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Risk Management, Internal Control and Cooperative Compliance in Taxation

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The Future of Risk Management, Volume I

Abstract

In recent years more and more jurisdictions have entered into some form of cooperative compliance scheme with (key)taxpayers. Early adapters are the Netherlands, Australia and the UK, but now many others have followed or are planning to (Germany, Italy, Belgium). The programs differ widely in application and (legal) form. In some ways, the later followers are further along the line of development than the early adapters. In this paper, I will view the concept of cooperative compliance and look into possible developments and the consequences for taxation. I will look from the perspective of tax authorities as well as companies. Among others the influence of technology, data science and the ICAP program will be viewed, as well as the influence on taxpayer rights and other formal tax issues.

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Notes

  1. 1.

    Definition from: Improving organizational performance and governance: how the COSO framework can help, executive summary, see https://www.coso.org/Documents/2014-2-10-COSO-Thought-Paper.pdf.

  2. 2.

    See for definitions the various Corporate Governance Codes (UK: Governance and the Code, Germany: Preamble, US: Foreword and Introduction, NL: Preamble), for a general approach the OECD Principles of Corporate Governance, Preamble. The Codes can be found on http://www.ecgi.org/codes/all_codes.php.

  3. 3.

    See the UK Code under Comply or Explain, point 6 where it states that comply or explain is an alternative to a rules-based system.

  4. 4.

    The OECD principles stress that the rules are not binding. The Dutch Corporate Governance Code explicitly has a separate first chapter on applying the Code. The German Code states the same in its preamble. The UK Code has a separate chapter after the Preface called ‘Comply or explain’. The US Code in the last paragraph of its Foreword and Introduction mentions (not literally) the comply or explain principle.

  5. 5.

    See for instance De Toekomst van Toezicht, nr 3, May 2013, a publication of Deloitte in which several companies express this view.

  6. 6.

    See M. E. King (2009). King Code of Governance for South Africa 2009, Chapter 3. The governance compliance framework. Institute of Directors in Southern Africa.

  7. 7.

    For an overview of a business law perspective on RM see M. van Daelen (2012). Riskmanagement en Corporate Governance. Brugge: Die Keure, Chapter 3.

  8. 8.

    See P. van Schilfgaarde (2013). Van de BV en de NV. Ed. 16, edited by J. Winter & J. B. Wezeman. Deventer: Kluwer, p. 456.

  9. 9.

    Regulation 1606/2002/EC concerning the application of international accounting standards, adopted on July 19th 2002 by the European Parliament and the Council, see also D. Busso, IAS/IFRS and the new directive 2013/34/EU from the accounting perspective in Corporate Tax Base in the light of the IAS/IFRS and EU Directive 2013/34, (ed. M. Grandinetti), Eucotax Series, volume 48, Kluwer 2016.

  10. 10.

    See Peter Essers, Theo Raaijmakers, Ronald Russo, Pieter van der Schee, Leo van der Tas, & Peter van der Zanden (2009). The Influence of IAS/IFRS on the CCCTB, Tax Accounting, Disclosure, and Corporate Law Accounting Concepts—A Clash of Cultures. EUCOTAX Series on European Taxation. Alphen a/d Rijn: Kluwer Law International, Chapter 2.

  11. 11.

    The latest version dates from September 2015.

  12. 12.

    The previous version also contained six principles, but principle II (as it is now) was divided into two principles. III was added new, so the total remains six.

  13. 13.

    Included in the publication on corporate governance.

  14. 14.

    See Co-operative Compliance: a framework from enhanced relationships to Co-operative Compliance, OECD 2013, www.oecd.org/ctp/administration/co-operative-compliance.htm.

  15. 15.

    See http://www.oecd.org/daf/ca/corporate-governance-factbook.htm.

  16. 16.

    See https://www.coso.org.

  17. 17.

    See https://www.nen.nl/NEN-Shop/Norm/NENISO-310002009-nl.htm?keyword=iso%2031000&creative=272746307009&gclid=EAIaIQobChMImtuTy5-63AIVE7cbCh3LJwesEAAYBCAAEgLTZ_D_BwE.

  18. 18.

    See http://www.oecd.org/publications/co-operative-tax-compliance-9789264253384-en.htm.

  19. 19.

    See https://www.accountancyeurope.eu/publications/providing-support-in-tax-controls-and-assurance/.

  20. 20.

    See also 5.1 on materiality.

  21. 21.

    For more details see R. Veldhuizen in Tax Assurance (ed. R. Russo), Kluwer 2015, Chapter 6.

  22. 22.

    See Tax Assurance: Nexiology in Taxation? Inaugural address at Tilburg University by R. Russo, November 4, 2016.

  23. 23.

    See http://www.oecd.org/publications/co-operative-compliance-a-framework-9789264200852-en.htm.

  24. 24.

    See https://download.belastingdienst.nl/belastingdienst/docs/leidraad_toezicht_grote_ondernemingen_dv4231z1fd.pdf.

