Tax Certainty Efforts Will Pay Off for Businesses, Governments

An April 8 tax certainty roundtable in Paris brought together OECD officials to focus on real-world issues related to tax administration by governments and tax compliance by multinational businesses.

The OECD Centre for Tax Policy and Administration and the Business at OECD shared their experiences about what has worked in practice, what hasn’t, possible improvements in current practices, and potential new approaches to enhancing certainty of tax treatment.

Cynics may roll their eyes, but the goal is a deserved one.

For multinational businesses, tax certainty is well worth seeking. In contrast to the popular misconception that big international corporations seek to avoid taxes by using accounting tricks to shift their profits to tax havens, the reality is that multinationals generally pay taxes in compliance with the law wherever they do business.

The risks of non-compliance are too great for any sensible management team to take on. Inevitably, however, there are cases where the law is unclear and the proper tax treatment of a given set of facts is uncertain.

Given a choice between certain tax treatment and an uncertain tax position, a business will almost always prefer certainty—even if the uncertain position might ultimately result in less tax payable.

For example, businesses often seek advance pricing agreements with tax administrations on terms reflecting a compromise between the extremes of potentially defensible transfer pricing methodology. This sacrifices the chance of paying the least possible tax in exchange for avoiding the costs of lengthy, resource-intensive tax audits and the need to report an uncertain tax position in financial statements. The tradeoff is worth it in all but the most extreme cases.

Tax predictability makes it easier for a business to plan new investments and decide how to structure new business operations. This is particularly true for significant cross-border transactions that give rise to tax issues such as transfer pricing, the existence of a taxable presence in a country, or the character of a stream of payments for withholding tax purposes.

Tax certainty also benefits governments, whose tax administrations seek to enforce the law as efficiently as possible. Time-consuming audits and tax litigation involve government costs that can only be justified if the amount in dispute is large.

Agreeing on reasonable results instead is a win for both taxpayers and tax collectors. More broadly, predictable (and reasonable) tax treatment increases a jurisdiction’s attractiveness as a destination for investment.

Tax administrations use mechanisms such as advance rulings and safe harbor regimes to achieve tax certainty. Transfer pricing safe harbors such as Amount B are appropriate for routine, low-risk transactions, allowing taxpayers and tax administrators to focus on higher-risk issues. To maximize the benefit of a transfer pricing safe harbor, the scope should be as wide as possible, covering services and intangible goods in addition to tangible goods.

Expanding the scope of advance rulings beyond transfer pricing issues would be helpful. Although some tax administrations are open to discussing advance agreements on issues such as permanent establishments and the character of certain payments for withholding taxes, this type of discussion isn’t yet possible in many countries.

Given the November 2025 OECD model tax convention update, which introduced new guidance for determining when a remote employee will create a permanent establishment, the ability to obtain an advance ruling on the issue would be valuable to multinational businesses.

There are several practical design principles for advance agreements on binary issues such as the existence of taxable presence that companies should follow:

• State the key facts and conditions on which the ruling depends on the agreement itself. These will then operate as the tests for the ongoing validity of the agreement, and can be certified annually, along with relevant updated information to avoid the need for the tax administration to perform a full audit.
• Require the taxpayer to notify the tax administration proactively of any changes in the relevant facts. This places the primary monitoring burden on the party best positioned to be aware of changes (the taxpayer), while preserving the tax administration’s auditing rights.
• Allow the agreement to be modified rather than cancelled if critical facts change. This preserves certainty for the period when the original facts held true and encourages taxpayers to report any changes on a timely basis.
• Use existing data sources such as country-by-country reports, transfer pricing documentation, withholding tax returns, and corporate income tax filings to verify facts. Automated data analytics can flag changes that may call for a review. This targeted approach allows resources to be allocated only to cases where an audit may be needed.
• Provide for the agreement to be automatically renewed at the end of its term on the basis of an expedited review of the relevant facts, rather than leaving the parties to renegotiate a new agreement from scratch.

The goal is to minimize unnecessary time and effort in achieving tax certainty for all parties. Designing advance agreements to include clear assumptions, annual certifications, and risk-based monitoring greatly reduces the need for full audits.

Regular and structured communication between tax administrations and taxpayers bolsters tax certainty. This can take the form of dedicated relationship-manager programs, annual consultations, and surveys of taxpayers’ experience. Regular communication can create mutual understanding and trust, and allow any issues to be identified early.

Access to the mutual agreement procedure in tax treaties—an essential aspect of relief from double taxation—shouldn’t be denied on the basis that a case is subject to a general anti-avoidance rule in domestic law. This practice conflicts with treaty-based tax certainty.

Kudos to the OECD tax officials who work with governments on tax administration issues for their willingness to spend time in meetings such as the recent tax certainty roundtable. Open dialogue between taxpayers and tax administrators is crucial to improving things for both sides.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jefferson VanderWolk, partner at Squire Patton Boggs, was head of the tax treaty, transfer pricing, and financial transactions division at the OECD Center for Tax Policy and Administration.

Write for Us: Author Guidelines