"Trust but Verify" - but How?

  • February 24, 2017

President Ronald Reagan famously used the phrase “trust but verify” to describe the United States’ stance regarding the Soviet Union’s compliance with nuclear arms reduction treaties. Across the globe, governments traditionally embraced a similar philosophy regarding corporate compliance with tax regulations.

That’s no longer the case, however. Today, governmental tax administrators are seeking to verify, well, just about everything by requiring global corporations to give them more, and more detailed, business information and tax data. This approach has corporate executives concerned; they’re wondering if they and their numerous stakeholders can trust governments to guarantee the security and privacy of their data. Recent hacks of some government tax systems have raised troubling questions and caused these concerns to intensify. Business leaders are understandably worried about their trade secrets, customer information and data from supply chain partners being exposed.

This “verify everything” mindset is evident in the movement toward broad global information sharing agreements – most notably, the income tax-related Country-by-Country Reporting (CbCR) requirement within the OECD’s BEPS project. This requirement distributes large volumes of financial and operations data from the world’s largest 8,000 corporations to governments around the world. The current CbCR framework calls for a tax information exchange that relies on multiple (and redundant) stores of data around the globe. Each data store is managed by the local government’s tax authority – and each tax authority has varying degrees of expertise and experience with regard to information security.

With plans to expand this type of data sharing to include invoice-level VAT data, this recipe for higher business risk and lower business-government trust raises a crucial question: is there a way to build trust and verify? Specifically, can we develop an approach that enables governments to verify that the right tax is paid at the right time, while enabling corporations to trust that their information remains secure and private?

We believe that there is. In fact, efforts are under way to create this type of solution. You can trust me to keep you posted on the progress of this multi-stakeholder endeavor.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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