Co-operative Compliance Agreements
19 Jan 2015
For an international group, the time and cost of having to deal with local tax compliance obligations for numerous internationally mobile employees who skip in and out of many different countries on short-term assignments or through frequent business travel, and only owe a small amount of tax in the host country jurisdiction due to their short stay, can be substantial. A growing trend is emerging however to provide large international groups with a way to reduce these compliance costs and obtain greater certainties in this area by entering into formal ''cooperative compliance' agreements with tax authorities, a term first made reference to by the Organization of Economic Cooperation and Development (OECD).
Broadly, under such an arrangement, individual income tax return submissions are eliminated on the basis that an employer pays the proper amount of tax owed through the employer's payroll withholding system for the short-term employees. Consequently, 'cooperative compliance' agreements are very beneficial to large international groups as they streamline and reduce the foreign tax compliance obligations of their internationally mobile employees.