A Guide on Simultaneous inspections

In today’s time the TAs need the cooperation of management. The reason behind this is that globalization of economic activities and new ways of doing business in the digital economy, such as electronic commerce, digital platforms or collaborative, digital currencies and new forms of market goods and services have led to tax evasions and difficulties of tax control. The presence of multinational companies with aggressive tax planning, tax havens and /or jurisdictions of zero or low taxation or non-cooperating jurisdictions, and the always complex issue of controlling transfer prices have added to this issue.

Let us first discuss:

1. What do you mean by SIMULTANEOUS INSPECTIONS?

The CIAT Manual for the implementation and practice of the exchange of tax information[1] states that a simultaneous audit constitutes an agreement between countries to audit simultaneously and independently, each in its territory, the tax situation of taxpayers on whom they have a common or related interest, with a view to exchanging any relevant information that they thus come to obtain.

A simultaneous audit is a tool for fact-gathering used by auditors to allow them to obtain existing documents abroad in a timelier manner. Differences in limitation periods between countries must be considered important for Case Selection.

Holding bilateral personal meetings between the tax inspectors of each country is very important. This helps in discussing aspects of mutual concern and  allows the auditors to achieve a more complete development of the issues. It helps in better understanding   of the overall activities of taxpayers by TAs. The main  benefits of simultaneous inspections are listed below:

• They help to reveal the exploitation or abuse of existing laws and procedures in individual countries. High levels of efficiency  is ensured in the exchange of information between tax jurisdictions.
• They are beneficial in cases of suspected international tax evasion and evasion.
• These can be related to both direct and indirect taxes.
• They allow a general review of all relevant business activities.
• Reduction of the burden of compliance for taxpayers by coordinating consultations with tax authorities in different states and avoiding duplication.
• Avoiding double taxation and thus preventing the need to subsequently resort to a mutual agreement procedure under a provision like Article 25 of the OECD Model Tax Convention.
• Exchange of information is facilitated between the TAs, although the simultaneous monitoring itself is not considered an exchange of information.

The cited CIAT Manual states that it will be based on one of the following for the legal basis for simultaneous inspections:

• CIAT model of Information Exchange.
• Information exchange article of a bilateral tax agreement such as one based on Article 26 of the OECD Model Tax Agreement.
• Article 8 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (whose protocol was amended in 2010 to allow the entry of countries not members of the Council of Europe or OECD).[2]
• Article 12 of the Nordic Convention on mutual assistance in tax matters.
• Article 8b of EU Council Directive 77/799 / EEC on Mutual Assistance.[3]
• Article 12 of the EU Council Regulation on administrative cooperation in the field of VAT 1798/2003.

In the framework and with the conditions of the Conventions of International Law Tax or National Agreements, inter-agency, you will be able to perform simultaneous audits either with other States, each TA acting in the territory corresponding to their jurisdiction, in the terms provided for in an Agreement, or with another or other TA in the country, in the terms provided for in a National Inter-agency Agreement- as per the Model Tax Code of CIAT (2015)[4] in his article 106

Moreover, TA may also participate, together with the authorities of the other states or officials of the other TAs of the country, in the simultaneous audits carried out, in accordance with the provisions of the conventions of international tax law or the National Inter-Agency agreements. For its part, Article 12 of Council Directive 2011/16 / EU of 15 February 2011[5] on administrative cooperation in the field of taxation regarding simultaneous controls states that the Competent Authority of each member state:

• It shall independently determine the persons it intends to propose to be the subject of simultaneous control.
• It will notify the competent authorities of the other member states concerned of the cases in respect of which it proposes simultaneous controls, giving reasons for its proposal.
• It shall specify the period during which such controls shall be carried out.
• It will decide whether to participate in those concurrent inspections.
• It shall appoint a representative who shall be responsible for supervising and coordinating the control.

2. PRACTICAL APPLICATION OF SIMULTANEOUS INSPECTIONS

The CIAT Manual[6] as mentioned above states that it helps to define the objectives of simultaneous audits, assign responsibilities to the various stakeholders, and provides very interesting guidelines for the initial selection of cases, including conducting preliminary audits, contact with taxpayers, initial planning, additional audits, and completion of cases, also including feedback to the process for improvement. TAs in the Nordic countries have been working with simultaneous tax audits for several years and have achieved positive results in both direct taxes and VAT. Within the OECD itself, there is also a joint audit implementation package that includes relevant templates and model agreements that can facilitate and expedite any practical aspect of conducting a joint audit which is constantly updated[7].

Moreover, the European Court of Auditors[8] states that the system of exchange of tax information can work well, provided that the data is accurate, comprehensive, and exchanged in a timely manner as stated by a recent report. However, this is not always so, the auditors criticize. Also the information exchanged is generally is not utilized to the fullest which results in insufficient taxation.

Simultaneous controls on taxpayers by two or more member states for the common or complementary interest have proven to be a very good tool for assessing the taxation of cross-border transactions. These may be more effective than controls carried out by a single member state.

 “Exchange of tax information in the EU: solid foundations with a lack of implementation with respect to simultaneous controls” is said to be an effective tool as per the Special Report of the European Court of Auditors[9]

The Member States initiated 660 simultaneous controls in relation to inspections in the areas of direct and indirect taxation or direct taxation combined with VAT between the period of 2014 and 2018.

5 simultaneous controls initiated by each member state visited and 5 controls in which they had worked were examined.

In big picture, the controls were very effective in the following ways:

Exchanges of good practices in the evaluation of business structures and supplementary tax settlements.

Quick and timely detection of fraud systems, before they can be expanded to several member states.

3. Main View

The challenges of globalization are increasing day by day. To address the business models that have been developed to adapt to new economic realities, TAs should strengthen their cooperation and must try to experiment with new forms of collaboration such as simultaneous audits. To fight fraud, tax administrations (TAs) must continue to make progress in cooperation at international and domestic level.There are multiple forms of cooperation both internal and international, some of which are more developed than others. So, one must use the tools in the best possible way.

In a nutshell we can say that simultaneous controls proved to be an effective tool. The recent reports of countries that are conducting more simultaneous audits are auspicious.  It showed positive results as an instrument for the exchange of information, experience, and good practices.