The Organization for Economic Co-operation and Development (OECD) studies^[1] and initiatives^[2] aiming at increasing transparency measures recognize the need to obtain information for achieving this goal “particularly for large corporate taxpayers.”

The concept of aggressive tax planning emerged within the OECD and subsequently, the relevance and the role of the so-called tax intermediaries that promote such planning was recognized. In the concept of “intermediaries” any person who designs, markets, organizes, manages a tax arrangement, or makes it available for implementation is included.. These concepts built the idea of creating the obligation to disclose the tax planning with focus on the intermediaries, which led to BEPS^[3] Action 12.

This action has become known as Mandatory Disclosure Rules (MDR) on aggressive tax planning^[4]. The market for aggressive tax planning was described as a market governed by demand and supply laws like any other. Thus, three players are designed: the taxpayers, the intermediaries and the tax administration. The question is how to reduce the demandin this market “at the same time” developing the relationship between the tax administration and taxpayers. Developing trust would be a step towards the introduction of MDR, which focuses on the intermediaries or on the supply-driven. The solution involves the development of risk management analysis and requires clear, timely and specific information.

For achieving that goal, some other possibilities were raised, in OECD works, such as using tax returns both from taxpayers and from third parties, ruling mechanisms, cooperative compliance programs and statutory early disclosure.

This article is dedicated to presenting some aspects for differentiating MDR from Cooperative Compliance programs, focusing on the disclosure of tax information.

At that point, therefore, it was understood that the tax administration needed to know taxpayers better and improve the relationship with them. Thus, it was believed that the role of intermediaries, i.e., the demand for “aggressive” tax planning, would naturally be reduced.

This kind of information goes beyond what is provided in the common tax returns, because it is not only used in order to verify the due taxes to be paid, but to be used as a risk analysis tool. In addition, the tax returns provided annually do not meet the ‘time’ requirements and earlier information is needed.

Therefore, it should include any information necessary for the tax agency to undertake a fully informed risk assessment. This includes any transaction or position where there is a material degree of tax uncertainty or unpredictability, or where the revenue body has indicated publicly that the matter is of particular concern^[5].

In 2013, the OECD issued a report on co-operative compliance programs^[6]. Programs of this nature should highlight the benefits of positive behavior on the part of taxpayers, giving those who are open to greater transparency a greater level of certainty regarding their tax position^[7].

Analyzing the issue on the relationship between tax authorities and taxpayers, Owens^[8] says that the adherence to co-operative compliance regimes by taxpayers is similar to voluntary disclosure programs, in terms of mutual commitments, whereby taxpayers undertake to maintain constant communication with the tax authority, informing possibilities of tax risks; and the tax authorities, on the other hand, are committed to responding in an agile and efficient manner, considering the reality and speed of the economic world.

The question that arises is if a taxpayer participates in a co-operative compliance program, is he not disclosing all planning anyway? Does this mean that MDR are only necessary if the taxpayer does not participate in a co-operative compliance program?

Not necessarily, in my view, because a taxpayer entering in a co-operative compliance program is not obliged to disclose “all” the tax planning he applies, unless there are hallmarks or key-characteristics that previously and explicitly define which planning must be disclosed, based on risk analysis. Concerning the second part of the question, some experiences in introducing cooperative compliance programs are failing because dealing with a big number of taxpayers in this kind of program is exceedingly difficult. Considering the Tax Administration needs to offer advantages, rewards or administrative benefits in return, more taxpayers involved means more workload.

Therefore, co-operative compliance and MDR must cover different universes of taxpayers. Moreover, it is important to note that taxpayers involved in cooperative programs offer less risk than those who are not included. As I see it, MDR and cooperative compliance program are two sides of the same coin. Disclosure rules must be set for both, but they must be different.

The point is that, in a cooperative compliance program, the taxpayer who fulfils the conditions to be accepted in the program discloses that planning he wants to certify with the tax administration, and others which are included in the program protocol. Otherwise, if he is compelled to disclose “all” schemes or structures, this brings an excessive dose of uncertainty for him, and the guarantees for entering are bigger, for instance that he will not be subjected to any kind of assessment. In co-operative compliance programs there is a trade-off between transparency and certainty^[9],  and I believe the main difference between co-operative compliance and MDR is exactly in this requirement for “certainty”^[10].

