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World: Considering a cooperative compliance framework?

17 June 2014   (0 Comments)
Posted by: Author: Catherine McLean
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Author: Catherine McLean (EY Tax Insights)

More tax authorities around the world are entering into cooperative compliance agreements with large corporations. This model, which debuted during the past decade in countries such as the Netherlands, Australia and Ireland, is now being tested through pilot programs in many other markets, including Norway, Italy, France and Russia. The aim is to reduce uncertainty and make the tax filing process more efficient as taxpayers provide full disclosure and, in return, receive a prompt assessment of tax issues.

To learn more, we spoke with Mark Melzer, Director Global Tax Policies & Processes at Heineken, the Netherlands-based brewer.

Tax Insights: Are you having discussions sooner with tax authorities as a result of the cooperative compliance model?

Mark Melzer: If you look at cooperative compliance, there are a couple of benefits. One is that you have certainty and predictability about your tax position. Early in the process, you discuss with the tax authorities what you are doing. Having certainty and predictability about your tax position is, of course, a building block of your tax risk management policy. Secondly, you have less of an audit burden because they rely more on your own controls.

In the end, cooperative compliance is beneficial for both the tax authority and the taxpayer, since they are not interested in having a strained relationship with each other.

What were the concerns about the cooperative compliance model before it was introduced in the Netherlands?

We were one of the first companies that entered into such a formal agreement with the Dutch tax authorities. To be very honest, it was a logical next step for us. We already had meetings with tax authorities where we discussed things we were doing, where the business was going and why we were doing things.

"We believe in greater transparency towards tax authorities, and we think the right way to do that is via the enhanced relationship."

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Mark Melzer, Director Global Tax Policies & Processes at Heineken

Why did your relationship with the Dutch tax authorities evolve that way?

Some 10 or 15 years ago, we had long discussions with the tax authorities. Some files took very long to complete. At the end, there was awareness on both sides that it should go another way. That evolved into a relationship of proactively sharing information.

The tax authorities in the Netherlands were always open for discussion and agreements on technical issues. That was already part of the culture of the tax authority at the time. It evolved. It was a logical next step to formalize this relationship.

Do you think the cooperative compliance model could work in other countries?

Yes. You see it in the UK, although it is a little bit different. They categorize you as a high-risk taxpayer or low-risk taxpayer. We clearly want to be in the good taxpayer bucket — the low-risk taxpayer bucket — that also releases you from some of the other requirements. There, it works well.

We think it can work in other countries if there is a willingness from both sides to move to cooperative compliance. Sometimes, it takes time. If you have very traditional, conservative tax authorities who, for a long time, have seen the taxpayer as a kind of enemy, it will not change overnight. It takes some time to build up this mutual trust and to see each other as potential partners. You see more and more countries looking at such a model.

What changes would you make if you were in charge of the cooperative compliance model?

Some of the discussion points are: what kind of information and what level of detail do you need to share? What kind of audits do they still want to do? In the Netherlands, the tax authorities rely much more on the companies to comply. In other countries, sometimes the balance is a little off in the beginning in terms of sharing information. It is a kind of give and take.

Do you believe the cooperative compliance model gives Heineken an edge over competitors?

The fact that we have a cooperative compliance agreement with authorities, and that we try to be open, is an asset in our communication about tax. It says something about how we at Heineken look at tax, tax policies and tax planning.

The fact that we have a cooperative compliance agreement with authorities, and that we try to be open, is an asset in our communication about tax. It says something about how we at Heineken look at tax, tax policies and tax planning.

This article first appeared on taxinsights.ey.com.


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