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The services and support provided to tax intermediaries

With responsibilities for a fair proportion of taxpayers’ affairs in many countries tax intermediaries can be viewed as a special type of “client” through which, as indicated at the outset, there are likely to be many opportunities for revenue bodies to leverage improved compliance with the tax laws.

An overall strategy for providing service and support

Given the significant role they play in the operation of the tax system, a number of revenue bodies have taken steps to develop an overarching strategy for supporting tax intermediaries. Some background to these strategies as they apply in the Netherlands, the United Kingdom and Australia follows.

The Netherlands

The Netherlands Tax and Customs Administration’s (NTCA) approach to supporting tax intermediaries is based largely on its strategy to improve compliance with tax law. The NTCA strategy is to getting to know this group and to be more receptive to their needs and ways of working. For this purpose the NTCA uses “horizontal monitoring” (the Dutch term for co-operative compliance) in the SME segment and for those tax intermediaries who are not eligible for horizontal monitoring the focus is on compiled signals per tax intermediary, as described in the FTA’s report “Working smarter in structuring the administration, in compliance, and through legislation” published in 2012.

Box 8.5. The Netherlands: Horizontal monitoring and tax intermediaries

The State Secretary’s letter of 8 April 2005 to the House of Representatives of the States-General explained horizontal monitoring as follows:

Horizontal monitoring refers to mutual trust between the taxpayer and the Netherlands Tax and Customs Administration, the more precise specification of each other’s responsibilities and options available to enforce the law and the setting out and fulfilment of mutual agreements. In so doing, the mutual relationships and communications between citizens and the government shift towards a more equal position. Horizontal monitoring is also compatible with social developments in which the citizen’s personal responsibility is accompanied by the feeling that the enforcement of the law is of great value. In addition, the horizontal monitoring concept also implies that enforcement is feasible in today’s complex and rapidly changing society solely when use is made of society’s knowledge.

The relationship of trust in the SME segment is not directly with the taxpayers, but rather with the tax intermediaries. Considering the size of the SME segment the NTCA is aiming in this segment for co-operation with tax intermediaries. The objective of the co-operation is to provide assurance that the quality of the tax returns the tax intermediary files is acceptable (i.e. the returns comply with legislation and regulations and are free of material errors). SMEs wishing to participate in horizontal monitoring are required to sign a statement of affiliation together with the tax intermediary. Tax intermediaries verify the identity of the SMEs participating in horizontal monitoring and they assess their integrity.

An important principle of horizontal monitoring is not to duplicate work carried out by others. The NTCA relies on the work the tax intermediaries carry out for their clients. Supervision is shifted to the tax intermediary’s internal quality system, in particular to the acceptance policy governing the admission of clients and the work processes. By adopting this approach the NTCA can reduce the supervisory burden for entrepreneurs who file acceptable tax returns and devote more attention to higher-risk returns.

The NTCA justifies the relationship of trust with the tax intermediary by meta-monitoring which makes use of information that includes the results from the tax intermediary’s quality assurance system.

Sources: Tax Supervision – Made to Measure – Flexible when possible, strict where necessary, Committee Horizontal Monitoring Tax and Customs Administration (http://download.belastingdienst.nl/belastingdienst/docs/tax_supervision_ made_to_measure_tz0151z1fdeng.pdf ), and Guide to horizontal monitoring within the SME segment; Tax service providers, NTCA (http://download.belastingdienst.nl/belastingdienst/docs/guide_horiz_monit_dv4071z1pleng.pdf ).

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United Kingdom

In 2007-08, HMRC introduced new initiatives to improve the experience of agents and the services they use, recognising the key role tax intermediaries (termed “tax agents by HMRC) play and concerns they had raised with the Department about service standards. The details of these initiatives are set out in Box 8.6.

Box 8.6. United Kingdom: HMRC’s strategy for supporting tax intermediaries

Source: Engaging with tax agents, UK National Audit Office Report (October 2010).

In August 2010 HMRC’s Board considered a new strategy for engaging with tax agents. The strategy acknowledges that the Department can do more to reduce the costs of engaging with tax agents, increase compliance of represented taxpayers and improve agent satisfaction. It sets a direction which could allow the Department to work more effectively with tax agents, based on the following aims:

Segmentation: The strategy considers segmenting the tax agent customer group and tailoring its services accordingly. Segmentation would distinguish between non-profit, friends and family, and paid tax agents.

Registration: Introducing registration for paid tax agents could give greater assurance over legitimacy and security.

Self-service portal: If registration is introduced, agents could have increased rights and access, including facilities to amend tax codes and manage payments more effectively. The range of services offered has been refined in discussion with agent representatives.

