Enhancing relationships with tax authorities

January 25, 2013

The relationship that companies have with tax authorities is more critical than ever. Learn how some executives from prestigious organizations are managing these relationships.

Tax authorities are raising their game

With government budgets under pressure almost everywhere, tax authorities are becoming increasingly keen to protect their revenue and enforce their laws. They are also, as Michael Nelson at Pfizer says, “becoming increasingly skilled.”

Through training, the recruitment of experts from the private sector and the growing use of drill-down technology, tax authorities are raising their game. Accordingly, the type of relationship that companies have with them is more critical than ever.

“We certainly contest issues on their merits but we’ll reach reasonable resolutions and we try to provide highquality information on a timely basis so that auditors can do their jobs properly,” he says.

Is having better trained tax agencies good for business?

Quite simply, it is not helpful to have tax litigation or arguments dragging on for ages. Instead, resolving such disputes helps to contribute some certainty for the company. “And that certainty is a contributor to risk management,” notes Nelson.

At Caterpillar, Giles Parsons thinks that having better-trained tax agencies is good for the business.

I would far rather have the inspector understand what our business is and ask sensible questions, rather than having endless correspondence with them about something that they don’t understand,” he says.

They can sometimes get too far embedded in their questioning and won’t take no for an answer. They think they’re onto something and they’re not.”

But there remains a question of how far to take this relationship with the authorities. In his view, Parsons advises caution about entering into formal relationships, such as contemporaneous audits with the US authorities.

You may have to commit to doing a lot of things to get systems up to date, you may have to commit to telling them absolutely everything, and you may have to commit to making significant disclosures to them, which can be commercially sensitive,” Parsons says.

The arrangement we have in the UK, and in some other European countries, is far more of a professional relationship between two parties, where they are both disclosing a reasonable amount of information to each other, to allow them to focus on the most important issues and make them both more efficient.”

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