Horizontal Monitoring: Some Procedural Tax Law Issues

Abstract

Co-operative compliance aims for effective and legitimate tax enforcement. This approach is based on co-operation between (corporate) taxpayers and tax administration but with the purpose of enhancing voluntary compliance, which is to say payment of the right amount of tax at the right time. The concept of ‘Horizontal Monitoring’, the Dutch model of co-operative compliance, symbolizes a kind of ‘horizontalisation’ in the tax relationship. The willingness to co-operate is embodied in compliance agreement (covenants) concluded between tax administration and taxpayers.

This informal approach is about co-operation and fait treatment rather than about competencies (powers), obligations and rights, without neglecting the legal framework (including the principles of proper administrative behaviour) in force. In a co-operative relationship based on trust, transparency and mutual understanding, there is a willingness to go beyond compliance with regard to procedural law requirements (disclosure, etcetera).

Horizontal Monitoring must be seen as supplementary to traditional, vertical supervision. This is the traditional command-and-control method of regulation, whereby the authorities use unilateral enforcement powers such as the power to invoke disclosure requirements, audits and sanctions (like (administrative) penalties and reversal of the burden of the proof).

The organisation of this paper is as follows. Firstly, the basic characteristics of Horizontal Monitoring are briefly summarized with a view to procedural tax aspects. Then, an overview is presented of the normal legal framework which determines NTCA’s enforcement powers and taxpayers’ obligations. Thirdly, some aspects of the statutes and legal principles in force are elaborated upon because, at first sight, the Horizontal Monitoring approach might seem to be at variance with these aspects of the legal framework. This is followed by some conclusions.

Keywords: Tax assurance, co-operative compliance, Horizontal Monitoring, voluntary compliance, legitimacy, trust, transparency, risk management vertical supervision, procedural tax law, principles of proper administrative behaviour, compliance agreement, covenant