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Australia

The Australian Tax Office has had a long history of providing comprehensive levels of support and services to its tax intermediaries. In 2011, it launched a major effort to lift the standard of its services, following criticism of its performance in 2010-11. Drawing on a review of its performance that entailed considerable consultation and research, the ATO launched its Tax Practitioner Action Plan 2011-15 in early 2012. The three core elements of the action plan are: 1) improving the support we provide to tax practitioners; 2) increasing the effectiveness of our consultation and engagement; and 3) undertaking compliance activities to ensure a level playing field for tax practitioners and the community. The strategy and actions to be taken to achieve objectives 1 and 2 are set out in Box 8.7 (sourced from ATO’s Compliance Program 2012-13).

Box 8.7. Australia: Key elements of Tax Practitioner Action Plan

Supporting tax practitioners

By supporting and influencing one tax practitioner, the ATO aims to support and influence many taxpayers. It believes that having the right tools and support helps tax practitioners to ensure their clients’ tax returns are lodged on time and influence good compliance behaviours. Over the three years of the action plan, the ATO will:

improve tax practitioners’ access to premium phone services, tax technical experts and relationship manager support;

improve the complaints resolution process for tax practitioners;

increase access to services and online tools such as the GST property tool;improve the online portal functions;

maintain and enhance the pre-filling service with a view to making it easier for taxpayers and tax practitioners to complete their tax returns correctly and to encourage voluntary compliance;

develop and publish a more extensive range of best practice guides and fact sheets for tax practitioners;

commence the phased implementation of a new differentiated lodgment programme that has been designed in collaboration with the Lodgment Working Group consultative forum.

The ATO is moving to a new electronic lodgment programme in 2013, under which tax practitioners will be required to lodge returns electronically and maintain a level of performance to have access to concessional lodgment dates. This year, it will work closely with the tax profession to support tax practitioners in making a smooth transition to the new programme and will assist tax practitioners to assess their performance against the programme.

Consultation and engagement

The ATO will continue to listen to tax practitioners and monitor developments in the tax and superannuation systems and the broader environment that affect them and their clients. To identify issues and co-design administrative improvements to the tax and superannuation systems, it will operate a range of consultative forums. This year, it will:

improve the level of its engagement with tax practitioners through timely, relevant and accessible communications and more effective use of our consultative forums;

extend consultation to obtain the views of regional and rural tax practitioners;

directly approach 3 000 tax practitioners for their feedback through the ATO’s research programme;

conduct more than 40 separate consultations with around 400 tax practitioners, to co-design aspects of the ATO’s compliance approaches and changes to the administration of the tax and superannuation systems;

acknowledge tax practitioners’ feedback and demonstrate how it is used to improve tax administration

regularly engage with larger accounting firms and other key practices to discuss issues and explore how we can work together to promote the proper participation of their clients in the tax and superannuation systems.

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A dedicated organisational unit

A number of revenue bodies reported the existence of dedicated organisational arrangements as part of their strategy for supporting the work of tax intermediaries. Details of the set-ups in both New Zealand and the United States are set out in Box 8.8.

Box 8.8. Organisational support for tax professionals from selected revenue bodies

New Zealand

Inland Revenue has 45 Agent Account Managers who act as intermediaries between the Inland Revenue and around 5 000 tax agents. The tax agents represent approximately 37% of all customers and 82% of the 500 000 small and medium business customers. The aim of these staff is to increase the level of compliance and compliance behaviours and to market and encourage all self-service options to ensure e-services are utilised. Inland Revenue produces “Agents’ Answers”, a monthly electronic newsletter to tax agents on operational and technical issues.

United States

Office of Professional Responsibility: The agency has undergone a two year process of dividing enforcement activities associated with return preparers and their role in tax return preparation from discipline activities associated with all tax professionals (including return preparers) who exhibit behaviour in violation of tax practice standards promulgated by the agency which calls their continued fitness to practice into question.

The IRS Office of Professional Responsibility (OPR) was reorganised, effective February 12, 2012 to oversee administration of the tax practice standards for all federal tax professionals, including education and outreach; proposing and negotiating appropriate levels of discipline; initiating disciplinary proceedings in unagreed cases; and, bringing or responding to appeals in disciplinary cases. The vision of OPR is to be the standard bearer for integrity in tax practice. Its mission is to apply the standards of practice to all tax professionals in a fair and equitable manner.

Return Preparer Office: In 2009, the Internal Revenue Service launched a review of the tax preparation industry and in 2010 released a report of the findings along with a number of recommendations to strengthen IRS oversight of paid tax return preparers.

