OECD Attempts to Facilitate Cross-Country Audits of Globally Active High Net Worth Persons
The Organization for Economic Cooperation and Development (OECD) has published details of the 6th Meeting of the Forum on Tax Administration (FTA) that was held on September 15 – 16.1 Representatives of 42 tax authorities agreed that “putting greater emphasis on joint tax audits can be an important means of increasing international coordination.” Joint audits were seen to be a method of reducing the cost of dealing with separate audits by different tax authorities. In future it is proposed that taxpayers will encounter joint audits between FTA participating countries.
The FTA has also set up a network of experts dealing with the tax compliance of high net worth individuals and welcomes the participation of other countries’ tax authorities in this initiative.
Another aim of the FTA is to see “continuous improvement of taxpayer services in all member countries” and it has commissioned a report, due to be completed later this year, to identify best practice in making repayments and tax credits more accessible to taxpayers.
The FTA commissioned a report by 13 countries on joint audits.2 In this report, a joint audit is described as where:
• two or more countries join together to form a single audit team to examine an issue(s) / transaction(s) of one or more related taxable persons (both legal entities and individuals) with cross-border business activities, perhaps including cross-border transactions involving related affiliated companies organized in the participating countries and in which the countries have a common or complementary interest;
• the taxpayer jointly makes presentations and shares information with the countries; and
• the joint audit team will include competent authority representatives, joint audit team leaders, and examiners from each country.
The report is based on the 13 countries’ experiences of working under various frameworks for audits or examinations. It examines the legal frameworks that may support joint audits and sets out the opportunities and challenges.
One such challenge is whether the current legal frameworks in the various countries can support joint audits. To address this point, the report suggests that, initially, joint audits should involve taxpayers who are willing participants and should be restricted to countries that consider their legal frameworks allow such audits.
The report concludes that the joint audits have the potential to reduce costs for both the tax authorities and taxpayers. One outcome which it says would be advantageous to the taxpayer is the intention, in appropriate cases, to accelerate the mutual agreement procedure by early involvement of the competent authorities, where double taxation is involved, and for all participating countries to reach a joint agreement on audit results to avoid double taxation.
The FTA has also published a guide for revenue staff participating in a joint audit which covers planning, conducting, and completing a joint audit.3 This report anticipates that joint audits should take 12 to 18 months.
The FTA proposals are ambitious, particularly the timescale for completion of a joint audit given that certain countries can take longer than 12 to 18 months to complete an audit under their own domestic regime.
The report does not say when the joint audits will commence and, while the aim to reduce the taxpayer burden is admirable, it will be interesting to see whether in practice this is the result. For example, would a joint audit mean that pursuing matters via the mutual agreement procedure would actually take any less time than at present? Joint audits would seem to have some undoubted advantages from the point of view of the tax authorities, though the position for taxpayers seems somewhat less clear-cut.
It is, however, to be hoped that the other aims of the FTA are given at least equal weighting, particularly the best practice regarding repayments. Certain countries are perceived by their taxpayers as not being as efficient at dealing which such claims as they could be. It will be interesting to see whether the FTA report finds this is true in practice.
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