Tax Advice Research Articles

Corporate tax disclosure on a CSR basis: a new reporting framework in the post-BEPS era

PurposeThe purpose of this paper is to explore the emerging discourse on corporate taxation from a corporate social responsibility perspective to develop a consensual definition of corporate tax responsibility (CTR) and to identify a set of indicators that firms should publicly communicate to their stakeholders as an accountability mechanism.Design/methodology/approachData were obtained from semi-structured interviews with representatives of stakeholders closely related to taxation: tax authorities, companies, NGOs, tax advisors and academics. Based on a discourse analysis approach, data were coded and analyzed using computer-assisted qualitative data analysis software.FindingsCTR is defined as the set of tax-related practices and policies that allow companies to pay a fair share of taxes as a function of the generated value in each jurisdiction in which they operate and to then publicly disclose them. Disclosure should cover disaggregated quantitative data and information on practices and policies.Originality/valueDespite the wealth of research on sustainability reporting and increasing public awareness of tax aggressiveness and disclosure, academic research has not explored tax-responsible reporting. Moreover, no consensual definition of CTR has been formulated, and no indicators to properly account for responsible taxation have been identified. This paper contributes to filling these gaps by providing rich interview evidence regarding the nature of the emerging discourse on CTR reporting and a set of material indicators for CTR disclosure. This paper encourages researchers to foster the development of social accountability by engaging in future empirical studies of CTR.

The effect of simplified cash accounting on tax and financial accounting compliance costs

In many countries simplified methods for tax accounting are considered as important step to reduce tax complexity and thereby the compliance cost burden of particularly small businesses. Using two surveys among (1) small businesses and (2) tax advisors, this study examines the effect of cash-based versus accrual accounting on tax and financial accounting compliance cost. While the results of the first study are ambiguous, the second study shows that cash-based accounting is associated with a decrease of external compliance costs of small firms by about 30%. This relative benefit decreases slightly with the size of the business. However, we do not find that the usage of cash-based accounting reduces the demand for professional tax advice.

The Income Tax Compliance Costs of Private Households: Empirical Evidence from Germany

Using a survey of more than 18,000 taxpayers in North Rhine-Westphalia (Germany), we estimate the income tax compliance costs of German households and study the determinants of these costs. We find that taxpayers need between 9.13 and 10.23 hours and spend €106 to meet their income tax obligations. The average total burden is between €228 (lower bound estimate) and €321 (upper bound estimate). The aggregate cost burden ranges between 2.03 percent and 2.92 percent of the German income tax revenues of tax year 2015. Although these costs have decreased significantly over recent years (mainly for self-preparers without self-employment income), international comparisons illustrate that the German burden is still located in the upper middle. The five most important cost drivers that increase individual costs are the use of tax advice, the appeal procedure, income, return complexity, and education. We cannot confirm that e-filing reduces taxpayers’ compliance costs.

Psychological Contract as a Mediator of the Leadership- Turnover Intentions Relationship

We developed and tested a model examining the influence of leadership styles on the psychological contract of different generations of professionals and subsequently their turnover intentions. The study proposed that there is a relationship between leadership styles and psychological contract breach and subsequently the turnover intentions of legal professionals – lawyers, tax advisors, and (candidate) civil law notaries – working in professional service firms. Because of the strategic importance of human capital in a professional service firm, it is important for the continuity of the organization that they will retain their legal professionals and inspire young associates to become future shareholders.

International tax, regulatory arbitrage and the growth of transnational corporations

This paper traces the history of international corporate taxation, discusses how transnational corporations (TNCs), through their tax advisers, have helped to shape the system, and suggests that this is important in understanding the development of TNCs. It argues that a key competitive advantage of TNCs is their ability to exploit differences in corporate tax rules, as a form of regulatory arbitrage, which is facilitated by the inadequate coordination of those rules. It focuses on the divergence between the understanding in business, economics and international studies that TNCs are unitary firms and the principle which has increasingly hardened in international tax rules, especially on transfer pricing, that the various affiliates of TNCs in different countries should be treated as if they were independent entities dealing with each other at arm’s length. It argues that this facilitates tax avoidance, which is one of the strategies of the exploitation of regulatory differences, or regulatory arbitrage, which has contributed to the growth and oligopolistic dominance of large TNCs. While claiming that they merely obey the laws of each country where they do business, TNCs have taken advantage of their global reach to mould laws and normative practices, and develop structures taking maximum advantage of the loose coordination of global governance regimes.

