The tighter the economic environment, the tighter becomes the relationship between taxpayers and revenue collectors.

Recent events in Europe have shown that a dysfunctional tax administration serves nobody. Greece has learnt this and is still failing to collect €45-billion in tax revenue. The Italian tax authority is struggling to collect almost €30-billion. The enforcement meltdown in these countries played a big role in the economic crisis still gripping Europe.

Eelco van der Enden, PwC’s global tax leader in tax effectiveness, says in the Netherlands, company tax amounts to €50-billion or 7%-8% of total tax revenue, yet 80% of all resources in the tax administration are allocated to collecting it. "The CEO of any company who utilises his resources in such a way will surely be kicked out," he says.

Tax administrations have to rethink the way they enforce the law and organise their tax systems. There seems to be a gradual shift towards a different relationship, the co-operative compliance model, and more than 36 countries, including Ireland, have adopted the model.

According to the Irish revenue authority, co-operative compliance "envisages a new form of relationship between revenue and large business, one where both parties work together to achieve the highest possible level of compliance across the taxes for which particular businesses need to account".

Mr van der Enden says the principle is simple: if a company can show that it has a functioning internal tax control framework, then the company will not be "harassed" or audited in the classical way.

He says there has been a shift in focus. Initially the focus was on the responsibilities of the taxpayer, but has now shifted to a balanced relationship.

For the model to work optimally, tax administrations have to consider their responsibilities, Mr van der Enden says. These include comprehensive industry knowledge, impartiality and proportionality.

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