Cooperative compliance programmes increases tax certainty of large businesses

“A modern tax administration must include a trust-based regulatory approach in its compliance risk management strategy for large businesses. A so-called cooperative compliance program (CCP) – such as horizontal monitoring in the Netherlands – increases tax certainty and reduces aggressive tax practices.” This is one of the conclusions reached by Maarten Siglé RA in his dissertation titled “The effects of cooperative compliance programmes”, for which he will receive his doctorate from Nyenrode Business University on May 21, 2019.

Over the last few decades, trust-based regulatory strategies among private individuals have received considerable attention. Evidence indicates that these strategies can contribute to better regulatory compliance by such individuals. In his research, Siglé tested his hypothesis that this type of approach could also have a positive effect among large businesses. Siglé explains: “It increases businesses’ perceived certainty about their tax position, and for the tax authorities, such an approach can promote better regulatory compliance by these large businesses.”

Working relationship and tax control
According to Siglé, there are two key components when it comes to a CCP: a good working relationship between the tax authorities and large businesses, and adequate tax control by these firms (the so-called tax control framework). A CCP is based on trust between the tax administration and businesses. This means that both parties must contribute to a well-functioning working relationship. From the business side, the degree of transparency is a key factor in building this relationship. The tax administration must treat the company fairly in order to develop the desired working relationship. This concept of fair treatment could create the impression that businesses and tax authorities make ’sweetheart deals’ as part of this supervisory approach. That is nonsense, according to Siglé. “This method of supervision actually leads to a decrease in aggressive tax practices, and the tax control framework provides the desired business foundation for large businesses’ tax positions.”

Equality and trust

Siglé concludes that CCPs can in fact be effective for large businesses: “Large businesses simply seem to be less sensitive to deterrents like penalties and additional taxes.” When large firms and government authorities interact on equal terms, this creates trust. That trust in turn leads to transparency and better processes. The resulting improvements in tax control provide more security, and that is a much more effective and efficient approach – for both parties – than the traditional supervision after the fact.

You can download a summary of Maarten Siglé’s dissertation here.