Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Sales Tax & Customs Compliance vs Initiative

I am a huge fan of Seth Godin. However, he scared me this morning by beating me to a post. While Seth's post entitled "It's easier to teach compliance than initiative" (go to the following link - http://sethgodin.typepad.com) has greater application, he must have been listening to a conversation that I has at the Canadian Institute of Chartered Accountants Conference in Calgary. I was talking about sales tax an customs compliance vs proactive steps that I would like to see.

Seth Godin writes:

Compliance is simple to measure, simple to test for and simple to teach. Punish non-compliance, reward obedience and repeat.

My point is that this is what tax auditors and customs officers do. They focus on compliance. The auditors conduct audits and verifications. After non-compliance results in an assessment, an assessment is issued. The assessment is intended to encourage improved compliance. Many auditors want to find mistakes in order to punish and talk about compliance.

Sometimes, after an assessment (often large assessment), the assessed person contacts a lawyer and wants lessons on compliance. From the perspective of a knowledgeable lawyer, sales tax compliance is easy to measure, simple to test and simple to teach. However, sales tax compliance may not be as easy to implement. I have many clients who do not fit neatly in the auditor's view of the world (and sometimes the drafters of legislation's belief of how business is conducted). As a result, perfection is not always easy to accomplish. That being said, best practices can be developed and implemented, tested and rewarded.

Most often businesses are reactive to a negative experience instead of proactive. Lawyers are rarely asked to develop a sales tax & customs compliance program & processes for a business. Lawyers often (not always) arrive after a problem has been discovered.

When sales tax and customs changes are occurring, either in the law & regulations or in administrative practices, businesses have a choice to be reactive or proactive. Being proactive requires initiative. Businesses can take the initiative to implement best practices in order to be compliant. For example, with the sales tax reform in Ontario and British Columbia and the implementation of HST on July 1, 2010, businesses have a choice to make. Another example is that the Canada Border Services Agency is writing administrative positions (e.g., subsequent proceeds) & developing advance reporting requirements. What degree are businesses going to be proactive and to what degree are they going to be reactive to these changes.

One proactive step that is not being discussed is for inter-provincial and multi-national businesses to include sales tax/customs experts on corporate advisory committees and boards of directors. Such a step would show initiative and send the message that the business sees the future opportunities and obstacles and has someone on their side to help.

There are discussions in the United States about the need to implement a federal value added tax in order to pay for health care and address budget deficit problems. Canadian, European & New Zealand/Australian VAT experts may have insights to offer. The security situation in North America is also resulting in border initiatives (bu hat is another type of initiative).

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