Tax Morale II

4. Summary and key recommendations

Abstract

This chapter provides a summary of key findings of the research, and some key recommendations for all stakeholders to consider in their efforts to improve tax morale.

Surveys of both tax administration officials and MNEs, combined with discussion in roundtables, suggests there is significant scope to improve tax morale of MNEs, and highlights the importance of building trust. While the surveys used in this report show perceptions, and are therefore subject to caveats, they suggest that while some MNEs demonstrate high tax morale, through adherence to their voluntary best practices, there is still work to do, especially in those regions where the majority of MNEs appear to be failing to demonstrate their adherence to some best practices. Building trust it vital, but is a multi-faceted challenge, with transparency and communication as key issues to address. While it is naïve to expect there to be high tax morale in all MNEs and permanently good relationships with the tax administration, there is clearly scope for improvement, as well as good practice to build from, in all regions.

Improving relationships is a win-win outcome for taxpayers and tax administrations. MNEs have repeatedly highlighted the importance they attach to tax certainty and reducing disputes, while tax administrations have much to gain through being able to better prioritise their enforcement activities on high-risk taxpayers.

Responsibility for building trust and improving transparency and communication is shared between taxpayers (and advisors) and administrations. Building trust and improving communication requires actions by both sides in any relationship, and this is no different in tax. This was recognised by participants in the roundtable discussions that informed this report, demonstrating that there is willingness from all sides to identify changes and improvements that they can make. There are a range of actions and good practices identified during the roundtables and outlined in this report that may help. These cover compliance and audit strategies, improving expectations and accountability of behaviour, transparency and communication, as well as capacity-building.

There is strong interest in moving towards a co-operative compliance approach. This is likely to be a long journey for many developing countries but there are many steps along the way that will help build trust. The move towards co-operative compliance is global, and a growing number of developing countries are adopting, at least, elements of, the approach. Co-operative compliance cannot be implemented quickly. It requires a certain degree of mutual trust as a pre-condition, as well as clear regulations and processes to govern the system. As such, especially where trust is currently lowest, a range of other actions to build the foundations for the introduction of co-operative compliance will be needed first. Some of these steps may by relatively simple to introduce, for example improved communication, and could be effective in creating a positive dynamic between taxpayers and tax administrations.

Improving expectations of, and accountability for, behaviour will be key for building trust. The survey data from both tax administrations and MNEs highlight that expectations, and predictability, of behaviour is a challenge, especially in developing countries. Changing perceptions here may be hard, as perceptions can remain even as behaviour has begun to change, preventing the emergence of a virtuous cycle of increased expectations. It is for this reason that accountability is also needed, to help demonstrate the commitment to standards of behaviour, and to provide reassurance that (where there is a genuine commitment to change) when expectations are not met there is a process to address the issues and avoid the undermining of trust that has been built.

Voluntary business principles are widely recognised as useful but their full potential has not yet been realised. The survey results show that businesses have not yet been able to demonstrate widespread adherence to the most widely endorsed voluntary standards more than eight years after they were agreed. While there is broad agreement that such principles can play a role in building trusted relationships with tax administrations, there clearly remains work to do to demonstrate their implementation in practice and improve accountability. In recognition of this, Business at OECD has committed to reviewing their statement of best practices in light of the findings of the survey and roundtable discussions.

Increasing informal dialogue between taxpayers and administrations will need to be accompanied by effective transparency to maintain trust from other stakeholders. There was strong support in the roundtable discussions for actions to facilitate improved communication between taxpayers and administrations, especially less formal dialogue, that can help focus formal dialogue on the key issues and/or resolve issues before they become formal disputes. While such approaches appear desirable, they also increase the risk of illegitimate behaviour (including corruption/bribery); as such, clear safeguards and effective transparency are needed to reassure stakeholders that they can have trust in the systems being used. Without such safeguards, there is a risk that the tax morale of other taxpayers (e.g. SMEs and individuals) may be undermined if they perceive the dialogue between the tax administration and MNEs as illegitimate (e.g. granting ‘deals’).

