Apr 8, 2016

Long-term Tax Compliance is Better Than Short-term Money

Being a regional knowledge hub part of the our work relates also to SHOWCASING THE REFORM EFFORTS OF OUR MEMBER COUNTRIES. Ms. Mila Vukoja, Head of the Large Taxpayers Office and Mr. Mislav Vergles, Head of the Audit Division from Croatian Tax Administration shared the applicable takeaways from the workshop "Working with Large Business Taxpayers." The workshop was delivered as part of the Supporting Capacity Development of Tax Administrations in South East Europe project primarily supported by the Dutch Ministry of Finance, Center of Excellence in Finance (CEF), International Monetary Fund (IMF) and the Assistance Technique France (Adetef).

We had the opportunity to participate at the CEF workshop “Working with Large Business Taxpayers”, held on December 8–10, 2015 in Ljubljana. And we came back with the understanding that long-term tax compliance is better than short-term money.

People from the Dutch Tax and Customs Administration told us how they deal with large business taxpayers. We learned how to maintain and enhance taxpayers’ willingness to fulfill their statutory obligations; that is, how to achieve tax compliance. The ability to improve tax compliance increases with the knowledge and understanding of taxpayers. Knowledge refers to the possession of an insight into the activities of taxpayers that are of relevance to taxation.

It is reasonable to expect that continuous cooperation with taxpayers is more efficient for the budget turnover than tax audit from time to time. The possibility of risk solving in real time is very important and the tendency is, especially in developed countries, to decrease the meaning of a classical tax audit. Besides, the application of co-operative compliance (applied in the Croatian Tax Administration, where it is known as horizontal monitoring) can have a positive effect on attracting foreign investments.

Co-operative compliance was introduced in Croatia in 2015. It is set out in the Tax Administration Act and a related implementing act “Ordinance on the procedure of granting and suspending a special status to the taxpayer for the purpose of tax compliance”.

We are only at the beginning of establishing the procedure for co-operative compliance with a specific taxpayer, who submits a written statement expressing his/her intention to acquire a special status. So, it was very interesting to hear about the experience of the Dutch experts and colleagues from other participant countries during the informal parts of the meeting.

We found that the process of granting a special status, that we are currently elaborating for our regulation, is similar and includes the following stages:

  • (i) taxpayer's initiative to start the process,
  • (ii) creation of the taxpayer’s tax profile, (iii) preliminary conversation with the taxpayer, and
  • (iv) conclusion of the compliance agreement.

We got confirmation to our approach that there is no need for regulating the details through the Ordinance without having any practical experience (pilot project).

Other workshop participants, except for Slovenia, have no experience with co-operative compliance, but they are very interested in it. All participants recognized that co-operative compliance is the best way to solve tax risks.

It was also useful to hear about others’ experience with the methods of defining the criteria for large taxpayers. Almost all countries have adopted the revenue criteria; however, the threshold varies depending on the size of the national economies and on the estimations of the member countries. Other criteria illustrate the specifics, directions, advantages or risky areas of the national economies.

All the participants agreed about the need to deal with the linked taxpayers from one organizational unit. The challenge of defining the level of connection between the taxpayers (there are different definitions of linked persons in different regulations) and the database, which could serve as a source of information, still remains.

We very much enjoyed this opportunity to meet colleagues from other countries and share experiences with them in a relaxed yet professional atmosphere. So, Tina and Ivana, thank you once again for your hospitality!