The IRS Return Preparer Office (RPO) was established in 2011 to administer enrollment, registration, testing, and the continuing education requirements for persons enrolled to practice before the IRS and for the newly created designation: federal tax return preparers. RPO also administers the e-file suitability criteria. The stated mission of the RPO is to improve taxpayer compliance by providing comprehensive oversight and support for tax return preparers. Beginning in 2011, all paid tax return preparers who prepare any U.S. federal tax return must be registered with the IRS and have a Preparer Tax Identification Number (PTIN). The IRS is in the process of implementing additional standards which require certain return preparers to pass a new competency test, to complete annual continuing education courses, and to pass a background check. The Return Preparer Office is responsible for implementing and administering these new programme requirements.

While the OPR (see above) and RPO work in conjunction with one another, the OPR is the organisation within the IRS vested with exclusive authority for tax professional discipline, and the one which interprets and applies the standards of practice as established in the regulations and relevant authorities.

Source: New Zealand: Mechanisms implemented for assisting taxpayers in remote geographical areas, New Zealand IRD, CIAT 46th Assembly, April 2012; and United States: IRS survey response.

Effective online services

With responsibilities for large volumes of returns in many countries, some revenue bodies have taken steps to provide specialised online services to support the work of tax intermediaries. Examples drawn from materials of revenue bodies in Canada and Ireland are set out in Box 8.9.

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Box 8.9. Examples of enhanced on line services from selected revenue bodies

Canada’s “Represent a Client” portal

“Represent a Client” is a service that provides registered representatives with secure, controlled online access to tax information on behalf of individuals and businesses, including their employees. Users of the service can range from tax advisory or payroll businesses to individuals representing family members and friends. Access for representatives can vary based on the client’s authorisation, with the ability to restrict access to view only, view and make changes, or to a limited number of accounts.

Representatives are able to access most of the same features available to business owners via “My Business Account” and to individuals via “My Account”. The “Represent a Client” service also provides representatives with tools to view their client lists, and associated authorisations including expiry dates. Detailed transaction records are made available to administrators and owners of tax businesses providing them with the tools to monitor the activities of their employees. The same tool is made available to the business owners via “My Business Account” and to individuals via “My Account”, allowing them to view transactions that their representatives have made on their behalf. In the coming year, the CRA is also introducing a message centre which will enable secure two-way electronic communication between the CRA and representatives.

The “Represent a Client” service continues to be a significant contributor to the suite of self-service options. Use of the service continues to grow-for individuals, from around 468 000 account accesses in 2008 to over 3.2 million in 2011 and for businesses, from 11 000 account accesses in 2008 to nearly 1.2 million in 2011.

In 2012, the CRA implemented “Electronic Transfer of Accounting Data (ETAD)” which allows taxpayers and their representatives to send their books and records electronically otthe CRA through “My Business Account”. This method of transmitting data for audit purposes reduces the number of vistis to the taxpayer, allows flexibility to send data outside the taxpayer’s normal business hors and allows transmission of data from anywhere in the world.

Ireland’s online service

“Revenue Online Service (ROS)” is the method by which Revenue delivers its interactive customer services electronically to the customer. This service is an internet facility which provides customers with a quick and secure facility to file tax returns, pay tax liabilities and access their tax details, 24 hours a day, 7 days a week, 365 days a year. In July 2003 Revenue received an e-Government label from the European Commission for this service which was found to be one of the best practices of its type. The main features of ROS include facilities to: 1) file returns online; 2) make payments by laser card, debit instruction or by online banking for Income Tax only; 3) obtain online details of personal/ clients Revenue Accounts; 4) calculate tax liability; 5) conduct business electronically; and 6) claim repayments.

ROS has a specially designed access control system which allows a tax agent or “administrator” in the accounting/ tax firm (the Senior Partner or Financial Controller, for example) to provide the appropriate access to ROS for staff within the business or practice. This control system is hosted on ROS but is maintained by the administrator using his or her digital certificate for identification and access. In many tax practices and in larger businesses staff have different levels of authorisation in relation to certain clients or in relation to filing certain returns. Some may get permission to view certain details on ROS solely. Others may be enabled to file VAT returns while others may be enabled to file all returns on behalf of certain clients. A Senior Partner might reserve certain clients to him or herself exclusively.

Sources: Canada: E-facilitation of compliance: Taxpayer Services via the Internet, Canada Revenue Agency, CIAT 46th Assembly, April 2012; Ireland: CIS survey response and web-site.

