Insights from the OECD's ICAP Statistics Report January 2024

The evolving landscape of tax compliance

In the ever-changing world of international tax compliance, staying ahead of trends and regulatory changes is crucial for multinational enterprises (MNEs). The OECD's International Compliance Assurance Programme (ICAP) Statistics January 2024 report offers valuable insights into this dynamic environment.

 

ICAP's role in tax compliance

ICAP, a voluntary program, aims to facilitate cooperative risk assessment and assurance processes between MNEs and tax administrations. Its primary objective is to provide tax certainty and reduce the likelihood of disputes.

 

Key findings from the report

• Number of cases: 20 ICAP cases were completed by October 2023, with more currently in progress.
• Duration of ICAP process: The average time taken from the start of an ICAP process to the outcome is 61 weeks, influenced by disruptions like the COVID-19 pandemic. This indicates the need for MNEs to plan for extended engagement periods in their tax planning strategies.
• Risk assessment outcomes: Notably, 40% of participating MNEs were deemed low-risk across all major areas by tax administrations, demonstrating the effectiveness of proactive compliance measures. 80% of MNE (multinational enterprises) groups received either only low-risk outcomes in all of the main covered risk areas or a mix of low-risk and not low-risk outcomes in just one or two of these risk areas.
• Resolution of tax issues: A significant portion of cases (one-third) resolved at least one issue during the ICAP process. This highlights ICAP's role in pre-empting and resolving potential tax disputes efficiently, avoiding lengthy audits and MAP processes.
• Tax administrations: There are currently 23 tax administrations participating in ICAP with more expected to join.

 

Analysis: What this means for multinational enterprises

The report's findings underscore the importance of strategic engagement in ICAP. MNEs that proactively participate in ICAP can gain significant advantages, including:

• Enhanced tax certainty: By engaging in the ICAP process, MNEs can achieve a clearer understanding of their tax positions across multiple jurisdictions.
• Efficient dispute avoidance: The ability to resolve issues within the ICAP framework can save companies from costly and time-consuming tax disputes.
• Reputation management: Demonstrating compliance and low risk in tax matters enhances corporate reputation and investor confidence.

 

Looking forward: Adapting to changes

As the international tax environment continues to evolve, in particular considering the developments around Pillar 1 and Pillar 2, MNEs must adapt their strategies to stay compliant and minimise risks. This involves:

• Continued engagement with tax authorities: Building and maintaining transparent relationships with tax authorities is key to navigating the complexities of international tax. There is added importance in this space given that tax authorities regularly speak and share data with other and with the introduction of Pillar 1 and 2, global tax audits are likely to become more common.
• Leveraging technology and expertise: Investing in sophisticated tax software and seeking expert advice can streamline compliance processes and ensure accuracy in reporting.

 

The road ahead

The OECD's ICAP Statistics report demonstrates there is a way to proactively navigate through the maze of international tax compliance. As time passes, with more experience both on the tax authorities’ side and on the side of businesses and practitioners as well as with the introduction of Pillar 1 and 2, it is likely that ICAP will become a useful tool to help MNEs proactively manage multi territory and complex tax risks.

Businesses are required to understand, assess, and disclose their tax governance and tax risk management in return of which - within ICAP - tax administrations shall show an understanding for their business and shall be able to assist with clarifying uncertain tax positions at an earlier stage enhancing tax certainty.

For specific guidance on how these developments impact your business and how we can help you through ICAP, please reach out to usual DLA Piper contact.