How can tax advisors and taxpayers get on better with their national tax authority? This question was studied by the Organization of Economic Cooperation and Development's Forum on Tax Administration (FTA), culminating in publication of the "Cape Town Communique" on January 11 by representatives of more than 40 national tax authorities. Israel is not yet a member of the OECD, but it is in the process of joining. The study initially focused on the role of tax intermediaries - lawyers, accountants and some financial institutions - in aggressive tax planning. But it quickly broadened into a wider review of the three-way relationship between tax authorities, taxpayers and tax intermediaries. This is because qualified tax advisers are regulated by professional bodies; individuals working within many firms are also regulated by their firms and bound by strong codes of behavior and ethics. The Cape Town Communique focuses mainly on large corporate taxpayers and their tax advisers. Here are some of the FTA's conclusions. According to the communique, tax intermediaries play a vital role in tax systems by helping taxpayers understand and comply with their tax obligations in an increasingly complex world. Some are also designers and promoters of aggressive tax planning. But it is taxpayers who decide whether to adopt particular planning opportunities. The communique concludes that tax authorities can achieve a more effective and efficient relationship in their dealings with taxpayers and tax intermediaries if their actions are based on the following attributes: (1) understanding based on commercial awareness; (2) impartiality; (3) proportionality; (4) openness; (5) responsiveness. According to the communique, "These attributes are fundamental for any revenue body and should underpin all their dealings with taxpayers." The communique refers to this as an "enhanced relationship" that offers benefits for revenue bodies as well as taxpayers: "Taxpayers who behave transparently can expect greater certainty and an earlier resolution of tax issues with less extensive audits and lower compliance costs. An 'enhanced relationship' between revenue bodies and tax intermediaries would also yield significant benefits." Therefore, the communique recommends that revenue bodies should consider the enhanced-relationship approach against traditional domestic-enforcement actions when interacting with tax intermediaries and taxpayers. In other words, more carrot and less stick is needed. How does Israel measure up? Israel is keen to join the OECD. Israel's current generation of tax officials are increasingly receptive to tax law and developments in other countries. The Israeli tax law contains a clear and well-tried procedure for obtaining advance tax rulings. The tax law has been steadily reformed over the years to conform with accepted practice in other Western countries and this process continues. Israel has a self-assessment system of taxation - the Israel Tax Authority does not check every tax return filed. Many salary earners are not required to file annual tax returns as tax is withheld from their salaries. Also, the Israel Tax Authority has issued commentary (known as habak) on each section of the main tax laws and it continues to issue circulars to clarify tax topics. The Web sites of the Israel Tax Authority and the State Revenue Administration are quite informative, but mainly in Hebrew. On the other hand, there is still no general system of tax tribunals; taxpayers often refrain from referring disputes to the courts as few judges are considered tax specialists. And some local tax officials seem to doubt the willingness of taxpayers to come clean on everything, which is where an "enhanced relationship" would be helpful. As always, consult experienced tax advisors in each country at an early stage in specific cases. [email protected] Leon Harris is an international tax partner at Ernst & Young Israel.