The Australian Taxation Office (“ATO”) is showing increasing interest in understanding how taxpayers introduce and follow good corporate tax governance within their business. In their most recently updated guidance, the ATO published the Tax Risk Management and Governance Review Guide to assist taxpayers in understanding the ATO’s tax risk management and corporate governance practices.
In the Guide, the ATO highlights the importance of tax risk management as a board-level responsibility as outlined below:
“The board of directors (or authorised sub-committee) establishes an internal control framework to identify and manage all major tax risks. For a business headquartered overseas, we would expect the Australian-based board to perform the oversight role in respect of Australian tax risks.”
The advantage of having good tax risk management and governance is clearly stated by the ATO:
“If we do need to assess your tax governance processes, having a strong tax control framework within the company gives us confidence that tax risks are well managed. This means it may take less time to assess whether your controls align with the principles outlined in this guide. Alternatively, the absence of a strong tax control framework may signal to us that more resources are necessary to fully assess tax risks” (emphasis added).
The embolden section should be seen as a warning to at risk tax taxpayers: if you don’t wish for a review to turn into a full blown audit, please ensure you have a documented and implemented tax risk management and governance framework in place.
It is also worth remembering that the ATO doesn’t just administer income tax, but is highly interested in the application of GST, Superannuation, FBT and PAYG taxes. A good tax risk management and governance framework should deal with all of these taxes plus other indirect taxes that may be of interest to other agencies (eg, duties).
Further, with the introduction of Tax Transparency and the Voluntary Tax Transparency Code, greater emphasis will be put on larger companies (both public and private) who do not pay corporate tax to show that they have functional tax risk management and governance processes in place.
The takeaway is quite clear. A first point of defense for an ATO tax review will be a board approved solid tax risk management and governance framework (“TRMGF”) detailing the levels of tax risk management and governance that are encouraged by the ATO. The framework should not only be developed, but should also be well administered within an organization.
MKT has extensive experience in preparing TRMGF’s and can also assist in the implementation of such a framework within your organisation.
For further detail on the significant financial benefits that a TRMGF can have to you and the steps required to put this in place please contact Adriano Leon of MKT.