Tax law
How to Prepare a Robust Voluntary Closing Agreement Proposal to Resolve Disputed International Tax Positions With Authorities.
A practical, stepwise guide to drafting a credible voluntary closing agreement proposal that clarifies international tax positions, reduces risk, and accelerates resolution with tax authorities while protecting the taxpayer’s interests.
July 18, 2025 - 3 min Read
Crafting a robust voluntary closing agreement (VCA) proposal begins with a precise assessment of the disputed positions and the factual matrix that supports them. Start by documenting all relevant international transactions, alignments of income, and treaty interpretations that led to the disagreement. Gather contemporaneous evidence, transfer pricing analyses, and third‑party confirmations to establish credibility. Next, identify the exact issues the tax authorities are likely to challenge and map them to applicable statutes, regulations, and treaty provisions. A clear problem statement helps the authorities understand the scope and urgency of resolution. Finally, draft a provisional timeline for engagement, ensuring the plan accommodates potential pauses for information requests and internal reviews.
The heart of a persuasive VCA proposal lies in presenting a transparent, well‑reasoned approach to resolving the dispute while protecting the taxpayer’s legitimate interests. Begin with a concise executive summary that outlines the proposed resolution, the economic rationale, and anticipated compliance steps. Then articulate the proposed closing terms, including acceptable adjustments to income allocations, penalties, or interest, and specify any audit or monitoring commitments. Emphasize consistency with international tax norms, such as arm’s length pricing and proper data disclosure, to foster goodwill. Include a detailed risk assessment that candidly identifies uncertainties and mitigations. Close with a clear, realistic request for a defined closing agreement period and scope.
Presenting precise, enforceable, and durable closing terms in the proposal.
A thorough factual narrative supports the legal reasoning behind a VCA and helps authorities evaluate the merits of settlement. Start by outlining the income streams, the jurisdictional flow of transactions, and the roles of related parties in each step. Explain why current interpretations may differ and how those interpretations could create asymmetric tax outcomes. Include a section on timing, clarifying when the disputed positions originated and when the taxpayer first raised concerns internally. Provide a chronology of key events, with reliable source references, to demonstrate diligence and foresight. Finally, link the narrative to the proposed closing terms, showing how each element aligns with the underlying facts.
The legal framework for VCA negotiations requires attention to statutory authority, administrative practice, and treaty obligations. Identify the specific provisions that grant authority to close, suspend, or modify assessments and collections. Discuss the implications of any recent guidance or administrative pronouncements that influence settlement dynamics. Consider potential conflicts with other jurisdictions and the need for mutual agreement procedures, if applicable. Propose language that allows for ongoing cooperation, information sharing, and post‑signing reviews. A careful draft should minimize ambiguity about the scope, duration, and enforceability of the closing terms to avoid later disputes.
Concrete governance steps and ongoing compliance commitments to include.
The closing terms should be concrete, measurable, and enforceable. Begin by specifying adjustments to taxable income, deductions, or credits, with numerical illustrations that reflect the taxpayer’s economic reality. Include a schedule of any penalties or interest relief, ensuring these features are conditioned on timely compliance and accurate disclosures. Define the reporting obligations during the term of the VCA, including how amendments to positions will be captured and communicated. Address potential post‑closing audits, re‑openers, or sunset provisions, and propose clear triggers for renegotiation if material facts change. Add a mechanism for periodic review and adjustments to reflect evolving tax law and new information.
In addition to monetary terms, propose governance and process commitments that enhance certainty for both sides. Recommend a monitoring framework, with milestones, responsible parties, and transparent communications channels. Suggest a dispute resolution method should disagreements arise about interpretation or implementation, such as escalation to senior practitioners or a neutral facilitator. Include confidentiality protections and a clear delineation of which documents will be shared or redacted. Highlight steps to ensure alignment with transfer pricing policies and intercompany arrangements. A well‑structured governance plan reduces the likelihood of later misinterpretations and increases confidence in long‑term compliance.
Thorough documentation and presentation to support the filing.
A compelling VCA proposal also covers risk allocation and contingency planning. Outline how exposure from future transactions will be managed under the agreement, including threshold levels for reassessment and the process for issuing corrective statements if necessary. Consider the impact on tax compliance costs, administrative burdens, and potential reputational considerations. Propose a fair and predictable method for handling any unforeseen tax position that might arise during the term. The proposal should acknowledge possible changes in business strategy, currency fluctuations, or regulatory updates and describe how such changes will be accommodated without undermining the settlement’s integrity.
Documentation quality is a critical determinant of success. Assemble a robust packet that includes entity charts, transfer pricing analyses, financial statements, and tax computations aligned with the proposed closing terms. Ensure consistency across all schedules and narratives to avoid signaling contradictions. Maintain a clear audit trail that ties every adjustment to a source document and a legitimate business rationale. Include a risk register that identifies residual uncertainties and explains how the agreement minimizes exposure. Finally, present the package with professional formatting, precise language, and a logical, user‑friendly structure to facilitate efficient review by authorities.
Practical considerations for timing, scope, and next steps.
Communication strategy matters as much as the content of the proposal. Craft a communication plan that prioritizes clarity, timeliness, and respect for the authorities’ process. Identify the primary contact persons, preferred channels, and expected response times. Prepare a concise cover letter that frames the proposed resolution within the broader goals of tax certainty, fairness, and compliance. Be ready to respond with supplementary information quickly, while avoiding unnecessary disclosures that could complicate negotiations. Establish a careful balance between assertiveness about legal rights and willingness to cooperate in good faith. A disciplined approach fosters constructive engagement and reduces negotiation cycles.
The mechanics of submission require careful handling to ensure acceptance and timely review. Confirm the appropriate filing format, whether a formal request, a plain‑language summary, or a structured agreement package is preferred by the competent authority. Include an explicit request for a formal agreement draft, monitoring obligations, and the closing date. Ensure all signatures are in place from authorized representatives and that any required accompanying declarations are properly executed. Track submission deadlines, extensions, and any administrative steps such as public consultations or sector surveys. A meticulously prepared filing increases the likelihood of a favorable, timely response.
Before submitting, perform a final internal alignment to ensure the proposal reflects the taxpayer’s current risk posture and strategic objectives. Reconcile the VCA terms with corporate governance standards and risk appetite statements to demonstrate organizational buy‑in. Assess alternatives to the VCA, such as unilateral adjustments or defense of positions, weighing costs and benefits. Prepare a fallback plan in case of partial acceptance or rejection of specific terms. Ensure that the final document explicitly states the permitted scope, the period of validity, and the process for modifications if circumstances evolve. A thoughtful, well‑informed closing proposal reduces ambiguity and supports durable resolution.
After submission, maintain disciplined engagement with the authorities and monitor progress diligently. Schedule periodic check‑ins to address information requests, updates, or clarifications. Capture learnings for future interactions, including what worked well and what could be improved for subsequent negotiations. Develop an internally consistent timeline that aligns with ongoing compliance activities and transfer pricing updates. Emphasize a commitment to continuous improvement in international tax risk management and governance. By sustaining a collaborative posture and documenting results, taxpayers strengthen their position for a durable, certifiable resolution.
