Cooperative Compliance

Acknowledgements xv
Acronyms and Abbreviations xix

Part I: Setting the Grounds
Chapter 1: Introduction 3
1.1. Setting the scene 3
1.2. Subject of the thesis – CC between the tax authorities and the large business taxpayers 5
1.3. Research questions 10
1.4. Scope of the thesis 13
1.5. Limits of the thesis 15
1.6. Methodology of the study 16
1.7. Outline of the thesis 16

Chapter 2: Historic Introduction 19
2.1. Introduction 19
2.2. Historical background 19
2.2.1. General remarks 19
2.2.2. Taxpayers – Tax authority cooperation 20
2.3. Compliance models 27
2.3.1. Compliance 27
2.3.2. Responsive regulation 32
2.3.3. Compliance costs 36
2.3.4. Other factors impacting on compliance 40
2.4. The OECD analysis 44
2.4.1. OECD work in the field of an ER/CC 44
2.4.2. Cooperation with banks 49
2.4.3. Report on the Corporate Loss Utilization through Aggressive Tax Planning (the “Corporate Loss Report 2011”) 52
2.4.4. OECD Guidelines for Multinational Enterprises (2011) 52
2.5. Summary 54

Chapter 3: The Levels of Relationship between Taxpayers and the Tax Authorities 57
3.1. Introduction 57
3.2. The basic relationship – Why it is not working, or is it? 58
3.2.1. The basic taxpayer-tax authorities relationship 58
3.2.2. The main objective of the basic relationship 60
3.2.3. Problems that the tax authorities and the taxpayers experience at this level of relationship 62
3.3. Advanced relationship 63
3.3.1. General remarks and the concept of the advanced relationship 63
3.3.2. What is the advance ruling? 65
3.3.2.1. General remarks – Definition 65
3.3.2.2. Who can apply for a ruling? – The objective scope 66
3.3.2.3. For what issues may a ruling be requested? – The subjective scope 67
3.3.2.4. Who issues a ruling? 67
3.3.2.5. Binding effect 68
3.3.2.6. Procedure and time 68
3.3.3. How does the system work in countries that already have a type of CC? 69
3.3.3.1. Australia 69
3.3.3.2. Netherlands 71
3.3.3.3. United Kingdom 75
3.3.3.4. United States 78
3.4. Why the basic relationship with the ATR is still not enough 82
3.5. ER/CC 86
3.5.1. Objectives of CC 87
3.6. Conclusions 88

Part II: Implementation of CC
Chapter 4: Description of Different Models 93
4.1. Introduction 93
4.2. The OECD Model of CC 94
4.2.1. What is the OECD CC? 94
4.2.2. Why CC should be introduced 95
4.2.2.1. Benefits for a taxpayer 95
4.2.2.2. Benefits for the tax authority 96
4.2.3. How can the CC be introduced? 97
4.2.3.1. Conditions to be met by the tax authorities in the OECD CC 98
4.2.3.2. Conditions to be met by the taxpayer in the OECD CC 102
4.3. Australia 104
4.3.1. Introduction 104
4.3.2. ATO – Structure and tasks 105
4.3.3. What is CC in Australia? 108
4.3.4. Why has CC been introduced? 110
4.3.5. How has CC been introduced? 111
4.3.6. Recapitulation 123
4.4. Netherlands 124
4.4.1. Introduction 124
4.4.2. NTCA – Structure and tasks 125
4.4.3. What is CC in the Netherlands? 128
4.4.4. Why has CC been introduced? 131
4.4.5. How has CC been introduced? 135
4.4.6. Recapitulation 160
4.5. United Kingdom 163
4.5.1. Introduction 163
4.5.2. HMRC 163
4.5.3. What is CC in the United Kingdom? 167
4.5.4. Why has CC been introduced? 167
4.5.5. How has CC been introduced? 171
4.5.6. Recapitulation 191
4.6. United States 193
4.6.1. Introduction 193
4.6.2. US tax authorities 194
4.6.3. What is CC in the United States? 197
4.6.4. Why has CC been introduced? 201
4.6.5. How has CC been introduced? 204
4.6.5.1. Real-time and pre-filing issue resolution 205
4.6.5.2. CAP 205
4.6.5.3. New post-filing examination processes 216
4.6.5.3.1. LIFE as an example of CC in a post-filing environment 216
4.6.6. Summary 219
4.7. Other countries’ experiences 220
4.7.1. EU developments in the field of CC 221
4.7.2. Other countries’ experience 221
4.8. Summary 225