Professional accountants in Spain: a comparative study of ethical and professional values

ABSTRACTThe loss of professional identity and a greater orientation towards commercial goals on the part of professional accountants have been considered as one of the main causes of the financial scandals. This ‘deprofessionalization’ has focused on auditors, with few studies analysing other accounting professionals. This study, carried out among more than 800 members of the Consejo General de Economistas, analyses the differences in the professional identity and values as well as the ethical judgment of accounting professionals employed in a company, accounting and tax advisors and external auditors. The results of this paper reinforce the importance of the accreditation and regulation of the professional accountant. Further, findings suggest important measures to be taken by professional corporations and public law institutions to improve commitment to the profession as well as the ethical and professional values of the professional accountants in different work settings.

Forming financial intermediaries into a fifth column: the OECD MDRs for CRS avoidance

The professional plight of fiduciaries, lawyers, accountants, and other advisors who aid their clients in minimizing their tax burden rarely turns a dry eye wet. Even where the activities are legitimate under the law or sanctioned by the tax authority, many neutral minds (giddied in part by politicians and journalists) cannot shake the intuitive sense that the rich ought to pay more tax, even if they do not have to. The prevailing view is that where sufficient wealth couples with the will to avoid taxes, the financial intermediary finds a way. Accordingly, few hearts will tremble at the predicament confronting fiduciaries and tax advisors from the incoming intermediary common reporting standard avoidance disclosure rules. By detaching the interests of the intermediary from those of the client, however, this new regime will compel financial intermediaries to reassess their professional values.

ПОДАТКОВЕ КОНСУЛЬТУВАННЯ В ЗАРУБІЖНИХ КРАЇНАХ: ДОСВІД ДЛЯ УКРАЇНИ

У статті висвітлено досвід вибраних країн світу з питань розвитку інституту податкового консультування. З’ясовано, що процес формування ринку фінансового консалтингу підлягає групуванню та має типові риси. Вказано, що податкове консультування в Україні має спільні ознаки розвитку із групою країн, що не мають законодавчого регулювання таких процедур. З’ясовано, що перевагами державного регулювання ринку податкового консалтингу є те, що права замовників послуг з податкового консультування захищені чинним законодавством, що обумовлює необхідність законодавчого врегулювання податкового консалтингу в Україні.

Fostering Ethical Professional Identity in Tax: Using the Traditional Tax Classroom

Will a tax lawyer in private practice help taxpayers comply or help taxpayers cheat? Will a government tax lawyer respect or abuse taxpayer rights? Answers to these questions turn, at least in large part, on the lawyer’s ethical professional identity — the lawyer’s philosophy of lawyering, which reflects her values, her sense of responsibility to others, and her self-concept of who she is (and wants to be) as a member of the legal profession. According to recent reports on legal education reform, commentators, and the ABA, law schools must do more to help students develop their ethical professional identities. This is particularly important in tax law, where lawyers’ ethical professional identities can affect compliance and revenue collection, tax morale and taxpayer rights, and the reputation of the tax profession. However, there is a dearth of resources for faculty members who want to leverage their traditional tax classrooms to help future tax lawyers develop their professional identities and learn to exercise professional judgment within the boundaries of the applicable ethical rules. So how can doctrinal faculty members help aspiring tax lawyers develop and implement their professional identities? This article describes exercises for the traditional tax classroom that are intended to (a) enable each student to identify and justify her developing lawyering philosophy, and (b) empower each student to implement her lawyering philosophy in her career. By empowering professors to help their students become more thoughtful, principled tax advisers, this article advances the goal of building a community of ethical tax professionals, both taxpayer-side and government-side, that serves taxpayers well.

