Joint Tax Audits as Mechanism of International Legal Cooperation: Essence, Benefits and Challenges

As it is proposed by the OECD, joint tax audit might be described as the process where two or more countries joining together to form a single audit team to examine an issue(s) / transaction(s) of a company or individual with cross-border business activities, perhaps including cross-border transactions involving related affiliated companies organized in the participating countries, where the taxpayer jointly makes presentations and shares information with the countries, and the team includes competent authority representatives from each country who are involved to resolve potential differences/stalemates. This type of international legal cooperation is different from traditional forms of exchange of information and simultaneous tax audits because it demands closer cooperation between the representatives of competent authorities and is more intense in terms of interaction.

Joint tax audit is not very old, but it is in the focus of attention of international community as an instrument for strengthening tax certainty in the post-BEPS world. There is a lot of potential benefits like reducing the administrative burden on a taxpayer, increasing collaboration between tax authorities as well as shorter duration in comparison with average mutual agreement procedure based on the provisions of double taxation agreement. Nevertheless, it does not mean the absence of challenges in realizing international cooperation in the form on joint tax audit (language barrier, different approaches of competent authorities etc.). The existence of these challenges might be connected with the specific national characteristics that makes the realization of such initiatives even more complex. For example, the author adds the following as obstacles for joint tax audits in Ukraine: 1) the absence of a sound legal basis for joint tax audits in the national legislation of Ukraine; 2) the absence of any guarantees for the regime of confidentiality for information presented by the taxpayer in the process of joint tax audit; 3) the uncertainty in the legal status of the Memorandum of Understanding concluded between the competent authorities of the participating states as international agreement in the context of the requirements of domestic legislation.