Tax Control Framework & Exchange of Information

Tax Authorities are urging companies to enter into agreements called in the Netherlands " horizontal supervision". If a company can demonstrate they have the right controls in place, the authorities come in and audit and if they agree with the controls, a company will be less bothered by tax audits. This all sounds really nice, but there is a downside to this mechanisme. You are obliged upfront to fully disclose all business transactions which could impact the tax position. In other words, you cannot control the timing of disclosing information to tax authorities.

Another consequence relates to the exchange of information. Tax authorities are obliged by law to disclose tax information to other countries. In the EU there is a directive in place since 1977 which more or less forces EU Member States to spontaneously disclose tax relevant information to other Member States. Everything they have on file, they can disclose. So if you entered into an agreement regarding horizontal supervision, all your pro-actively disclosed information to - for example - the Dutch Tax Authorities, are bascially disclosed to all EU tax authorities. A consequence that the Dutch Tax Authorities clearly want to downplay. This is a serious issue, which should be addressed at an EU level. The EU Mutual Assistance Directive (that is the aforementioned directive from 1977) should be adapted in such way that information obtained by tax authorities based on a horizontal supervision agreement should not be regarded as information which can be exchanged.

Let me be straight: tax control is the right thing to do. Companies should have a tax control framework in place, but not because tax authorities like them to. They need to have this in place because they want to have this for themselves. A tax director needs to be "in control", needs to have good tax processes in place with the right controls. I have embarked on a tax control voyage some time ago, and I am really glad I did decide to do this. I was fully supported by senior management, I must say. Because without support from senior management this will not work.