The US Compliance Assurance Process: A Relational Signalling Perspective

Authors

  • Dennis de Widt Lecturer in Accounting and Finance, Cardiff University, Wales, U.K.
  • Emer Mulligan Senior Lecturer in Taxation and Finance, National University of Ireland Galway, Galway, Ireland
  • Lynne Oats Professor of Taxation and Accounting, University of Exeter, Exeter, Devon, U.K.

Keywords:

Cooperative Compliance, Compliance Assurance Process, Responsive Regulation, Etienne

Abstract

Cooperative compliance programmes have been introduced in various tax jurisdictions, with its pioneers including Australia, Denmark, Ireland, the Netherlands, the UK and the US. Such programmes are part of a wider trend in regulatory systems that emerged in the 1980s, and attempt to better balance interests between the tax authority and corporate taxpayers, and seek to reflect a more collaborative working method, as promoted by the Organisation for Economic Co-operation and Development (OECD). This paper examines the US cooperative compliance arrangement, known as the Compliance Assurance Process (CAP), and probes the nature of the relationship that ensues between the regulator and regulatee under CAP, the motivations of each party to the arrangement, and the manner in which the relationship is (or is not) sustained. This paper sheds light on such matters pertaining to CAP by examining its evolution and operation through the lens of regulation theory, drawing in particular on the work of Etienne (2013), who develops a typology of ideal type interactions and relational signals in regulatory settings. It is also informed by interview data from two separate studies involving interviews with senior in-house tax executives/advisors. Drawing on Etienne’s typology facilitates a better understanding of the limits of cooperative compliance in the context of large businesses, particularly in the US environment. This paper shows the importance of adequately capturing the motivations of regulator and regulatee, demonstrating they do not carry equal weight nor have they remained stable over time, and addresses the implications of these differences for the success of an initiative such as CAP. It also demonstrates that interactions between regulator and regulatee follow multiple logics, and highlights and critiques the high level of interaction required, especially during the initial stage of responsive regulation-based relationships. The paper concludes with some broader considerations around regulator-regulatee relationships, including the potential role for recent technological innovations in this context.

References

Atari, D. O., Yiridoe, E. K., Smale, S., Duinker, P. N. (2009). What Motivates Farmers to Participate in the Nova Scotia Environmental Farm Plan Program? Evidence and Environmental Policy Implications. Journal of Environmental Management, 90(2), 1269-1279.

Ayres, I. (2013). Responsive regulation: A co-author’s appreciation. Regulation & Governance, 7(1), 145-151.

Ayres, I., & Braithwaite, J. (1992). Responsive Regulation: Transcending the Deregulation Debate. Oxford, UK: Oxford University Press.

Beck, P., & Lisowsky, P. ( 2012). Financial Statement Incentives and Benefits of Voluntary Real-Time Tax Audits (Working paper). Illinois, USA: University of Illinois at Urbana–Champaign.

Becker, G. S. (1968). Crime and Punishment: An Economic Approach. Journal of Political Economy, 76(2), 169-217.

Belastingdienst. (2016). 16e halfjaarsrapportage. Netherlands Tax and Customs Administration (NTCA).

Black, J. (2005). The Emergence of Risk-Based Regulation and the New Public Risk Management in the United Kingdom. Public Law, 2005(Autumn), 512-549.

Black, J. (2006). Managing Regulatory Risks and Defining Parameters of Blame: A Focus on the Australian Prudential Regulation Authority. Law and Policy, 28(1), 1-30.

Black, J., & Baldwin, R. (2010). Really Responsive Risk-Based Regulation. Law & Policy, 32(2), 181-213.

Blau, P. M. (1986). Exchange and Power in Social Life. New Brunswick, NJ, USA: Transaction Publishers.

Braithwaite, J. (2006). Responsive Regulation and Developing Economies. World Development, 34(5), 884-898.

Braithwaite, V., Murphy, K., & Reinhart, M. (2007). Taxation Threat, Motivational Postures, and Responsive Regulation. Law & Policy, 29(1), 137-158.

Braithwaite, V. (2009). Defiance in Taxation and Governance: Resisting and Dismissing Authority in a Democracy. Cheltenham, UK: Edward Elgar Publishing.

Bronzewska, K. (2016) Cooperative Compliance: A New Approach to Managing Taxpayer Relations. Amsterdam, The Netherlands: International Bureau of Fiscal Documentation.

De Simone, L., Sansing, R. C., & Seidman, J. K. (2013). When are enhanced relationship tax programs mutually beneficial? The Accounting Review, 88(6), 1971-1991.

De Widt, D. (2017). Dutch Horizontal Monitoring: The handicap of a head start (FairTax Working Paper Series, No. 13). Retrieved from http://www.diva-portal.org/smash/record.jsf?pid=diva2%3A1142129&dswid=_e_1hJg.

De Widt, D., & Oats, L. (2017). Risk Assessment in a Cooperative Compliance Context: A Dutch-UK Comparison. British Tax Review, 2017(2), 230-248.

Dijksterhuis, A., & Aarts, H. (2010) Goals, Attention, and (Un)Consciousness. Annual Review of Psychology, 61, 467-490.

Dolan, M. P., & McCormally, T. J. (2018). IRS extends CAP Program, modifying some rules and signalling more significant changes may lie ahead (What’s News In Tax). (n.p.): KPMG. Retrieved from https://home.kpmg/content/dam/kpmg/us/pdf/2018/09/tnf-wnit-cap-program-sep10-2018.pdf.

