partner in the U.K. firm), welcomed the study as a first step to improved relations between revenue bodies, taxpayers and tax advisers. "This study is a break through towards a more collaborative approach to making tax legislation and administration an effective part of economic policy throughout the world.” he said. "The way a tax system is administered is as important as the way tax policy is formulated. The study’s central themes – use of risk management techniques to allocate resources and encouragement of enhanced relationships - provide common ground for tax authorities, taxpayers and tax advisers. These are the people who have to make the system work in practice, and it is right that they should work together to improve the way tax systems meet the needs both of economic policy and of tax payers.
But he stressed that the study should be seen as part of an ongoing dialogue, with more work needed to implement the recommendations effectively."The study adopts a very businesslike approach in endorsing the adoption of modern risk management techniques as a way of concentrating scarce revenue body resources where they are really needed,” he said.
"To reap the full benefits of these techniques, tax authorities should invest in developing manageable and meaningful indicators of genuine tax risk, and in training their people to understand and use them. They will also need to work hard to persuade a naturally sceptical business community that the openness and transparency necessary for an enhanced relationship can really benefit large corporate taxpayers.”
The study’s description of an enhanced relationship sees companies volunteering information on their operations, where they believe there may be a different interpretation of tax law between them and the revenue body that may lead to a significantly different tax liability.Companies should also provide broad-ranging responses so that the revenue body can understand the significance of issues, deploy appropriate resources and reach the right tax
In return, revenue bodies should offer,"understanding based on commercial awareness, impartiality, proportionality, openness through disclosure and transparency and responsiveness.”
In particular, tax authorities should apply a professional, fair and efficient approach to resolving issues. This should be used at all levels of the authority to provide greater certainty for taxpayers.
"It may not be easy to persuade companies to provide more information than they are required to by law,” said Mr. Hickey, "But I would urge corporates to look very carefully at these proposals in the light of their overall stance on certainty, transparency and governance.Companies should put any concerns they may have about greater disclosure and transparency in the context of the likely benefits of, among other things, earlier certainty and greater clarity in their dealings with the tax authorities.”
"In doing this, they will want to take into account the possible cost of doing nothing at all. It is likely to be more onerous for everyone if the outcome of concerns over tax planning is legislation rather than collaboration. I do think there is an appetite in the global business community to do what is necessary to avoid the greater compliance burdens and confrontation which legislation could bring.But before they consider making major changes to the way they deal with the tax authorities, taxpayers should expect some assurance that the tax authorities are committed, empowered and accountable for implementation of the study’s recommendations in the spirit they have been made.”
Source: By TaxTALK