Cooperative Compliance Practice: Lessons from the Organisation for Economic Co-operation and Development (OECD) Countries

Abstract

The existence of the cooperative tax compliance concept is a sign of evolvement in tax compliance, where the compliance towards the tax law is settled based on cooperation between the tax authorities and taxpayers to ensure payment of the right amount of tax at the right time. Cooperative tax compliance, built on trust and transparency, predictability, and certainty, requires tax authority and taxpayers to collaborate to achieve optimal compliance. This open relationship approach allows taxpayers to receive advance certainty and have reduced compliant costs, while the tax authority benefits from the more efficient use of limited resources. Following the recommendation of the Organisation for Economic Co-operation and Development, 24 countries (Australia, Austria, Canada, Denmark, Finland, France, Germany, Hong Kong, Hungary, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Russia, Singapore, Slovenia, South Africa, Spain, Sweden, the UK, and the USA), have implemented this enhanced relationship. A review on eight countries was performed for an in-depth perspective of the practice. The review revealed five distinct features among the countries. The first feature is the initiator of the relationship. In most countries, the tax authorities promote exclusivity of the scheme, where the invitation is made for selected taxpayers to enter the cooperative compliance relationship, while in the other counterpart, the taxpayers have the rights to apply to join the cooperative compliance scheme. The second feature is the explicitness of the program. While most countries explicitly mentioned implementing a cooperative tax compliance program, others had embedded cooperative tax compliance as part of a bigger compliance program. The third feature is the formality of the arrangement, where most of the countries had an agreement signed between tax administrators and taxpayers who joined the cooperative tax compliance; while some others had no formal agreement in place. The fourth feature is the category of taxpayers that can join the scheme. While most countries provide criteria to be fulfilled by the participating taxpayers, one opted for fully volitional participating taxpayers. The final feature that differs is the inclusiveness of the program, where only one country includes the participation of all large businesses. Irrespective of the differences, their experiences become lessons for Malaysia in developing our cooperative tax compliance framework. This is important as implementing cooperative compliance will strengthen the current compliance strategies by offering a quality compliance approach.