Financial crises, corporate collapses, shareholder disputes and creative accounting practices have taken their toll on trust in our institutions.
Customers, communities and regulators are increasingly expecting more, and the bar continues to lift on what a good corporate citizen looks like.
In Australia, the Australian Tax Office (ATO) plays a vital role in facilitating transparency and good corporate governance. This is a key responsibility of the directors and the Board. Together, they must demonstrate the company has an effective, robust tax risk management and governance framework in place, the contents of which is applied in practice.
Failure to do so can result in increased ATO scrutiny, which could include:
- a detailed review of business activities and taxation positions taken; and
- intense scrutiny of tax systems, tax processes and tax controls.
Further, there are responsibilities for directors of businesses outlined in the Corporations Act 2001, which, if not satisfied, can result in liability falling on directors of the company.
Strengthening your company’s tax governance & risk management
It is important to start reviewing existing processes, controls and documentation for your tax function in anticipation of increased transparency and scrutiny.
With years of experience working with corporates, as well as many of our partners working closely with the ATO and the Tax Institute on initiatives and reform, we have a deep understanding of the ATO’s decision-making processes and their current policy positions.
We can work with you to establish or strengthen your company’s tax governance and risk framework to help management and the Board better identify, manage and document ongoing tax risks. A robust framework would be the first line of defence for any ATO scrutiny, and mitigate the risk of extensive reviews and/or reputational damage. To do this, we can:
- conduct a gap analysis of your current tax policies and procedures against the ATO’s Tax Risk Management Governance Framework
- provide commercial and practical assistance in resolving key control weaknesses
- assist you by establishing or reviewing your existing tax governance framework, advising on the relevant controls, policies, and documentation required
- provide effective management of ATO audits and reviews.
'Justified Trust' initiative
Justified Trust as a concept originated from the Organisation for Economic Cooperation and Development (OECD) to help improve the levels of trust in our corporate sector.
The ATO is taking a Justified Trust approach when dealing with taxpayers with a turnover exceeding $50 million. A combined approach to assurance reviews is now being undertaken by the ATO, incorporating both GST and income tax. The approach involves obtaining assurance that taxpayers are correctly reporting and paying income tax and GST by examining the internal processes underpinning the numbers disclosed.
In doing so, the ATO wants to understand a company’s tax risk management and governance framework and has provided a guide of its expectations:
- Is the Board actively considering and discussing income tax and GST matters?
- Does management have the right skills and tools to maintain clear oversight of all tax risks?
- Are the right policies and procedures in place, documented and ‘lived and breathed’ to identify and manage tax risks as they arise?
Tax litigation, audits and reviews can exhaust a company’s time and resources. It is essential that these are, where possible, prevented and managed effectively.
