Large companies provide a very high percentage of tax revenue

so any variation in their fiscal behavior has broad impact on public revenues in our countries.

For this reason, the majority of tax administrations have specialized units for the control of large taxpayers and have promoted anti-abuse clauses and regulations to expand the taxable bases in corporate taxation, in the wake of the BEPS Action Plan.

In parallel, in some countries have been running programs of cooperative relationship to encourage voluntary compliance, enhance the transparency and reduce conflicts.

Actually the two strategies, BEPS Plan and cooperative relationship, can be complementary, since their goal is to provide collaborative formulas to those who operate with transparency and are willing to cooperate with the Administration, and so release resources to strengthen the control of those who act with opacity and/or are noncompliant.

On the other hand, since corporate social responsibility has produced little results in the tax area, some countries have chosen to reinforce the rules of corporate governance of companies adopting standards that directly impose obligations on societies in terms of fiscal governance

In Spain, since 2015 the law on corporations attribute to the executive boards of the listed companies, as non-delegable power, the determination of the fiscal strategy of the entity or group and policy of risk control and management, including tax risks. The Board was also considered in charge of the approval of special tax risk operations and those relating to special purpose entities or in tax havens.

These measures intended to place taxation as part of the agenda of the large companies’ executive boards, without that the technical component and complexity serve as a pretext for the directors of companies to live on the margins of the tax decisions, leaving the responsibility to their tax department specialists.

With the new trade regulation, the behavior of those economic groups that seek at all costs to pay the minimum possible taxes and act with opacity will not necessarily change, but at least, the board of Directors will have to expressly assume that responsibility before the shareholders, stakeholders and the society.

For those who want to comply, in my opinion, it is not enough to define the fiscal strategy in general terms, simply assuming compliance with the tax rules in all countries in which they operates and the cooperation with the tax administrations.

In my opinion, they should go into detail, which means that the Board must decide on the following issues:

– If the tax strategy is based on the literal compliance with the tax rules or on an interpretation based on their intent and purpose.

– The degree of alignment with the BEPS Plan, in particular, if the taxes on corporate profits paid in each country are consistent with the value generated in each one of them and if a country-by-country report is completed (and if it is public).

– The existence of entities in tax havens and plans for their maintenance or extinction.

– The impact that priorities and control plans published by some tax administrations may have on their activity.

– Its position on the mechanisms of cooperative relationship that might exist in the countries in which they operate.

– Its procedures to ensure that the Board of Directors approves case-by-case all operations with relevant tax consequences.

– Its form of action before the tax contingencies. Are they consulting the administration and requesting previous agreements of valuation? Are the uncertain tax positions systematically communicated to the tax administration? Do they try to reach agreements with the administration or do they prefer to litigate?

– By applying the methodology of risk analysis that is used by the company, what is their “appetite for tax risk” and how is it handled?

Some tax experts from large corporations and economic groups consider that this approach is a good opportunity for placing the tax function in a more central role in the business model and to have the tax responsibilities assumed at the proper level.

But many others consider that involving the boards of Directors in tax decisions makes no sense: they are not interested or are not going to understand the technical complexity of the issues, and if there are problems, in the future the blame will be shifted to the technician who did not inform well; It is therefore a formal compliance with the new rules, but in the end it is keeping the old practices.

To these skeptics, I always present an example trying to change their perception. Let us suppose that there are two interpretations about the tax consequences of an important transaction already conducted by the company and the interpretation favorable to the company implies to pay 300 million dollars minus in taxes than the other interpretation. Who decides if the risk is assumed? If the favorable interpretation is selected, who decides if the existence of an uncertain tax position should be reported to the tax administration? To do so suppose converting potential risk of tax regularization into a real risk, since it is possible that the Administration would differ from the criterion of the company and the price to pay would be an additional $ 300 million. And the shareholders? Are they going to hide from the true owners of the company that there is have a contingency of 300 million? These are decisions which formally correspond to the tax department, but it is the Council which must decide about the contingency and its communication or not to the Administration and / or shareholders.

On the other hand, if the contingency is reflected in the corporate documents of the company to inform shareholders and interest groups, the tax administration may have knowledge of it. Are tax administrations ready to face this new scenario? That is the company that bring out his contingencies, directly or indirectly, can break many schemes from the point of view of planning, selection, goals to accomplish, organizational model. We not only have to promote transparency, we need to be able to manage the fiscal contingencies that they reveal to us.

We can rely on important allies to reinforce fiscal governance: large tax offices and risk management experts consider it as a business opportunity, because companies need external assessment on the changes that the fiscal function is experiencing.

The NGOs have also taken advantage of the regulatory change to require from large economic groups to be fiscally responsible and more transparent, and some of these publish studies on governance and fiscal behavior of listed companies that are having echo in the media. Since no economic group likes to be at the bottom in the ratings, ranking the large companies according to their degree of fiscal responsibility, the reports from NGOs have become another factor of change since the reputational risk is increasingly important for large companies.

But let’s have no delusion, such initiatives are complementary: the tax administrations need to continue generating a risk perception and, for this purpose, the control and the fight against fraud and avoidance are absolute priorities. However, we must use all the tools at our disposal, and strengthening the fiscal governance of large companies, as well as the reputational impact of tax risks, can help improving the voluntary compliance.

To investigate the situation in Spain, the following link

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