Tax compliance: communication strategies to assist SMEs

The OECD Report “Communication and Engagement with SMEs - Supporting SMEs to get tax right” examines and comments on the communications tools and strategies adopted by Tax Administrations towards SMEs, to improve tax compliance and any form of interaction, including early-stage guidance, to simplify administrative burdens for enterprises: a goal we can all agree to!  In order to be effective, communication  with taxpayers should be targeted, respectful, goal driven, engaging, timely, easy to understand and dependable.

The Report, which consists of 6 chapters, also provides practical information to identify and trace some best practices (the case studies by the Swedish and the Finnish Tax Administrations are significant in this respect).

In the OECD view, effective support to SMEs (for which the tax gap - i.e., the difference between taxes legally owed and taxes collected - sometimes becomes significant; see also “Good practice principles for public communication responses to Mis-and disinformation”) requires the creation of a trust-based relationship and the implementation of effective and continuous communication, inter alia through customized (“one-to-one”) support.

The Report looks at the different communications channels (such as letters and e-mails, SMS and recorded messages, newsletters, guidance videos), making some examples for Tax Administrations on how to increase the likelihood that taxpayers will see and keep the messages.

With regard to the best practices to be implemented and followed to ensure effective communication, the report describes, inter alia, the significant experience of Romania (where the Tax Administration has introduced webinars to inform the taxpayers of their fiscal obligations), Australia (where the tax authorities use social media channels to provide education and support messages for taxpayers) and Canada (where the tax administration uses an Automatic Dialling Announcing Device - ADAD - to contact and remind individual taxpayers of their tax obligations).

Chapter 4 focuses on the one-to-one support to SMEs, pointing out the need to increasingly develop the customization process. To this end, Tax Administrations should be able to identify in advance the groups of companies which could benefit from personalized engagement, identifying taxpayers at risk of non-compliance or building up a significant tax debt. To this effect, an essential element would be the smart use of data to personalise ’warm up’ communications to taxpayers.

This is not the first time that the OECD has focused on these topics: for example, the Report “Study into the Role of Tax Intermediaries” emphasizes the importance of cooperative compliance between Tax Administrations and taxpayers, whereas the  Document “Bilateral Advance Pricing Arrangement Manual (“BAPAM’) focuses on the Tax Administration’s expectations in their relationship with taxpayers to promote the creation of trust and cooperation; to reach this goal the Document identifies 29 best practices, in a national and supranational context.  

As a closing note, one question that arises is whether in the near future the use of artificial intelligence (in all its practical forms, i.e., machine learning, text mining, network analysis) by Tax Administrations may affect the creation of a stable and long-lasting bond of trust with taxpayers as mentioned above. The prospective paradigm shift is (at least theoretically) quite significant: for this reason, the tax authorities should consider the matter carefully and with a good measure of pragmatism.  

The following table (which we believe provides useful guidance also for Italian companies with foreign subsidiaries) provides some examples of one-to-one support put in place by foreign Tax Administrations to build a stable relationship of trust with taxpayers.