The Paradise Papers – A Reminder of the Legal and Professional Constraints in Advising on Offshore Tax Matters

After the revelations in the Paradise Papers at the end of 2017 many people started to ponder the legal and professional requirements that are imposed on tax advisers and the consequences for those advisers in breach of them. This article addresses these issues in the Australian context, and examines the main concerns faced by Australian tax professionals when providing advice and assistance to clients that engage in offshore activities. The author concludes that offshore activities are a high-risk area for advisors and that, when tax advice is given, it should be within the letter and spirit of the law, after taking account of the advisors’ legal and professional obligations and ethical considerations.

Impact of Tax Advisors and Corrupt Tax Auditors on Taxpayer Compliance

Using two experiments, this study examines taxpayers' decisions on how much income to report in the presence of tax auditors and post-reporting tax advisers, respectively. In the first experiment, we examine taxpayers' compliance in the presence and absence of corrupt auditors. In the second experiment, we examine taxpayers' compliance in the presence of corrupt tax auditors and compare it with their compliance in the presence of tax advisers retained by the taxpayers upon being audited. The bribes sought by corrupt auditors from audited taxpayers are expressed in the form of a percentage of taxes and penalties payable. The sequence of events in the first experiment is as follows: (1) the taxpayer decides what percentage of income to report to the tax authority; (2) the taxpayer finds out whether or not he or she is audited; and (3) the taxpayer pays any unpaid taxes and penalties if audited by a non-corrupt auditor, or decides whether to pay a bribe if the auditor is corrupt. In the second experiment, step 3 is replaced by the taxpayer having to decide whether to bribe the corrupt tax auditor without hiring a tax adviser, or to retain a (dispute resolution) tax adviser in the absence of a corrupt tax auditor to contest the penalties and underreporting of income. Participants' learning from earlier rounds of the experiment can affect their reporting choice in subsequent rounds. The results of our first experiment show that overall taxpayer compliance is reduced in the mere presence of a corrupt tax auditor, even when bribe-seeking may offer no net after-tax monetary benefits to the taxpayers. This demonstrates the corrosive effects of corrupt auditors. Taxpayer compliance declines even further when taxpayers receive net monetary benefits from bribing the corrupt auditor. The second experiment examines whether the involvement of a professional tax adviser increases or decreases the percentage of income reported compared to the baseline compliance in the presence of a corrupt tax auditor. If the tax adviser serves as a gatekeeper and moral authority, the percentage of income reported by the taxpayer client could increase in the presence of a tax adviser. However, if the tax adviser effectively serves to simply override the tax penalties imposed on the taxpayer, the percentage of income reported by the taxpayer client could decrease. Our experimental results show that in the absence of corrupt auditors, tax advisers are better at improving taxpayer compliance compared to the baseline compliance in the presence of a collusively corrupt tax auditor. This suggests that tax advisers do serve as moral gatekeepers for the tax system.

The Ulaanbaatar Declaration: 10 Key Priorities in International Taxation Identified by the Global Tax Advisers’ Platform (GTAP)

The tax arena is undergoing significant change driven by globalization and digitalization, and a new global tax jurisdiction is emerging. Multiple international initiatives have been launched to identify proper norms for this new context, including the EU Platform for Tax Good Governance. Against this background, the Global Tax Advisers Platform (GTAP) was initiated by tax advisers from across the globe. The GTAP’s 10 Key Priorities were set out in the “Ulaanbaatar Declaration” signed on 12 September 2018.

Youth Participation University in Tax Advice via the Learning Service

Taxation is one of the main sources of income of a country. When the government wants to increase economic and social development of its country, it is necessary to raise taxes or tax rates on the tax base. However, it becomes complicated when the informality of the economically active population has remained at around 45%, as is the case of Ecuador, and the people who are forced to pay these taxes mostly have questions or they do not know how to do it. For this reason, the Politécnica Salesiana University decided to sign an agreement with the Internal Revenue Service (SRI), so that students studying accounting could provide tax advice in solidarity to taxpayers who have questions or problems in their tax return forms. This article describes and analyzes the development of the office of voluntary taxpayer assistance that was implemented in the university, and how service learning influenced students, and 250 taxpayers in the sector. It also includes detailed instructions for other universities to implement a similar program and a discussion of taxes that need higher advice.