Chapter 5: CC – Its Building Blocks and Description 229
5.1. Introduction 229
5.2. The building blocks of CC 229
5.2.1. Hierarchy of the building blocks 229
5.2.2. A successful basic relationship 232
5.2.3. Culture and CC 236
5.2.4. Trust 241
5.2.4.1. Trust as a building block 241
5.2.4.2. Trust in the CC context 243
5.2.4.3. Trust’s levels 246
5.2.4.4. Trust as one of the CC pillars 249
5.2.5. Culture translating into political and social acceptance of CC 251
5.2.6. Tax culture 252
5.2.7. Organizational culture 253
5.2.8. Tax authority’s readiness 257
5.2.9. Taxpayers’ readiness 261
5.2.10. Legal environment 261
5.2.11. Summary 263
5.3. In search of a definition 264
5.3.1. Introduction 264
5.3.2. Description 266
5.3.3. What is CC not? 272
5.3.4. Classification 274
5.3.4.1. Stage of development 274
5.3.4.2. Common versus civil law countries 275
5.3.4.3. Ways in which the aims may be achieved – Different models 276
5.4. Summary 277

Part III: Theoretical Issues
Chapter 6: Theoretical Issues – SWOT Analysis 281
6.1. Introduction 281
6.2. Strengths of CC 282
6.2.1. Benefits of CC 283
6.2.1.1. Benefits for taxpayers 283
6.2.1.2. Benefits for the tax authorities 285
6.2.2. Time scope of CC 287
6.2.3. Subjective scope of CC 287
6.2.4. CRM 292
6.2.5. TCF 293
6.2.6. Division of work (no duplication of work) 298
6.2.7. The minimization of use of ATP versus limiting the taxpayer’s planning opportunities 299
6.3. Weaknesses of CC 300
6.3.1. Obstacles to the introduction of CC 300
6.3.2. Equality perception 301
6.3.3. Administrative limitations 304
6.3.4. Lack of transparency305
6.3.5. Fair share concept 307
6.3.6. Lack of sanctions for misbehaviour 311
6.3.7. Performance measurement 313
6.4. Opportunities for CC 316
6.4.1. Management of large taxpayers 316
6.4.2. Corporate governance 317
6.4.3. Tax risk management – Risk rating 320
6.4.4. PR tool 328
6.4.5. CSR 329
6.4.6. International CC 330
6.5. Threats to CC 334
6.5.1. Reliance on risk rating 334
6.5.2. Lack of tax expertise and remuneration levels at the tax authorities 335
6.5.3. Implementation 337
6.5.4. Social factors 339
6.5.5. Economic factors – The economic crisis and sustainability of CC 339
6.5.6. Internal governance of the tax authorities 341
6.5.7. Opportunistic behaviour of both parties 342
6.5.8. International tax competition 344
6.6. Summary 345

