In a recent KPMG International poll, more than 75 per cent of respondents said they were involved in a tax examination or dispute with a revenue authority, with 43 per cent reporting that they feel the process takes too long and is too expensive.
A further 26 per cent said the auditor(s) may lack the requisite technical skill to deal with some of the transactions and/or issues and 20 per cent said that the audit may focus disproportionately on immaterial or insignificant issues. A small but notable 11 per cent indicated the process is too adversarial.
The poll was taken during a recent KPMG webcast attended by 721 corporate executives, with the majority from the US and Canada, which focused on the global trend and concept of ‘horizontal monitoring’. While the concept is also referred to as ‘enhanced relationships’ or ‘co-operative compliance’ depending on jurisdiction, all have the common goal of facilitating trust, dialogue and collaboration between a revenue authority and a corporate taxpayer.
In today’s volatile tax environment, such activity can facilitate efficient and cost-effective ways of dealing with corporate tax audits. According to a May 2013 Organisation for Economic Co-operation and Development (OECD) report on co-operative compliance, 24 countries included in the analysis have established some form of co-operative compliance programme.
Sharon Katz-Pearlman, head of KPMG’s global tax dispute resolution and controversy services, said: ‘With the majority of respondents to the poll also saying that they expect to see the same or increasing level of audit activity, the concept or use of a horizontal monitoring programme by a tax authority is clearly going to be, or already is, welcomed by corporate taxpayers.’
Only 13 per cent of respondents commented that they are currently involved in a horizontal-type monitoring programme. This is not surprising as only 13 countries, according to the OECD, have formal co-operative compliance models in place, and in certain of these countries ‘the approach is offered to a specific class of taxpayers, generally defined by a set of objective criteria, such as size and complexity’.
However, 80 per cent of respondents to the poll who are participating in a horizontal-type monitoring programme indicated the overall experience has been somewhat positive to very positive.
According to the poll, 38 per cent of respondents participating in a horizontal-type monitoring programme cited reaching earlier certainty as an attractive attribute of a horizontal-type monitoring programme; 30 per cent cited more efficient use of resources and 23 per cent cited limiting focus to significant/material processes, but only nine per cent cited improved relationships with the tax administrators.
Katz-Pearlman added: ‘The goal of horizontal-type monitoring programmes is to make the tax audit process more efficient and productive and less adversarial, ideally leading to a smaller number of disputes.
‘Programmes can truly enhance the ability to communicate with tax authorities but clearly there is work still to be done. Education, clarification and confirmation of programmes by tax authorities with their corporate taxpayers is essential.’
As these programmes continue to spread and build momentum globally, taxpayers will need to decide if they want to pursue them. Based on the poll, 21 per cent of respondents said they would participate in a programme if given the opportunity and 10 per cent said they would not. However, the majority, 39 per cent, said that they were not sure if they would participate, reinforcing the need for more detailed information about the programmes so taxpayers can make appropriate decisions going forward for their specific situations.