As the ATO focuses on transparency and governance, it’s important to ensure tax obligations are appropriately incorporated in policies, frameworks, controls, and these are tested to ensure that the business is operating in line with the Group’s tax risk appetite.
Why is ESG important in terms of tax?
Tax can be a value-add “bolt on”, meaning that the involvement of tax up front in the overall ESG strategy can help to maximise the return on ESG investment or reduce the tax burden of the organisation’s activities.
Tax is also a key driver of business change. Governments often use tax to drive changes in behavior – as demonstrated by the recent uptick in environmental taxes and tax benefits (e.g. credits and incentives).
There is also mounting investor and stakeholder pressure on companies to demonstrate that tax integrity and compliance is a top priority. As a result, institutional investors have started excluding companies from their selection criteria who they perceive to be non-compliant from an ESG and tax transparency point of view.
In response, businesses are now expected to set out clear tax policies which align with their ESG commitments and follow them through.
The ATO and its expectation
In Australia, Tax Risk Governance is an important aspect of what we do. Compliance with tax law, filing of tax returns and paying the right amount of tax is a critical component of governance.
More recently, the ATO started to play a vital role in driving transparency and good corporate governance – which is closely aligned with the ethos of ESG. The aim was to uplift business tax risk from “back of office” to become a key responsibility of the Directors and the Board. Together, the Directors, Management and the Board must show that your organisation has an effective, robust tax risk management and governance framework in place. A transparent tax policy can be a strong tool for companies to demonstrate their wider ESG contributions and build public and stakeholder trust.
Through the Justified Trust approach, the ATO aims to get assurance that the correct tax is being paid by taxpayers. One key aspect of gaining assurance is evidence of appropriate tax governance processes. If you have a good tax governance framework, this implies you will have sound internal processes in place. As a result, this assists the ATO to gain greater assurance that you – as the taxpayer – are paying the right amount of tax.
The ATO assurance reviews that apply the Justified Trust approach require evidence of appropriate governance across all areas of tax. Policies outlining a group’s approach to Income Tax, Transfer Pricing, GST, the Research & Development (R&D) Tax Incentive and Employment Taxes, to name a few, are now expected.
The ATO has published extensive guidelines on what they look for to obtain assurance. Failure to put this framework together can result in increased ATO scrutiny, which could result in:
- a detailed review of business activities and taxation positions you have undertaken, and
- intense scrutiny of tax systems, tax processes and tax controls.
The emphasis, therefore, is to focus on the significant risks in your business and ensure that you have an appropriate tax governance framework, including processes and procedures to address and manage these risks that are critical to your business.
How can we help?
We understand that reputation is key. It’s crucial to have a robust framework in place to mitigate risk.
Grant Thornton’s Corporate and Specialist Tax and Financial Services experts can work with you to ensure that your organisation has in place a thorough tax risk management and governance framework.
We can:
- Assess the current state of your tax risk management and governance framework against the ATO’s guidance
- Recommend improvements necessary to meet the ATO’s requirements
- Document your tax risk management and governance policies and framework
- Assist with the implementation of recommendations and controls to monitor the solutions put in place
- Undertake internal audit reviews of your tax controls to evidence to the ATO that they are operating effectively
- Work with you to ensure that your organisation is adequately prepared for an ATO review
ESG and the current regulatory landscape
Learn more about how our Tax services can help you
