Forum on Tax Administration (FTA) – Tax Intermediaries Project

Introduction

1.The Global Accounting Alliance (GAA) welcomes the opportunity to comment on the FTA Tax Intermediaries Project.

2.The GAA was formed in November 2005 and is an alliance of leading professional accountancy bodies in significant capital markets. It was created to promote quality services, share information and collaborate on important international issues. The Alliance works with national regulators, governments and stakeholders, through member body collaboration, articulation of consensus views, and working in collaboration where possible with other international bodies, especially IFAC.

3.The Alliance facilitates a cooperation between nine of the world's leading professional accounting organisations:

The American Institute of Certified Public Accountants (AICPA)
Canadian Institute of Chartered Accountants (CICA)
Hong Kong Institute of Certified Public Accountants (HKICPA)
Institute of Chartered Accountants in Australia ICAA)
Institute of Chartered Accountants in England and Wales (ICAEW)
Institute of Chartered Accountants in Ireland (ICAI)
Institute of Chartered Accountants in Scotland (ICAS)
New Zealand Institute of Chartered Accountants (NZICA)
South African Institute of Chartered Accountants (SAICA)
These organisations represent over 700,000 professional accountants from 140 countries.

Context

4.We have followed with considerable interest the excellent work of the Forum on Tax Administration. In particular we have noted its studies on the international approaches to topics such as electronic filing, and we recognise the importance of the sharing of information and, where appropriate, the coordination of approaches and activities.

5.A number of our individual member bodies have already been contacted by their home country Revenue authorities in the context of the current Tax Intermediaries project. The following observations are, therefore, made at a high level only and offer an international perspective on the issues raised by the documents already issued by the project team, in particular Working Paper #3 Overview – the emerging direction of the study. Paragraph references below are to the paragraph numbers in Working Paper #3.

Existing Legal Frameworks

6.We welcome the assertion at Paragraph 4 that “it is important to remember that revenue bodies, taxpayers and tax intermediaries are ultimately all bound by their country's framework of economic policy and law-making and that this framework is outside the scope of the study.” We would also add that there is an extensive network of Double Taxation Conventions, Information Exchange Agreements and other recognised vehicles which promote transnational tax compliance. We feel that any coordinated approach by Revenue authorities must take very careful cognisance of this existing body of legal agreements, and not take any measures which would undermine or run contrary to the internationally understood position. We consider that the overarching remit of major international agreements such as the Treaty of Rome must also be formally recognised.

Risk – Assessment and Classification of Firms

7.Paragraph 11 seems to envisage at least a partial devolution of responsibilities for risk assessment from the relevant Revenue authorities to accountants. The practical consequences of this could well include developments such as classification of accountancy firms as arbiters themselves of Revenue risk. In this context, we specifically ask:

• Will such classification mechanisms be transparent?
• Will there be a right of appeal against the determination by a Revenue authority of a firm's classification? Natural justice would seem to demand it.
• Will classifications be published, or obtainable under the Freedom of Information mechanisms available in many countries?
• Has there been consideration of Competition Law implications, as obtain in many countries?

8.Such developments may well have an unwelcome distorting effect on the professional tax services marketplace. We do not rule out the possibility thatrisk rating of firms could result in a levelling of the playing field, and we acknowledge that this would have beneficial effects. However the contrary is perhaps more likely to occur, and this would be neither in the interest of tax professionals nor in the public interest.

9.It could also happen that professional firms in a position to avail of legal professional privilege may become insulated from risk rating mechanisms. The raison d'etre of Legal Professional Privilege is to allow individuals to discuss confidentially their affairs with a legal advisor to ensure better compliance. We feel that Revenue authorities should be supportive of the same principle applying to the communications between appropriately qualified and regulated non-legal tax advisors such as accountants and their clients. It is fair to regard tax as one of the more complex legal areas, with more legislation and cases than most other legal areas. There is already significant dependence on the part of Revenue authorities on accountants, a dependence which may increase as described in Working Paper #3. Increased dependence surely demands increased support.

10.Penalty regimes for firms already exist in some territories, for example Ireland and New Zealand where it is considered that the firm acting for the taxpayer has contributed to the tax risk. These would become completely unnecessary in the context of the classification by Revenue authorities of firms or individual tax practitioners.

11.The devolution of risk rating from Revenue authorities to accountants begs the question of an appropriate “quid pro quo” if we are to arrive at the enhanced tripartite approach envisaged in Paragraph 12. For example, would consideration be given to systems of reduced penalties on taxpayers in problematic cases, to reflect the competent handling of riskier taxpayers by accountants?

Commercial Considerations

12.We would suggest that taxpayers who elect not to avail of the services of professional firms in the handling of their tax affairs could be prejudiced. Agent intervention in tax compliance is by no means universal.

13.A requirement to assess tax risk by accountants introduces additional commercial risks, which will be reflected in overall compliance costs to taxpayers, necessitated in part by professional indemnity insurance. We would have concerns that the emerging themes put forward in Working Paper#3 have insufficient regard to compliance costs for taxpayers.

14.Assurances and measurable targets in relation to the service offerings from Revenue authorities posited in Paragraph 11 would go some way towards addressing compliance costs. There will be an additional onus on Revenue authorities to provide clear, timely and binding guidance on ambiguous issues. It should be reasonable to expect the revenue authority to rely on the output from accountants and not query anything other than significant/material amounts. There must also be better dispute resolution mechanisms on matters both of tax law interpretation and tax administration. We would also expect the officers of Revenue authorities to develop and display a better commercial awareness when dealing with cases.

Conclusion

15.We hope that these observations will be of assistance as you complete your study. We will be happy to expand or provide further information or comment on any of the points made.

Yours sincerely,

Stephen Harrison AO FCA FAICD

Chief Executive Officer

Global Accounting Alliance

cc	Mr Chris Davidson, HMRC, Deputy Director of Business Customer Unit