  25. 25.

    This contact person also existed before CC, but is now inbedded within CC.

  26. 26.

    https://www.gov.uk/guidance/hm-revenue-and-customs-large-business#hmrcs-approach-to-large-business-tax-compliance.

  27. 27.

    https://www.gov.uk/guidance/large-business-strategy.

  28. 28.

    https://www.gov.uk/guidance/large-business-the-high-risk-corporates-programme.

  29. 29.

    https://www.gov.uk/hmrc-internal-manuals/tax-compliance-risk-management.

  30. 30.

    https://www.gov.uk/government/collections/support-with-tax-as-a-mid-sized-business.

  31. 31.

    https://www.ato.gov.au/Business/Large-business/In-detail/Compliance-and-governance/Annual-Compliance-Arrangements---what-you-need-to-know/.

  32. 32.

    See M. Manca, The New Italian Cooperative Compliance Regime, 56 European Taxation 4 (2016), K. Bronzewska and V. Tamburro, Cooperative Compliance in Italy—Does It Stand a Chance? 53 European Taxation 12 (2013).

  33. 33.

    See https://www.iras.gov.sg/irashome/Businesses/Companies/Getting-it-right/About-the-Enhanced-Taxpayer-Relationship-Programme.

  34. 34.

    For more information see Heuel/Konken, Tax Compliance – sinnvoll oder überflüssig?

    Hinweise zu einem interessanten Betätigungsfeld für Berater AO-StB 2017, 345–353, Ludwig/Eilers/Kusch: Der Weg zu einem globalen steuerlichen Kontrollsystem, DStR 2017, 1056 and Kowallik, Vom innerbetrieblichen Kontrollsystem für Steuern zum Tax Compliance Management System, DER BETRIEB Nr. 08, February 24, 2017.

  35. 35.

    See the relevant publication of the Dutch Tax Authorities: http://download.belastingdienst.nl/belastingdienst/docs/leidraad_horizo_toezicht_fiscaal_dienstverl_dv4071z2pl.pdf.

  36. 36.

    For more details see B. Herrijgers in Tax Assurance (ed. R. Russo), Kluwer 2015, Chapter 7

  37. 37.

    Rethinking Tax Services, The Changing Role of Tax Service Providers in SME Tax Compliance, OECD 2016, see http://www.oecd.org/ctp/rethinking-tax-services-9789264256200-en.htm.

  38. 38.

    As devised by the OECD as part of the BEPS plan, action 13, see http://www.oecd.org/tax/transfer-pricing-documentation-and-country-by-country-reporting-action-13-2015-final-report-9789264241480-en.htm and implemented by the EC as part of the Anti Tax Avoidance Package, see: http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1454056899435&uri=COM:2016:25:FIN.

  39. 39.

    At least in Europe, see European Commission (2016), Proposal for a Directive of the European Parliament and of the Council, amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches.

  40. 40.

    See E. Gerrits in Tax Assurance (ed. R. Russo), Chapter 9, Tax Accounting, Sect. 9.

  41. 41.

    See http://www.oecd.org/tax/mandatory-disclosure-rules-action-12-2015-final-report-9789264241442-en.htm.

  42. 42.

    http://data.consilium.europa.eu/doc/document/ST-7160-2018-INIT/en/pdf.

  43. 43.

    Quote from the press release on May 25, 2018, see http://dsms.consilium.europa.eu/952/Actions/Newsletter.aspx?messageid=21858&customerid=14561&password=enc_4345443939313146_enc.

  44. 44.

    See R. Hoyng, N. Andrews, M. Kennedy in Tax Assurance (ed. R. Russo), Chapter 5: A Tax Operating Model.

  45. 45.

    For instance by standardizing so information can be shared easier, such as SAF-T (Standard Audit File for Tax), for more information see A.H. Bomer, inaugural lecture November 23, 2017 at the Vrije Universiteit Amsterdam, Sect. 14.2.3.

  46. 46.

    See www.iota-tax.org/applying-data-and-analytics-tax-administrations.

  47. 47.

    For more information see also Advanced Analytics for Better Tax Administration, OECD 2016. https://doi.org/10.1787/9789264256453-en.

  48. 48.

    As an example see https://www.pwc.nl/en/publicaties/tax-administration-by-pwc-and-microsoft.

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  1. Tilburg University, Tilburg, The Netherlands

    Ronald Russo

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Editors and Affiliations

  1. Department of Management, University of Turin, Turin, Italy

    Paola De Vincentiis

  2. Department of Management, University of Turin, Turin, Italy

    Francesca Culasso

  3. Department of Management, University of Turin, Turin, Italy

    Stefano A. Cerrato

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Russo, R. (2019). Risk Management, Internal Control and Cooperative Compliance in Taxation. In: De Vincentiis, P., Culasso, F., Cerrato, S.A. (eds) The Future of Risk Management, Volume I. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-14548-4_14

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