Etienne, J. (2013). Ambiguity and Relational Signals in Regulator-Regulatee Relationships. Regulation and Governance, 7(1), 30-47.

Harvey, J. R. (2011). Schedule UTP: An Insider’s Summary of the Background, Key Concepts, and Major Issues. DePaul Business and Commercial Law Journal, 9(3), 349-400.

Holmes, R. (2011). Forcing Cooperation: A Strategy for Improving Tax Compliance. University of Cincinnati Law Review, 79(4), 1415-1459.

Granovetter, M. (2002). A Theoretical Agenda for Economic Sociology. In M. F. Guillén, R. Collins, P. England, & M. Meyer (Eds.), The New Economic Sociology: Developments in an Emerging Field (pp. 35–59). New York, USA: Russell Sage Foundation Publications.

Internal Revenue Service (IRS). (2018). Compliance Assurance Process (CAP) Recalibration. https://www.irs.gov/pub/irs-utl/CAP_Recalibration.pdf. Accessed 03/12/2018.

Kirchler, E., Hoelzl, E., & Wahl, I. (2008). Enforced Versus Voluntary Tax Compliance: The “Slippery Slope” Framework. Journal of Economic Psychology, 29(2), 210-225.

KPMG. (2016). IRS considering changes to “compliance assurance process” (CAP) program. TaxNewsFlash No. 2016-384.

Levi, M. (1988). Of Rule and Revenue. Berkeley and Los Angeles, USA: University of California Press.

Lindenberg, S. (2000). It Takes Both Trust and Lack of Mistrust: The Workings of Cooperation and Relational Signaling in Contractual Relationships. Journal of Management & Governance, 4(1), 11-33.

Lindenberg, S. (2001). Intrinsic Motivation in a New Light. Kyklos, 54(2-3), 317-342.

Lodge, M. (2015). Ian Ayres and John Braithwaite, 'Responsive Regulation: Transcending the Deregulation Debate'. In S. J. Balla, M. Lodge, & E. C. Page (Eds.), The Oxford Handbook of Classics in Public Policy and Administration (pp. 559-576). Oxford, UK: Oxford University Press.

Lukes, S. (1990). Perspectives on Authority. In J. Raz (Ed.), Authority (pp. 203-217). New York, USA: New York University Press.

Mulligan, E., & Oats, L. (2015). Tax Professionals at work in Silicon Valley. Accounting Organizations and Society, 52, 63-76.

Murphy, K. (2004). Moving Towards a More Effective Model of Regulatory Enforcement in the Australian Tax Office. British Tax Review, 2004(6), 603-619.

Nolan, D. M. (2006). LMSB’s Compliance Assurance Program (CAP): One Year Later. Tax Executive, 58(1), 26.

Organisation for Economic Co-operation and Development (OECD). (2008). Study into the Role of Tax Intermediaries. Paris, France: OECD Publishing.

Organisation for Economic Co-operation and Development (OECD). (2013). Co-operative Compliance: A Framework - From Enhanced Relationship to Co-operative Compliance. Paris, France: OECD Publishing.

Organisation for Economic Co-operation and Development (OECD). (2014). Measures of Tax Compliance Outcomes: A Practical Guide. Paris, France: OECD Publishing.

Opper, L. (2011). Compliance Assurance Process. Tax Executive, 63(6), 413-421.

Osofsky, L. (2012). Some Realism About Responsive Tax Administration. Tax Law Review, 66, 121-178.

Public Accounts Committee (PAC). (2008). Management of Large Business Corporation Tax: Report Together with Formal Minutes, Oral and Written Evidence. London, UK: The Stationery Office.

Power, M. (2004). The Risk Management of Everything. London, UK: Demos Publishing.

Rothstein, H., Huber, M., Gaskell, G. (2006). A theory of risk colonisation: the spiralling regulatory logics of societal and institutional risk. Economy and Society, 35(1), 91-112.

Sakurai, Y. (2002). Comparing cross-cultural regulatory styles and processes in dealing with transfer pricing. International Journal of the Sociology of the Law, 30(3), 173-199.

Stevens, L., Pheijffer, M., Van den Broek, J. G. A., Keijzer, Th. J., & van der Hel-van Dijk, E. C. J. M. (2012). Tax Supervision – Made to Measure. The Hague, Netherlands: Committee Horizontal Monitoring Tax and Customs Administration.

Treasury Inspector General Tax Administration (TIGTA). (2013). The Compliance Assurance Process Has Received Favorable Feedback, but Additional Analysis of Its Costs and Benefits Is Needed. Washington, D,C, US: Treasury Inspector General Tax Administration.

Westerman, P. (2013). Pyramids and the value of generality. Regulation & Governance, 7(1), 80-94.

Winter, S. C., & May, P. J. (2001). Motivation for Compliance with Environmental Regulations. Journal of Policy Analysis and Management, 20(4), 675-698.

Volume 5.1 of JOTA - de Widt et al. Cover

Downloads

Published

11-02-2019

How to Cite

de Widt, D., Mulligan, E., & Oats, L. (2019). The US Compliance Assurance Process: A Relational Signalling Perspective. Journal of Tax Administration, 5(1), 145–161. Retrieved from https://journals.docuracy.co.uk/jota/article/view/77