“Taxes do not only need to be levied. They must also be collected correctly and in full”, notes the policy statement of the current Minister of Finance, Vincent Van Peteghem, which was presented to the House of Representatives in November 2020. The core of his message is that government tax revenue will increase if existing taxes are collected more effectively.
The importance of "Tax Compliance”
Better tax collection also pre-supposes that taxpayers fulfil all their obligations in this respect, such as submitting the various VAT returns and listings on time and correctly. The well-known key phrase is therefore 'tax compliance'. The challenge for tax administrations is to choose monitoring methods that promote the (voluntary) compliance of taxpayers. After all, any intervention by a tax administration to enforce tax regulations requires the use of already limited resources, with costs in some cases exceeding tax revenues.
Compliance is even more complex in an international context. The globalization of business activities and the increasing complexity of supply chains represent an additional challenge in that respect. Tax administrations depend on international co-operation with other administrations, which may at times be difficult, to enforce their national regulations. This is also why many new measures are being adopted concerning reporting obligations and the international exchange of (fiscal) information. A recent example is the DAC6 regulation, which prescribes the reporting and exchange of cross-border direct tax structures within the EU.
Co-operative Tax Compliance Programme
In recent decades, growing attention has been paid to the relationship between taxpayers and the tax administration. The underlying idea is that a less hierarchical and more service-oriented attitude on the part of the tax administration promotes the compliance of taxpayers. Loss of tax revenue is not only caused by fraud and tax evasion, but also by differences in the interpretation of regulations, differences in the interpretation of facts, and a lack of insight into business processes and rules. If this can be tackled through better service and co-operation, then timely and correct collection of taxes is better ensured. The OECD also recommends the concept of co-operative tax compliance and this concept has already been implemented in several countries, such as in the form of "Horizontal Supervision" in the Netherlands and "Justified Trust" in Australia.
In Belgium, the federal tax administration launched the pilot project "Co-operative Tax Compliance Programme" (CTCP) in 2018. For the time being, the program is aimed at very large companies. This co-operation is based on an open dialogue and is characterized by justified trust, transparency and faster legal certainty. The participating company must have effective tax risk management and control systems (Tax Control Framework) in place. It is also expected that the company will discuss tax issues proactively with the administration before filing the tax return, and that the administration will provide more legal certainty in this respect by adopting a position.
The CTCP covers the most important types of taxes, including VAT. VAT compliance is therefore an important aspect. That implies that the tax strategy of a participating company also includes the VAT aspects, and that the company has mapped its business processes and their relationship to the ERP system, and has taken adequate risk management and control measures to ensure that it respects the VAT rules.
CTCP and future plans
Minister Van Peteghem has indicated that he will continue his efforts to increase the number of participants in the CTCP among large companies in 2021. In addition, his administration will work out a vision for a similar approach among small and medium-sized companies.
The Minister’s plans are also in line with the European objectives. In its July 2020 action plan for fair and simple taxation, the European Commission announced an initiative aimed at promoting tax compliance through increased co-operation, trust and transparency ("EU co-operative compliance framework").
The implementation of the Belgian and European plans into practice is yet to be seen. Taxpayers can already ask themselves how they can and wish to do this. Are they sufficiently open to more transparent co-operation with the tax administration? Or, do they first want more information about how the concept will be implemented in practice by the tax administration?
The implementation of co-operative tax compliance programs requires trust and transparency, which in many cases implies a fundamental change in the mindset of both the tax administration and taxpayers. This is a gradual process in which mutual prejudices and past reservations will have to be overcome step by step in order to achieve success in the longer term. Nevertheless, co-operative tax compliance programs will gain importance for all major tax types by 2025.
KPMG’s Indirect Tax Team
KPMG’s Indirect Tax Team consists of highly qualified tax professionals with a specialization in indirect taxes, including value added tax, customs and excise duties, as well as indirect environmental taxes and levies.
Based on many years of experience and collaboration across industries and services, the experts of KPMG’s Indirect Tax Team have also developed industry specific knowledge and understand the business side of indirect taxes.
They can effectively assist you with all types of indirect tax matters, help you fulfil and improve your tax compliance, as well as support you in complex cases and tax audits. They are your trusted partner in managing all your indirect tax matters in the best possible way.
Author: Jeroen Gobbin, Partner, Head of Indirect Tax
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