Sharing corporate tax knowledge with external advisers

Tax knowledge is critical for companies to comply with tax laws and engage in tax planning and avoidance. Firms rely on external advisers in handling tax issues, however, sharing corporate tax knowledge with external advisers entails both opportunities and risks. We identify four relational factors that are associated with the decision of corporate taxpayers to share knowledge with external tax advisers. Survey data from 221 corporate taxpayers reveals a novel distinction between operational and strategic knowledge sharing. The operational dimension has a functional nature, whereas the strategic dimension has a more intentional character. Accessibility to, and a positive experience with, external advisers enables operational knowledge sharing. When firms perceive specific tax benefits in relation to sharing knowledge, they are more inclined to engage in operational knowledge sharing with external advisers but less prone to strategic knowledge sharing. Instead, strategic knowledge sharing is enhanced when firms have access to, and value the knowledge of their advisers, although this latter factor plays no significant role in explaining operational knowledge sharing. A positive experience with advisers also associates with strategic knowledge sharing. We link our results to other research and discuss implications for regulators considering, or requiring, firm disclosures of corporate tax strategy.

Opinion Statement CFE 1/2018 on the Importance of Taxpayer Rights, Codes and Charters on Tax Good Governance

CFE Tax Advisers Europe has long advocated the fundamental importance of taxpayer rights to tax good governance, and the role that clear statements of taxpayer and tax administration rights and obligations can play in this respect. Such rights and obligations are becoming an issue of global interest and, for this reason, engagement in this work is of vital importance to all interested parties and stakeholders. As the leading body representing European tax advisers, the CFE looks forward to being an active contributor to further progress in the area.

The Artificial Intelligence Tax Treaty Assistant: Decoding the Principal Purpose Test

In this article, the author explores and advocates the use of an artificial intelligence tax treaty assistant with regard to resolving issues and problems in respect of the principal purpose test as proposed in relation to the OECD/G20 Base Erosion and Profit Shifting initiative. As the PPT is very complex and ambiguous, what AI learns in dealing with those cases could be put to use regarding other rules of a similar degree of complexity and ambiguity and with a largely similar purpose and nature. For instance, domestic GAARs could be addressed by an approach very similar to that as presented in this article. AI could eventually be applied to all types of anti-tax avoidance legislation. By augmenting the power of AI, a very effective means of preventing tax avoidance on a global scale should be possible. The question is only whether countries and jurisdictions across the world would welcome AI. AI could help them draft the most effective anti-tax avoidance laws and enforce them accordingly. In the author’s opinion, the application of AI in the domain of international tax avoidance is likely to be a “game changer” by not only improving the work of tax advisers and tax administrations across the world, but also the performance of tax systems globally.

The Criminality of "Tax Planning"

In recent years, the federal government has adopted an aggressive prosecution policy that targets tax advisors who help their clients evade taxes. Increased prosecutions coupled with the present-day sophistication of tax practice call for a critical examination of the willfulness standard applied to tax advisors who use the Code and Treasury regulations as part of their regular practices. This is something no previous legal scholarship has done. To establish willfulness, the government must show that a person accused of a tax crime intentionally violated a known legal duty. Because knowledge of illegality is an element of the government's tax evasion case, prosecutors must negate a defendant's claim of ignorance or misunderstanding of the law, which is evaluated subjectively. The mistake of tax law defense and the knowledge of illegality standard are anomalies since ignorance of the law usually is not an excuse. The Supreme Court, however, has said that tax law is special due to the need to protect average citizens from prosecution for innocent mistakes made due to the complexity of the tax laws. The same high standard of willfulness that applies to average citizens also applies to tax professionals. This Article aims to do two primary things. First, it demonstrates that consideration should be given to broadening the current willfulness standard as it is applied to tax advisors. Second, it evaluates the suitability of Samuel Buell and Lisa Kern Griffin's work on "consciousness of wrongdoing" as one possible approach to consider. Beyond tax scholars and practitioners, this Article may resonate with those interested in criminal law generally and white collar crime in particular, as well as those interested in issues ofprofessional responsibility.