Consultation and engagement

As reported later in this chapter, many revenue bodies have established formal arrangements to enable ongoing consultation and engagement with representative bodies of tax intermediaries. For example, Ireland’s Office of the Revenue Commissioners places very high importance on achieving a high degree of engagement with tax practitioners, as evidenced by the following comments in its 2011 Annual Performance Report:

Revenue works closely with practitioners and business representative bodies through structured and regular contacts such as the Tax Administration Liaison Committee (TALC), the Hidden Economy Monitoring Group, the Customs Consultative

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Committee and the High Level Group on Business Regulation. We take these processes very seriously. TALC is a forum for Revenue and organisations representing tax practitioners to meet and discuss issues relating to the administration of the tax system. The work of main TALC is supported by six sub-committees, which deal with specific areas of tax administration. Five meetings of the main TALC were held in 2011 and items discussed included Revenue Internal Review procedures, developments in relation to the CCCTB, developments regarding the Universal Social Charge, RCT modernisation, the operation of the Mandatory Disclosure Regime, mandatory e-filing/ paying, Self-Assessment and Stamp Duty and administrative and interpretative issues arising from the Budget and the publication of the 2011 Finance Act.

Information reported by revenue bodies

Drawing on limited research and knowledge of the work of a few revenue bodies, the CIS survey asked a number of basic questions related to the services and other support provided to tax intermediaries:

1.Does the revenue body have a formal consultative forum for regular exchanges with tax professionals (and/or their representative bodies) on key developments in taxation?

2.Is there a flexible policy (applied with relevant criteria) on providing extensions of time for returns prepared and filed by tax professionals?

3.Does the revenue body offer the following services to tax intermediaries: a) a dedicated phone inquiry service; b) access to technical experts; c) regular information bulletins on tax matters; d) dedicated “relationship managers” for larger practices; and e) a dedicated section on the revenue body’s website with information/guidance, etc.?

4.Subject to appropriate security safeguards, does the revenue body provide authorised tax professionals with online access via the Internet etc. to clients’ personal information?

5.Is there is a dedicated organisational division within the revenue body that oversees the administration of its dealings with tax intermediaries?

6.Does the revenue body have processes in place for differentiating the compliance treatment afforded to particular tax intermediaries (based on risk)?

A summary of the information reported is set out in Table 8.2. The key observations are as follows:

Only around 60% (31) of revenue bodies (including for 21 of the 34 OECD countries) reported the operation of a formal consultative forum for exchanges with tax intermediaries (and/or their representative bodies);

Just over half (18) of revenue bodies in OECD countries reported having a flexible returns filing policy for tax intermediaries, but this practice was noticeably absent in most non-OECD countries with only three reporting such a policy;

While further detailed inquiry would be needed to validate the nature of services in place the raw data reported suggest there is considerable potential for many revenue bodies to re-assess and strengthen the range and nature of services provided to support tax intermediaries in their work; for the specific range of services defined in the CIS survey it can be seen that:

-Less than 25% of revenue bodies appear to offer a “comprehensive” range of services (i.e. four or more of the five service offerings specified), although it must be emphasised that little is known of the individual services in place.

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-Around 20% of revenue bodies offer what might be described as a “reasonable” range of services (I.e. three of the five service categories identified).

-Over 50% of revenue bodies reported two or less service offerings.

Around half (17) of revenue bodies in OECD countries reported having a dedicated division within their organisation to oversee the administration of their dealings with tax intermediaries, but this practice was noticeably absent in most nonOECD countries with only four reporting such an arrangement; (Box 8.8 provides examples of such arrangements from revenue bodies in New Zealand and the United States respectively.)

Just over half of revenue bodies reported they provide the capability for authorised tax intermediaries to be given online access via the Internet/dedicated portal to clients’ personal information – Box 8.9 provides two examples of such services from Canada and Ireland);

The practice of differentiating the compliance treatment afforded to particular tax intermediaries (based on risk) appears largely “untested territory” for just about all revenue bodies, although there appears to be one exception (see Box 8.10); (NB: The ability of revenue bodies to track patterns of compliance risk in returns prepared by tax intermediaries requires a means of linking all individual tax returns with the responsible tax intermediary; in practice, this necessitates a system of registering and numbering tax intermediaries, with the relevant number captured as part of normal tax returns processing, a capability that very few countries would appear to have).

Box 8.10. The ATO’s differentiated approach

The following comments were extracted verbatim from the ATO’s Compliance Program for 2012-13:

Our focus is on enhancing the ability of tax practitioners to promote proper participation in the tax and superannuation systems, and to create a level playing field for tax practitioners by dealing with those who don’t meet the high standards of the profession. We recognise that the great majority of tax practitioners do a good job of ensuring that their clients properly participate in the tax and superannuation systems. At the same time, a small minority of tax practitioners struggle, lacking the expertise or resources to meet the business needs of their client base. Others lack the commitment to ensure the full participation and compliance of their clients in the tax and superannuation systems.

