The OECD study into the role that tax advisers play in the use of tax minimisation techniques by large companies, has recommended that governments should attempt to reduce the demand for aggressive tax planning by encouraging more constructive dialogue between revenue bodies, taxpayers and tax advisers.

According to the OECD, this is an approach which Her Majesty's Revenue and Customs (HMRC) began to develop in April 2006 when the terms of reference for the Review of Links with Large Business (also known as the Varney Review) were published. The UK tax authorities have since launched a risk-based approach to allocating resources to large corporate taxpayers, and have also expressed a strong desire to move to an environment of "real-time" working with these businesses. Both of these are key elements of the OECD's recommendations.

This issue was highlighted at a recent event organised by big-four accountant KPMG, where around 30 business tax professionals from FTSE 350 companies debated the UK's initiatives, now recognised in the OECD study as examples of best practice. Whilst they were largely supportive of real time working and a risk-based approach, they wanted to see tangible benefits in terms of earlier certainty and a reduced compliance burden if they were to move to a system of much earlier and fuller disclosure.

Commenting on the issues raised in the OECD report, Sue Bonney, Head of Tax in the UK at KPMG Europe, observed that: "An enhanced relationship in the form of increased collaboration between taxpayers, tax authorities and tax advisers, real-time working and a risk-based approach to allocating resources all make sense if they achieve earlier certainty on a business's tax position, and it is encouraging to see the OECD recommending that all parties move in this direction. The UK experience so far suggests that this is an area where real action on the part of all parties is required to accomplish such a step change in the way of working."

The study, commissioned by the OECD's Forum on Tax Administration (FTA) in September 2006, looked closely at the role tax advisers play in the increasingly complex tax environment, examining the work they undertake in helping their clients comply with the requirements of existing tax codes and complex tax legislation.

It concluded that "the vast majority of tax advisers help their clients to avoid errors and deter them from engaging in unlawful or overly-aggressive activities". However, the study points out some intermediaries also act as designers and promoters of aggressive tax planning.

Although the FTA remains concerned over the role of tax intermediaries in this form of tax planning, it recognises that companies determine their own appetite for risk. Its preferred approach is to reduce the demand among corporate taxpayers for complex tax minimisation arrangements.

It proposes that tax authorities do this by developing risk management techniques to differentiate between high and low risk taxpayers, so that they can focus time and resources on dealing with the higher risks. This will require more voluntary disclosure of information by taxpayers which, the FTA suggests, can be encouraged by developing "enhanced relationships" with taxpayers and their tax advisers.

Loughlin Hickey, Global Head of Tax at KPMG (and partner in the UK firm), welcomed the study as a first step to improved relations between revenue bodies, taxpayers and tax advisers.

"This study is a breakthrough towards a more collaborative approach to making tax legislation and administration an effective part of economic policy throughout the world," he commented, adding that: "The way a tax system is administered is as important as the way tax policy is formulated. The study's central themes – use of risk management techniques to allocate resources and encouragement of enhanced relationships - provide common ground for tax authorities, tax payers and tax advisers. These are the people who have to make the system work in practice, and it is right that they should work together to improve the way tax systems meet the needs both of economic policy and of taxpayers."

But he stressed that the study should be seen as part of an ongoing dialogue, with more work needed to implement the recommendations effectively.

"The study adopts a very businesslike approach in endorsing the adoption of modern risk management techniques as a way of concentrating scarce revenue body resources where they are really needed," he noted.

"To reap the full benefits of these techniques, tax authorities should invest in developing manageable and meaningful indicators of genuine tax risk, and in training their people to understand and use them. They will also need to work hard to persuade a naturally skeptical business community that the openness and transparency necessary for an enhanced relationship can really benefit large corporate taxpayers," Hickey observed.

The FTA report envisions an enhanced relationship, where companies volunteer information in the event that a different interpretation of tax law between them and the revenue body that may lead to a significantly different tax liability. In return, revenue bodies should offer, "understanding based on commercial awareness, impartiality, proportionality, openness through disclosure and transparency, and responsiveness."

"It may not be easy to persuade companies to provide more information than they are required to by law," added Mr Hickey, "but I would urge corporates to look very carefully at these proposals in the light of their overall stance on certainty, transparency and governance. Companies should put any concerns they may have about greater disclosure and transparency in the context of the likely benefits of, among other things, earlier certainty and greater clarity in their dealings with the tax authorities."

"In doing this, they will want to take into account the possible cost of doing nothing at all. It is likely to be more onerous for everyone if the outcome of concerns over tax planning is legislation rather than collaboration. I do think there is an appetite in the global business community to do what is necessary to avoid the greater compliance burdens and confrontation which legislation could bring. But before they consider making major changes to the way they deal with the tax authorities, taxpayers should expect some assurance that the tax authorities are committed, empowered and accountable for implementation of the study’s recommendations in the spirit they have been made."

However, the FTA report conceded that there is much work still to be done before its recommendations can become reality, recognising that tax systems and compliance culture vary widely from country to country.

"A successful enhanced three-way relationship will rely on a positive shift in behaviour by all parties and may not be possible if one party has overriding powers to manage the other two," Mr Hickey observed.

He concluded: "For example, requirements for transparency should apply to tax authorities just as much as to taxpayers and their tax advisers. It may be helpful to have some mutually agreed set of behaviours and common monitoring to ensure that all parties to the relationship have equal interests and accountability in making it work."