Symposium on Mandatory Disclosure

In this note, the author reports on a symposium held on 8 February 2018 in The Hague on the impact of mandatory disclosure on both tax advisors and the tax authorities.

UK Criminal Finances Act 2017: The Interplay between the New Corporate Offence for the Failure to Prevent the Criminal Facilitation of Tax Evasion and Legal Professional Privilege

According to the European Commission, Member States lose between 2% to 2.5% of their combined GDP annually to tax crimes. Tax avoidance and tax evasion have also dominated news recently especially following the Panama Papers/Mossack Fonseca Leak and the Paradise Papers. Whereas these leaks, particularly the Paradise Papers, encompassed arrangements that may have involved tax evasion, a lot of the arrangements involved legal tax avoidance, albeit highly aggressive. In response many governments are using the Automatic Exchange of Information and the Common Reporting Standard as a lever to encourage voluntary disclosure of non-reported offshore income among other tools to fight tax evasion. In the United Kingdom, the Criminal Finance Act 2017 received Royal Assent on 27 April 2017 and came into effect on 30 September 30, 2017. Among other objectives, it created a new corporate offence of failure to prevent the facilitation of tax evasion by an associated person, whether in the United Kingdom or in a foreign jurisdiction. It paves way for holding corporate entities liable where those “associated” with it have engaged in the criminal facilitation of tax evasion. The new corporate offence of failure to prevent the criminal facilitation of tax evasion was birthed out of the difficulties faced in the UK in holding corporate entities criminally responsible because of the “identification doctrine” that required prosecutors to prove that a “directing mind” within the organization. Therefore, this paper first explores the concept of the “identification doctrine”, criticisms levelled against it and why it was considered an impediment to making corporate entities liable for economic crimes that resulted the move towards a “strict liability” offence. It then focuses on the scope of the new corporate offence and examines the persons covered, the two elements i.e. the failure to prevent the facilitation of a United Kingdom tax evasion offence and the failure to prevent the facilitation of foreign tax evasion offences, the stages involved and the challenges posed by the requirement for dual criminality and the extra-territorial application of the later offence. Lawyers can and often play a role in the facilitation of tax evasion. In light of the findings of the European Parliament’s Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA), the Bari Declaration of May 13, 2017 and work undertaken by the OECD (for example the Ten Global Principles launched at the OECD´s Fifth Forum on Tax and Crime, the Common Reporting Standard (CRS) and the Mandatory Disclosure Rules for Addressing CRS Avoidance Agreements and Offshore Structures) this paper also looks at the spillover effects of the new UK corporate offence on tax advisers and lawyers in their capacity as “associated persons” vis-a-vis the defense of legal professional privilege. It concludes that the Criminal Finances Act 2017 is consistent with the doctrine of legal professional privilege. It is also consistent with the proposals from the OECD´s Fifth Forum on Tax and Crime that requires professional enablers to play their part in tackling tax crime by ensuring that they have taken reasonable steps to prevent their associated persons from criminally facilitating tax evasion, domestically and internationally. As recommended, it criminalizes the act of aiding, abetting, facilitating or enabling the commission of a tax offence by others and also makes legal persons and legal arrangements liable for prosecution for committing or facilitating the commission of a tax crime. The Criminal Finances Act 2017 may also cover professional enablers and service providers who are actively marketing schemes designed to circumvent the CRS reporting requirements if it leads to the failure to prevent the criminal facilitation of tax evasion. It is therefore aligned with the OECD Mandatory Disclosure Rules for Addressing CRS Avoidance Agreements and Offshore Structures.

Dealing with Data in a Digital Economy

The OECD initiated on 22 September 2017 a public consultation to further investigate key issues related to tax challenges raised by the digital economy and solutions to address these challenges. The submissions of different commentators to the public consultations have not been discussed thoroughly yet and the authors of this article examine these submissions here. The authors discuss the comments provided specifically on value creation, intangibles and the role of data in the digital economy from the point of view of different stakeholders: tax advisors, businesses and non-profit organizations.