The growing attention towards tax compliance is caused by both developments in tax legislation and tax administration following a broad public discussion on fair taxation and aggressive tax planning1). Tax compliance and tax risk management have moved into the focus of management, tax administrations and other stakeholders. Finally, taxes and tax risks have entered the boardroom. Tax authorities have also recognised the importance of tax risk management and established new forms of cooperation with taxpayers, such as horizontal supervision, which aims to increase tax certainty and to reduce tax risks and litigation2). There is a significant trend towards a cooperative compliance approach as opposed to a rather bureaucratic administration of taxes.
This cooperative compliance approach is supported by the OECD, which promotes a perspective that combines the taxpayers’ processes and the administration by the revenue bodies’ processes into one holistic process that starts with the taxpayer carrying out his business and ends with the final correct tax being paid. Following the report of the Forum on Tax Administration on Co-operative Compliance: A Framework – From Enhanced Relationship to Co-operative Compliance3) the OECD, in 2016, published a guide for Building Better Tax Control Frameworks4) and started an initiative for an International Compliance Assurance Programme.
In the context of cooperative compliance, the design and establishment of a tax control framework (TCF) constitutes a central and important means of managing a company’s tax affairs and to be ‘in control’ of its tax risks. An increasing number of countries require the existence of a TCF as a condition for the participation in a compliance programme. Tax control frameworks offer many benefits for a company, its management and stakeholders, for instance:
- Minimisation and avoidance of tax risks and penalties for the company
- Avoidance of liability risks for the management, tax department and supervisory board
- Transparency and certainty regarding the tax position
- Increased quality of tax data and reporting
- Changing the manner and reducing the risks of tax audits
- Improved cooperation with the tax authorities and faster ruling procedures
1) OECD Report on Tax Administration 2006; OECD Base Erosion and Profit Shifting, October 2015
2) OECD Forum on Tax Administration (“FTA”), Compliance Management of Large Business Task Group, July 2009; Horizontaal Toezicht (Horizontal Monitoring in the Netherlands.
3) OECD A Framework: From Enhanced Relationship to Co-operative Compliance, July 2013 4) OECD Co-operative Tax Compliance, Building Better Tax Control Framework, May 2016