On 5 September 2022 the OECD published a report on building trust between tax administrations and large businesses. The research forms part of the broader work undertaken by the OECD on tax morale, to encourage further global discussion.
In recent years the public, media and investors have focused more sharply on the tax practices of multinational enterprises, and there is increasing concern about aggressive tax planning by large companies. Research on tax morale has focused mainly on individuals, rather than the factors influencing the tax behaviour of large businesses. The OECD research aims to add to the body of knowledge in relation to tax morale of businesses and the variations across countries and regions. The latest OECD study looks at the perceptions of tax administrators on the behaviour of the largest businesses.
The OECD report therefore looks at the view taken by administrators of the level of adherence by multinationals to best practices across different regions and the factors that may influence tax morale and trust between multinationals and tax administrations. Building trust is seen as a key influencer of tax behaviour and can be enhanced by government policy initiatives.
The data indicates that business behaviour is perceived more positively by administrators in OECD countries and in Asia than in other regions. The view is that tax behaviour is positive in relation to routine compliance and formal co-operation but not so positive in relation to subjective issues such as trust in information and transparency.
Administrations also have similar perceptions in relation to the behaviour of advisers, based on the examination of perceptions of the “Big Four” advisory firms which are used extensively by multinationals for tax advice. They were seen by tax administrators to be formally co-operative but the view was less positive in relation to their adherence to the spirit and intention of the laws, or to aligning tax planning with substance.
The results of the research, were supplemented by discussions with tax administrations and multinationals, indicate a lack of mutual trust between tax administrations and corporate taxpayers. Poor relationships between tax administrations and businesses can create more cost and inefficiency for both sides. Improvement in this area would allow enforcement actions to be more accurately targeted at non-compliant taxpayers while reducing the compliance burden for other businesses.
Cooperative compliance requires high levels of trust and a commitment to transparency. Where this is not already present the best starting point may be to look at practical steps to improve communication and build trust.
The report recommends a range of actions to increase trust and transparency, including increasing the use of local languages in communicating with the tax administration or establishing the office of tax ombudsman. Existing initiatives could be improved, or new initiatives expanded. Actions are examined under various categories such as compliance and audit strategies; accountability for tax behaviour; transparency and communication; and capacity building programmes.
The report focuses mainly on developing countries, as they normally rely more on tax revenues from large businesses, have capacity issues and generally lose more revenue from tax avoidance. Developing countries rely more on corporate income tax than OECD countries and consequently suffer relatively more from international tax avoidance, bearing an estimated cost of 1.3% of GDP, as compared with 1% of GDP for OECD countries. As developing countries already have lower tax-to-GDP ratios they cannot afford to continue losing revenue at this rate.
