A Shift in Tax Compliance: From Confrontation to Cooperation

In modern tax administration, the main challenge is no longer limited to enforcement or a confrontational approach, but how to ensure tax compliance in an effective, efficient, and sustainable way.  

For large-scale taxpayers with complex business structures, compliance often involves high levels of interpretive uncertainty, differing views, and the need for earlier legal certainty. 

The current tax oversight, which focuses on post-reporting stages such as audits and dispute resolution, remains an important part of the tax system. However, as transactions become more complex and global transparency standards rise, there is a growing need to complement this approach with mechanisms that promote more proactive and process-based tax risk management. 

This is where the concept of Cooperative Compliance has developed into a framework that emphasizes dialogue, transparency, and sound governance between tax authorities and taxpayers. Under this approach, tax compliance is seen as the result of reliable internal control systems and early engagement, rather than merely the outcome of audit intervention. 

This article reviews the development of Cooperative Compliance, its key elements, and its relevance for future tax policy and practice. 

The Shift from Enhanced Relationship  

The idea of cooperation between tax authorities and large-scale taxpayers did not emerge overnight. It was first introduced in a structured way in the OECD Forum on Tax Administration (FTA) study in 2008 under the term “Enhanced Relationship.” 

The study proposed building relationships with large-scale taxpayers based on trust and openness to influence the demand side of aggressive tax planning. 

However, in practice across jurisdictions, the term “Enhanced Relationship” was seen as conceptually limited. It did not fully reflect the ultimate goal of compliance and risked creating perceptions of unequal treatment. As a result, the OECD formally adopted the term “Cooperative Compliance” in its 2013 Cooperative Compliance Report (CCR). 

This change in terminology was not merely a matter of wording. It marked a clearer policy direction. Cooperative Compliance is positioned as a collaboration-based approach that explicitly aims to ensure that the correct amount of tax is paid at the right time, while upholding legal certainty and equal treatment. 

The Central Role of the Tax Control Framework 

Experience in various countries shows that the success of Cooperative Compliance depends heavily on adequate internal control systems on the taxpayer’s side. In this regard, the Tax Control Framework (TCF) plays a central role in connecting transparency, governance, and tax risk management. 

First, TCF provides an objective base for building trust. Trust in Cooperative Compliance is not based on assumption, but on systems and processes that can be tested under good tax governance principles. Through TCF, tax authorities can evaluate tax risk management in a structured way. 

Second, TCF guarantees the reliability of tax reporting. By identifying and managing uncertain tax positions, taxpayers can demonstrate that potential differences in interpretation have been mapped and addressed, rather than left to surface during audits. 

Third, TCF enables earlier and real-time interaction. Significant tax issues can be discussed before the filing of tax returns, reducing the risk of corrections and dispute escalation. From an administrative perspective, this approach provides more efficient use of resources and greater legal certainty. 

Tax Authority’s Internal Governance Readiness 

Cooperative Compliance does not only require change from taxpayers. The OECD’s 2013 CCR stresses that the approach also depends on the internal governance readiness of tax authorities. 

First, integrity and standards of conduct are the primary requirements. A collaborative approach requires clear boundaries of authority and accountability to avoid perceptions of bias or conflicts of interest. 

Second, standardized methodologies and processes are necessary. Mechanisms such as a “second pair of eyes” help maintain consistency and quality in decision-making, particularly in complex technical discussions. 

Third, human resource capacity is essential. Tax authorities need not only strong knowledge of tax law, but also commercial awareness and the ability to engage in balanced discussions with large taxpayers operating across sectors and jurisdictions. 

Without this readiness, Cooperative Compliance may be misunderstood as special treatment rather than a structured administrative process. 

Equality and Compliance Before the Spirit of the Law 

One major concern surrounding Cooperative Compliance is its potential tension with the principle of equality before the law. 

The OECD’s 2013 CCR makes clear that the approach is not intended to create special treatment. Instead, it forms part of a compliance risk management strategy. Different approaches are applied to different risk profiles, including the complexity of large taxpayers. 

Regarding adherence to the spirit of the law, the OECD recognizes the importance of legal substance in tax policy formulation. At the same time, a cooperative approach acknowledges that taxpayers may hold different legal interpretations, as long as the interpretations are communicated transparently. Dialogue is not meant to eliminate differing views, but to manage them early in a measured way. 

Measuring the Success of Cooperative Compliance 

The OECD’s 2013 CCR emphasizes that the success of Cooperative Compliance cannot be measured solely by traditional indicators such as additional tax revenue from audits. Its value lies in: 

1. Greater assurance over the reliability of tax reporting; 
2. Administrative efficiency through reduced disputes and faster dispute resolutions; 
3. Changes in compliance behavior, particularly through earlier and more proactive disclosure. 

Global Implementation of Cooperative Compliance 

Several countries have adopted Cooperative Compliance approaches as of 2013, according to OECD publications, as detailed in the following table. 

The Road Ahead 

Cooperative Compliance reflects a shift in tax administration toward viewing compliance as an ongoing, managed process rather than simply the result of audits after return reporting. 

In facing increasingly complex transactions and growing demand for legal certainty, the approach complements traditional oversight mechanisms with earlier dialogue, risk management, and transparency between tax authorities and taxpayers. 

Experience in other countries shows that with adequate governance, Cooperative Compliance may improve administrative efficiency and reduce dispute escalation. 

Its success depends on institutional readiness on both sides. TCF provides an objective basis for building trust, enabling tax authorities to gain greater assurance over tax reporting reliability, while encouraging taxpayers to manage tax risk systematically and transparently. 

On the other hand, tax authorities must ensure integrity, methodological consistency, and sufficient human resource capacity so that the cooperative approach operates within the boundaries of equality and accountability. 

Cooperative Compliance in Indonesia 

In Indonesia, the Cooperative Compliance should be developed in a measured way, with clear administrative benefits and legal certainty for participating taxpayers. 

The success of this approach will not depend solely on the regulations currently being prepared, but also on restoring trust. Tax authorities must demonstrate that taxpayer transparency will not be used as a tool for revenue targeting. 

On the other hand, taxpayers should move beyond traditional tax mitigation strategies and begin applying TCF within integrated internal control systems linked to Enterprise Resource Planning (ERP) and Coretax systems. 

With clear policy direction from the tax authority and integrated TCF implementation by taxpayers, Cooperative Compliance may become a relevant complementary instrument for improving compliance quality and strengthening institutional relationships between tax authorities and taxpayers. Time will tell. 

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.