Chapter 7: Theoretical Issues – Legal Analysis 347
7.1. Introduction 347
7.2. Voluntary nature of the cooperation 348
7.3. Written agreement 349
7.4. Rule of law requirements and CC 350
7.4.1. Rule of law 350
7.4.2. Discretionary powers of tax authorities 353
7.4.3. Discretionary powers and CC 357
7.4.4. Meaning of tax avoidance and abuse of law in the CC context 364
7.4.4.1. Abuse of law and tax avoidance in various jurisdictions 365
7.4.4.2. The EU prohibition of the abuse of law 369
7.4.4.3. Tax abuse versus CC 372
7.4.5. Equality principle 375
7.4.5.1. Legal definition of equality 375
7.4.5.2. Equal access to CC 378
7.4.5.3. Summary 382
7.5. Dispute resolution within CC 383
7.5.1. ADR in tax disputes 383
7.5.1.1. Mediation 384
7.5.1.2. Arbitration 386
7.5.1.3. Six ways to reach an agreement in the CC environment 387
7.6. Cancellation of cooperation 402
7.7. Privacy and confidentiality 403
7.7.1. General remarks 403
7.7.2. Privacy and confidentiality 405
7.7.2.1. Netherlands 406
7.7.2.2. United Kingdom 409
7.7.2.3. United States 412
7.8. Professional privilege 415
7.8.1. Legal privilege – General remarks 415
7.8.2. Regulation of the tax profession 416
7.8.2.1. Netherlands 417
7.8.2.2. United Kingdom 421
7.8.2.3. United States 423
7.8.3. Privacy and confidentiality in CC 427
7.9. Criminal proceedings 430
7.10. Exchange of information 434
7.11. Conclusions 436

Part IV: Possible Implementation of CC in Poland
Chapter 8: Introducing CC in Poland 445
8.1. Introduction 445
8.2. The Polish tax authorities – Historical and legal context 447
8.2.1. An outline of the history of the Polish tax authorities 447
8.3. Design of the Polish tax authorities449
8.3.1. General information 449
8.3.1.1. Large taxpayers’ offices 451
8.3.1.2. Administrative courts 452
8.3.1.3. A reform of the tax authorities 452
8.3.2. Recapitulation – Are the tax authorities ready for CC? 456
8.4. Culture, trust and economic climate 459
8.5. Basic relationship in Poland 462
8.5.1. Legal framework of the basic relationship between the taxpayers and the tax authorities 462
8.5.2. Measures to advance the basic relationship 470
8.5.2.1. General rulings 471
8.5.2.2. Individual interpretations 472
8.5.2.3. APAs 474
8.5.2.4. Recapitulation 475
8.5.3. Recapitulation – Is the basic relationship a successful and working one? 476
8.6. Taxpayers’ readiness 478
8.7. CC in Poland – Feasibility study 480
8.7.1. Framework of CC 480
8.7.1.1. How could CC look? 480
8.7.2.1. Constitution and GTA 484
8.7.2.2. Regulation of anti-avoidance 487
8.7.2.3. ADR 491
8.7.2.4. Privacy of taxpayer’s data 492
8.7.2.5. Confidentiality and professional privilege 493
8.7.3. Mental shift of approach 495
8.8. Conclusions 497

Part V: Conclusion
Chapter 9: CC and BEPS 503
9.1. Introduction 503
9.2. Shift towards a global tax transparency 503
9.2.1. What do multinationals do and is it moral? 503
9.2.2. Trust, reputation and fairness 505
9.2.3. A brief history of the shift towards global tax transparency 506
9.2.3.1. Main “players’” actions 507
9.2.3.2. Impact of the climate change on CC 520
9.3. Increased compliance burden resulting from BEPS 521
9.3.1. BEPS actions relevant from the CC perspective 521
9.3.1.1. Mandatory disclosure rules 522
9.3.1.2. CbCR 526
9.3.1.3. Dispute resolution 528
9.4. A new role for CC

Chapter 10: Future of CC 533
10.1. Introduction 533
10.2. The status quo of CC 533
10.2.1. Summary of the earlier discussion 533
10.2.2. Efficiency and legitimacy of CC 538
10.3. Conclusions – What has been achieved and what the future holds 541
Annex 1 NTCA, Individual Compliance Agreement 547
Annex 2 HMRC, TCRM6100 – Business
Risk Review Template 551
Annex 3 CAP Memorandum of Understanding 553
Annex 4 The Australian BISEP Model 565
Annex 5 Code of Professional Conduct of the Dutch
Association of Tax Advisers [Dutch acronym:
NOB] as Adopted on 2 June 2010 569

References 571
List of Tables 607
List of Figures 609