What is needed, therefore, are some objective parameters for disclosing tax planning. This is present in MDR, and it is recommendable in co-operative compliance programs. In MDR, not “all” planning is in the scope, but only some of them, which present risks. Furthermore, this definition concerning which tax planning must be disclosed or not can be assessed in a control of reasonableness and proportionality, as a function of the risks involved and the outcomes MDR is able to produce.

Finally, the person in MDR focus is not the taxpayer, but the tax intermediary, who designs, offers, commercializes or implements tax planning, in a market. Additionally, the MDR proposed in BEPS Action 12 focuses on international tax planning and even though the taxpayer involved is not one under the country’s jurisdiction, the disclosure must be made, because the intermediary is under jurisdiction, or the tax advantage produced concerns to the country’s tax system.

Concluding, in MDR and in co-operative compliance programs, the universe of taxpayers is different and the criteria to disclose tax planning too. In MDR, the objective criteria for disclosing are the hallmarks established in the norm, independently of the subject. In the co-operative compliance program, certain tax planning, schemes or structures must be disclosed, by some taxpayers who are participating in the program, selected by objective criteria. Despite the fact that I defend the use of positive rewards for taxpayers disclosing planning under MDR, I believe that in a co-operative compliance program, because of the difference above, these rewards need to be higher, for assuring the certainty, a crucial motivation for the taxpayer. The kind of certainty involved in a co-operative compliance is different from that involved in MDR.

[1] OECD (2008). Study into the role of Tax Intermediaries (“2008 Study”), Paris: OECD Publishing, 2008 and OECD (2013). Co-operative Compliance: A Framework. From Enhanced Relationship to Co-Operative Compliance. (“2013 Report”). Paris: OECD Publishing. Published on 29 July 2013.

[2] OECD (2013). Action Plan on Base Erosion and Profit Shifting (BEPS). Paris: OECD Publishing, 2013. Published on 19 Jul 2013. NOTE. In this reference, I am specially thinking about BEPS Actions 5 and 13.

[3] OECD (2013). Ibid.

[4] OECD (2002) Forum on Tax Administrations and (2006) – Seoul Declaration; OECD (2008). Study into the role of Tax Intermediaries (“2008 Study”), Paris: OECD Publishing, 2008. OECD (2009). Engaging with High Net Worth Individuals on Tax Compliance, Paris: OECD Publishing, 2009. OECD (2011). Tackling aggressive tax planning through improved transparency and disclosure, Paris: OECD Publishing, 2011.

[5] OECD (2008). Study into the role of Tax Intermediaries (“2008 Study”). Cit., p. 41. NOTE. It is worth clarifying that this definition is given in the specific context “of an enhanced relationship”, which was to evolve into cooperative compliance. It is, therefore, a voluntary disclosure made in return for earlier/greater tax certainty.

[6] OECD (2013). Co-operative Compliance: A Framework. From Enhanced Relationship to Co-Operative Compliance. (“2013 Report”). Paris: OECD Publishing. Published on 29 July 2013.

[7] ENDEN, Eelco van der and BRONZEWSKA, Katarzyna. The concept of Cooperative Compliance. Bulletin for International Taxation, n. 10, v. 68, 2014.

[8] OWENS, Jeffrey. Tax administrators, taxpayers and their advisors: can the dynamics of the relationship be changed? Bulletin for International Taxation, n. 9, v. 66, 2012, p. 516.

[9] MAJDANSKA, Alicja and SZUDOCZKY, Rita. Designing Co-operative Compliance Programmes: Lessons from the EU State Aid Rules for Tax Administrations. British Tax Review., n. 2, 2017, p. 205.

[10] PARADA, Marcio Henrique Sales. Application of Mandatory Disclosure Rules and Legal Certainty. Revista Direito Tributário Internacional Atual nº 9. ano 5. p. 86-129. São Paulo: IBDT, 1º semestre 2021.

14,114 total views, 24 views today