How to negotiate with the White Walkers (Tax Inspectors) by ‘Maester’ Ian Barron

This article appears in the December edition of our International Corporate Structures Newsletter.

Whenever I was asked what I did for a living, I occasionally just answered “I work in tax” without saying which side of the tax fence I worked, and I’d then smile. I must admit that my motive was mischievous as most people then thought “oh dear (or words to that effect) I think he is a tax inspector” and promptly moved away!

At the beginning of my career, I was far from comfortable dealing with inspectors but my then boss was quite right in saying:

• they are just human beings doing a difficult job

• some are good, some are clever, some are highly experienced, and others are young and ambitious – no different to any other organisation

• aim for mutual respect

• be open and honest

• be politely firm but fair

• negotiate when necessary, but never compromise yourself nor your client.

This advice has stayed with me and I applied it in all my dealings with global tax inspectors. I found that by engaging properly, major practical agreements could be reached which helped both sides.

My first success as a junior manager related to a very wealthy client who seriously hated writing cheques for his own personal taxes. Clearly we needed to keep the client compliant but, recognising his paranoia, we managed to get the local tax office to agree to collect the top tax rate from his directorships. This more than covered the tax due on his other income as well.

Although unconventional, it worked a treat. Everyone was happy, particularly the client who was fully aware of what was being done – a great practical solution.

During my time as an in-house tax person, I found most tax inspectors to be pretty reasonable – but we had to do our homework first and make sure we provided good information. Nothing was worse than having to go back to them admitting that the data supplied was incorrect.

What was paramount though was understanding the way tax inspectors in different countries operated. Preparatory work finding this out was always a big plus, as was trying to find out the background of the particular tax inspectors on our case.

I think tax inspectors as a group are unfairly maligned, although one valid criticism is their general lack of practical commercial awareness and understanding of how businesses actually work. In my view, there is a gap in their training which I believe can be helped by in house tax leaders and their teams providing the necessary practical insight. I tried to do this in several countries but my offer was rarely accepted as it was not the then usual practice in the country concerned. However, I tended to start tax audits with a wide overview to give the tax inspectors an insight into our business, approach etc. which proved to be invaluable.

One progressive jurisdiction has been the UK where several years ago the Customer Relationship Manager (“CRM’’) initiative was introduced. I found it so refreshing to be able to spend quality time explaining how we operated as a company. Successive CRMs and their teams commented on how these explanations and training sessions enhanced their ability to perform their duties. For our part, we could freely discuss issues with HMRC, knowing they’d be treated properly in a collaborative manner.

I sincerely hope that this kind of open, collaborative approach can be maintained in the UK and adopted internationally in the BEPS compliance era. We’ll need tax authorities and in house tax teams working together in practical training sessions.

I would like to think that global tax inspectors are looked upon in a positive manner in future because they are human beings … aren’t they?