Capacity-building initiatives, in both the private and public sector, can address some of the barriers to building trust but new approaches may be needed. There is growing evidence of the potential of capacity-building initiatives such as TIWB to improve the relationships between tax administrations and MNEs. The impact on compliance, rather than enforcement, is an increasing focus for monitoring impacts. While the technical skills that are usually the focus of technical assistance are vital, there is also a need to build capacities in broader professional competencies such as effective communication, negotiation and dialogue with taxpayers, which has been less of a focus of technical assistance thus far. Businesses also need to reflect on their own capacity-building needs, especially in developing country operations, to ensure that their staff are aware of, and able to meet, the expectations of both their own businesses principles and tax administrations.

While some of the best practices identified in this report are immediately actionable, further work is needed. This report provides some best practices from both countries and businesses that can be implemented immediately, where appropriate, and in some cases (e.g. TCFs) where some guidance already exists. It also outlines new ideas that require further scoping. This report also identifies some areas where capacity building may need to be further developed, such as on value chains and co-operative compliance, or where further research is needed, such as better understanding how cultural differences and perception biases may affect trust in tax. As such, there is a range of actions that could be taken in response to the findings in this report, these include:

• Encourage the development of country-level strategies to build trust and tax morale. Especially where current levels of trust are low and relationships strained, (re)building trust will take time and require a sustained effort. Developing a clear strategy, in consultation between tax administrations, MNEs and other relevant stakeholders, can build momentum for the changes identified, as well as support not only from the government and MNEs, but also from development partners to assist in implementation. Such strategies may incorporate, where relevant, approaches outlined in this report; further collation and dissemination of best practices and guidance may help countries as they develop such strategies.

• Enhance existing capacity building, and where necessary develop new capacity building tools, guidance and programmes to respond to the demands identified in this report and roundtables. There is clear potential for further/new capacity building in several areas:

  • Co-operative compliance – building on the existing publications on co-operative compliance, further guidance and training could be developed, with a particular emphasis on how to build co-operative compliance in developing countries.

  • Value chains – new guidance and training could be developed on value chains in different sectors. Given the challenges that have previously been faced in obtaining private sector participation in such training, it may be beneficial to focus on e-learning courses initially, which will allow more flexible engagement from those contributing.

  • Professional skills and ethics – existing capacity-building programmes may often cover aspects of professional skills and ethics, but there is scope to pay more attention to these issues and ensure that they are more systematically addressed and prioritised.

• (Re)invigorate the role of business principles/best practices. The survey responses highlighted both support for business principles/best practices and the unfulfilled potential of them. There is scope for business to look both at the principles/best practices themselves, and how they can be improved, as well as how businesses hold themselves accountable to such principles. There is also scope for tax administrations (and other stakeholders) to identify ways to hold businesses to these standards, for example in integrating them into domestic accountability frameworks.

• Explore the feasibility of voluntary multilateral dialogue. While the roundtable participants showed an interest in creating opportunities for voluntary multilateral dialogue between MNEs and multiple tax administrations, the demand and practical feasibility has not been explored more widely. A feasibility study would therefore be useful, and if positive could be followed by a pilot programme.

• Undertake further research on what influences effective relationship building. Building trust and effective relationships is clearly a key issue identified in this report. To a large degree, the actions that need to be taken will be context specific. There may, however, be value in further research to increase understanding of the role of factors such as perception bias in influencing relationships between taxpayers and tax administrations.

• Support an increased commitment by all stakeholders to building trust and tax morale. As highlighted in this report, actions are needed by all stakeholders to build the trust that tax morale relies upon. Delivering such actions will require commitments of resources but also an approach that encourages openness, transparency, and dialogue. For some (possibly many) taxpayers and tax administrations, such an approach may be somewhat alien and will need sustained encouragement from all stakeholders.

As part of the OECD’s tax morale workstream, the OECD will look to identify and work with a range of partners to pursue the actions identified in this report, including integrating them into the OECD’s tax and development capacity-building efforts where possible. The OECD will also seek to identify opportunities to enhance the broader dialogue on tax morale, going beyond the specific focus on the role of trust in this report. Where possible, the OECD will seek to make links and work with other stakeholders, who may have different tools to influence tax morale, for example with investors who are increasingly focusing on tax, especially with respect to ESG considerations.