Tax advisers and large business tax compliance

In the discussion paper, Tax Advisers and Corporate Tax Compliance: A European Comparison of Recent Developments and Future Trends, FairTax researchers Lynne Oats and Dennis de Widt investigate the role of tax advisers in large business tax compliance. The report compares the tax advisory industries in four EU Member States: the United Kingdom, the Republic of Ireland, the Netherlands and Germany.

"The world in which tax advisers operate is changing rapidly as it comes under closer scrutiny by governments, the media, and civil society organizations. Interestingly the public debates are quite different in each of the four countries we have investigated, and there are different participants in the debates which affects how the tax profession is being observed and criticized. In the UK, for example, the pressure from civil society and the media has raised questions that are not being asked in other countries, and the debate seems to be more polarised. In the Netherlands and Germany there is more involvement from academics than in Ireland and the UK, which changes the nature of the debate as it depoliticizes the issues." Says Dr. Dennis de Widt, Associate Research Fellow at the University of Exeter Business School.

The discussion paper focuses on the professional background of tax advisers and the regulatory frameworks in which advisers operate.

"Tax advisers constitute a very heterogeneous group in terms of their professional background. Accountants, lawyers, and pure tax advisers provide tax advice in all four countries." Dennis de Widt continues. "However, Germany stands out as only those professionals who have passed a special uniform nationwide state examination (Steuerberaterprüfung) are allowed to engage in the provision of tax advice. In line with this it is only the German system where direct regulations are in place for the tax profession, unlike the other countries. In Ireland, the Netherlands, and the UK, tax advisers tend to be regulated in a more indirect way, through regulations that have not been explicitly designed to regulate the tax profession, but nevertheless significantly impact their work. These indirect regulations, for example mandatory disclosure rules of tax planning schemes, have increased in recent years. Due to the different levels of regulations, it is difficult to draw conclusions regarding which countries more extensively regulate tax advisory work. Also, because of the different levels of regulations in place, it seems that the European countries we have looked at are relatively convergent in terms of the regulatory output they produce regarding tax advisory work."

Public scrutiny effects tax advice

Professor Lynne Oats, the University of Exeter Business School

In their study, Lynne Oats and Dennis de Widt note that the associations of tax advisers are putting more emphasis on the potential reputational effects of the tax advice they provide. Lynne Oats, Professor of Taxation and Accounting at the University of Exeter Business School, explains,

"The increase of the tax function's role in reputational risk management is affecting the advice tax advisers provide. In contrast to the previous situation where advisers could purely rely upon their technical knowledge, advisers are increasingly expected to be able to integrate their advice with their clients' wider business strategies. This requires new skills from advisers, such as more general managerial competences, and the ability to interact with a larger range of stakeholders. The impact of reputational concerns also plays out differently in each country, with the UK standing out as advisers are having to adapt to an environment where their actions are under close scrutiny not only by the media but also various parliamentary inquiries."

Complex market for tax advice

The research done for the discussion paper is mainly an analysis of primary and secondary material including documents from the associations of tax advisers within the different countries. The researchers also draw on some preliminary findings from research interviews with relevant tax professionals.

"Tax advisors on the whole seem to be very willing to discuss their work and the various pressures they face. This includes aligning their primary function as adviser to their clients with an increasing emphasis on the much broader obligation to maintain the integrity of the tax system as a whole" says Lynne Oats.

"The release of the "panama papers" reveals the complexity of the market for tax advice, and the blurring of the distinctions between tax planning, tax avoidance and tax evasion." Dennis de Widt continues "It will certainly lead to more regulation and closer scrutiny by tax authorities for example, indicated in the UK by the recent setup of an 'anti-tax dodging task force'. The new measures are likely to increase the need for external advice, particularly for those companies that don't have the expertise to manage these issues internally."

Do you think that the work of tax advisers will help to bring more transparency into the affairs of large businesses in the countries that you have analysed?

"The question of transparency is one that rests with the individual companies, which will have to decide how much information to disclose to the public in addition to meeting new regulatory requirements. The extent to which external advisers are involved will vary depending on how much individual companies rely on external advisers. Certainly the move towards requiring companies to be more open about their tax affairs will create opportunities for tax advisers to assist companies in meeting those demands in the future" says Lynne Oats.

Tax authorities' relations to tax advisers

In the four countries that are studied, it is more or less common that tax authorities have close relations to tax advisers. Lynne Oats explains that these connections can be both problematic and beneficial.

"This is something that varies from country to country, particularly the extent to which individual advisers move from practice into the tax authority and vice versa. In the UK there has been criticism of the involvement of tax advisers in the development of new legislation, but it is not a simple issue. On the one hand, it makes sense for tax authorities to make use of the expertise of tax advisers about how legislation and regulation works in practice and the impact it has on corporate taxpayers, and this is a benefit for all concerned. On the other hand there is a risk of inappropriate interference and perceptions of interference by tax advisers seeking to get good outcomes for their clients. This risk is managed by some tax authorities better than others."

Acquiring more detailed knowledge about the role of tax advisers

What is the next step for this research?

"This project is the first step towards a deeper analysis of the relationship between large business and tax authorities in the UK, Ireland, the Netherlands and Germany. Analyzing the role of tax advisers in these countries forms part of the wider project and we are currently conducting fieldwork interviews with a range of actors across the four countries. In addition to the types of co-operative compliance arrangements available in each country, we are also paying particular attention to how disputes between large corporate taxpayers and tax administrations are resolved in the different countries, and other mechanisms that tax authorities use to reduce tax risks for large corporates, such as advance rulings. It is likely that advisers play an important role in these areas, but we currently know very little about their work, and particularly whether their role works out differently across countries." Dennis de Widt concludes.