Our risk profiling indicates that across a range of different risks, around 90% of tax practitioners have a high proportion of clients that are mostly compliant. Through our initial consultative processes with key tax practitioners we have seen best practices that support clients in getting it ’right from the start”. On the other hand, 8-10% of tax practitioners have higher proportions of clients who are struggling to meet their obligations, and a further 1% have a significant proportion of clients that are at risk of non-compliance across multiple areas of their tax and superannuation obligations.

In response to this variability, we adopt a tailored approach under which our interactions with tax practitioners are based on the risk profile of their client base and the tax practitioner’s own compliance. We will:

identify and work with tax practitioners who demonstrate best practice – and their professional associations – to further develop and promote best practice across the broader profession

work with the 90% whose clients are mostly compliant, to make it easier for them to promote positive participation;

engage with those who are struggling to support their clients in meeting their obligations, through the provision of advice and self-help tools and a tailored response to compliance risks in their client base; and

visit progressively, or contact, around 160 highest-risk tax practitioners to discuss the risks we see in their client base and address their influence on their clients, with the aim of ensuring a level playing field for all tax practitioners and their clients.

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Table 8.2. Tax administration: Supporting and interacting with tax intermediaries

For notes indicated by “/ (number)”, see Notes to Tables section at the end of the chapter, p. 270. Source: Survey responses (of countries reporting one or more such functions).

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The wide variation in the nature and range of services provided to tax intermediaries, as implied by the survey data, have not been studied in detail by the FTA. However, in light of the FTA’s prior work it would seem that there is likely to be considerable potential for many revenue bodies to strengthen this aspect of their administration.

Note

1.This report describes the key findings and recommendations of the study and focuses on the objective of achieving an “enhanced relationship” between revenue bodies, taxpayers and tax intermediaries.

Notes to Tables

Table 8.1. Tax intermediaries: Laws and regulations, returns prepared and surveys

/1. Canada: Beginning in 2011. Hong Kong: Observed that tax agents usually come under the regulations of their respective professional bodies in relation to their dealings with IRD; Italy: Legislative Decree 9 July 1997, n.241 and Decree of President, 22 July 1998, n.322. New Zealand: Since 19 December 2007 the law (Tax Administration Act 1994, s34B) requires us to maintain a list of tax agents and prescribes criteria for adding tax agents and maintaining the list; Singapore: For returns from 01 Apr 2011 to 31 Mar 2012; Slovakia: Act 78/1992 Coll. about Tax advisors and Slovak Chamber of tax advisors. South Africa: Amendments to Tax Administration Act in 2012 commencing on 1 July 2013 will further regulate tax practitioners by requiring them to be a member of a “recognised controlling body” and SARS will determine which professional bodies qualify, which recognition may be withdrawn under prescribed circumstances. Turkey – Public Accountant, Certified Public Accountant and Chartered Accountant Laws. United States: The Treasury Department has issued regulations governing practice before the Internal Revenue Service (i.e. 5 U.S.C. 500; 31 U.S.C. 330, and the Regulations known as Circular 230 [31 CFR, Part 10]). Prior to August 2011, these regulations generally set forth rules relating to the duties and restrictions to practice by attorneys (licensed by the states); 2) certified public accountants (licensed by the states); 3) enrolled agents (a group of specialised tax-representatives – about 40 000 professionals (licensed by the IRS itself); and 4) enrolled retirement plan agents and enrolled actuaries (about 5 000 professionals (licensed by the IRS or the Joint Board of Actuaries), who have limited practice rights within their areas of expertise. Most tax return preparers were not, however, generally subject to these rules. Effective August, 2011, the Treasury Department amended the regulations to include registered tax return preparers among the group of practitioners to whom these regulations apply.

Table 8.2. Tax administration: Supporting and interacting with tax intermediaries

/1. Australia: A pilot programme of providing access to technical experts is being expanded to make it available to all tax professionals; the dedicated relationship manager programme has been given a new focus of providing support to those agents who ATO systems identify as struggling to ensure the compliance of their clients; ATO risk modeling is able to identify those tax professionals who have a significant level of risk in their client base with respect to various individual tax risks such as cash economy participation, personal Income tax deductions, filing of returns or payment of debt. Differentiated treatments are applied according to the risk profile of the client base; and the Tax Practitioners Board (TPB), which registers and regulates the conduct of tax practitioners in Australia, has its on Consultative Forum with recognised not-for-profit tax practitioner associations. The TPB maintains its own separate web site (www.tpb.gov.au) and provides

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