A Spanish proverb in disuse says, “You may have lawsuits and win them” (Pleitos tengas y los ganes). According to the Cervantes Institute’s, the key idea is of the saying is “Loss” and it refers to “the significant losses that carry a lawsuit whether you win or not, for though a judgment may be favorable, it will often not remain so, with the consequent cost of appeals, which sometimes brings ruin.”
This is appropriate to tax litigation, one of the great challenges of tax administrations. The way to address this problem has evolved in recent years, especially with the emergence of cooperative relationship experiences. These, although with a broader approach, also aim at reducing the litigation.
The cooperative relationship is defined by the OECD as “a relationship between the taxpayer and the tax administration based on cooperation and mutual trust between the two parties, supposing a willingness to go beyond mere compliance with legal obligations“.
Among the most significant initiatives in this area, we can highlight the Large Business Forum and the Forum of Tax Professional Associations that the Tax Agency of Spain launched more than a decade ago.
Well, not without difficulties and vicissitudes, the work of these forums have continued to advance. Last week they took a giant step by approving the texts of the Code of Good Practice of Professional Associations and Colleges and the one of Tax Professionals, developing a series of principles and commitments to advance the development of the cooperative relationship model between the tax authorities and representatives of tax intermediaries, as well as the tax professionals themselves.
These commitments are serious matters. Associations and colleges must have a Code of Ethics for the tax advisory activity of their members, or equivalent instrument, accessible through the relevant association or professional college. The tax intermediaries who sign the professional code must adhere to the Ethics Code, or equivalent instrument, of the association to which they belong.
In addition, associations and colleges undertake to inform the tax authorities within the limits of professional secrecy, of possible irregularities detected by their partners that may affect the normal operation of the tax system or market competition, providing evidence of the irregularities when these become available. The partners themselves, tax intermediaries, will assume the same commitment to report irregularities that they detect, although in this case they will report to the professional associations and schools.
In turn, the attached fiscal intermediaries who have signed the code must prevent and encourage correct behavior of customers aimed at causing significant fiscal risks, warning of the illegality of any misleading, fraudulent or malicious behavior that they may detect, and not cooperating in its execution.
Moreover, for this they must have quality standards that can guide partners to oppose behaviors such as keeping double accounting, the use of dual-use software or making cash payments above the legal limit, so as fictitious tax offshoring operations, and to oppose the fraudulent use of aggressive tax planning structures, as well as some bankruptcy proceedings, among other assumptions.
Intermediaries shall also undertake not to include in the design of their tax strategies the use of instrumental companies located in tax havens or territories not cooperating that prevent or hinder knowledge, by the tax administration, of the ultimate responsible for the activities and final holders of the assets and rights involved.
What does the Tax Agency offer in return? you may ask. Among other things, to establish a specific communication channel in their web with associations and colleges, the publication of criteria for general application, the promotion of existing legal instruments for the reduction of conflicts and other measures to promote certainty and legal security.
A few years ago, CIAT published a working paper called “Cooperative tax compliance: the current reality in CIAT member countries from Latin America, Caribbean, Africa and Asia“. This document presented various initiatives of developed countries that have set the trend and some initiatives in developing countries in this area. It is safe to say that the progress of cooperative relationship in Latin America have been, for many and varied reasons, timid during the last years. Perhaps this model implies a change of culture that takes more time or requires a more mature experience, but it is also true that it would be good to insist on this direction.
Back to the beginning, there are others sayings like the title of this post as ““El vencido, vencido, y el vencedor, perdido” (the vanquished, defeated, and the winner, lost) and some more. However, would it not be good that these sayings fall into disuse and that we take steps to do so?
For more information on this experience you can download the codes of good practice
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