Financial Services

Beyond tax time: what does tax risk management mean for you?

Himashini Weeraratne Himashini Weeraratne

What is tax governance?

In the current tax environment, it is no longer sufficient to have your tax agent sign-off on your annual tax returns. Rather, it is now an expectation that businesses, especially large businesses, have in place proper tax control frameworks to demonstrate that tax risks are identified and managed within the organisation. That is tax governance. 

Why is tax governance important?

With increasing globalisation and regulatory oversight, the complexity of our tax system is increasing. The Australian Tax Office (ATO) has responded by placing greater onus on businesses to manage their own tax governance. 

The ATO holds the view that if an organisation has in place an appropriate tax risk management system and/or tax control framework as part of their corporate governance, it will improve their tax compliance. Consequently, they are now holding the board and directors accountable for their organisation’s tax decision making.

Examples of major changes in recent times that may impact your business:

  • Top 1,000 Tax Performance Program – the ATO will be undertaking “Streamlined  Assurance Reviews” of the top 1,000 companies in the country, being those with a turnover above $250m, by June 2020
  • Release of annual tax transparency reports for certain public and private companies that disclose the tax paid by these companies
  • Reportable tax position schedule – a new requirement for companies with a turnover exceeding $250m and that are notified by the ATO to submit this schedule as part of their income tax returns detailing tax positions taken by the company which may have some form of tax risk
  • Voluntary tax transparency code – encouraged by the Board of Taxation and the ATO for companies to adopt such a code

All of the above is part of the ATO’s “justified trust” approach, which involves the ATO obtaining assurance that the correct tax is being paid by taxpayers.  To do so, the ATO is seeking to understand a taxpayer’s tax risk management and governance framework in practice and has provided detailed guidance to illustrate what is expected. 

Top 1,000 Tax Performance Program – Background

If you are in the top 1,000, you will either have already been approached by the ATO or you will be contacted any time between now and 2020 by the ATO to conduct a Streamlined Assurance Review. 

At the start of the review, a detailed request for information (“RFI”) will be sent by the ATO giving you 28 days to respond with everything.  Extensions are difficult to obtain as the ATO expects the information should be readily available.

Based on your response, the ATO will decide whether they will undertake further work, such as meeting with employees of the company.  At the closure of such a review, an “Assurance Letter” is issued, providing the ATO’s view of whether the taxpayer is paying their fair share of taxes in Australia.

Examples of the common types of questions that we have seen asked by the ATO in their RFIs include:

  • Provide details of XYZ Pty Ltd.’s tax governance processes and framework at both the strategic and operational levels
  • Provide XYZ Pty Ltd.’s tax risk management policy, including its corporate and/or tax risk registers and/or documents evidencing how XYZ Pty Ltd manages tax risk
  • Describe XYZ Pty Ltd.’s approach to the ATO’s guide including, the following:
    • Conducted a gap analysis of current policies and procedures against the ATO’s guide and identified compensating controls where applicable
    • Applied the self-assessment procedures to test and obtain evidence of the controls operating effectively.

What does this mean for you?

If your business cannot demonstrate that it has in place an appropriate tax risk management system/tax control framework, it potentially raises your risk profile with the ATO – raising the likelihood of further reviews and audits from the ATO.

How can we help Mutuals to respond?

As a Financial Institution, we understand that your reputation is key and that it is crucial to have in place a robust framework to mitigate risk.

Grant Thornton’s Corporate Tax team and Financial Services team can work with you to ensure that your organisation has in place a suitable tax risk management and governance framework. We can:

  • Assess the current state of your risk and governance frameworks against the ATO’s guidance, through a gap analysis done by way of a questionnaire and a workshop
  • Recommend improvements to your tax governance framework that are necessary to meet the ATO’s requirements, and provide customised tax risk management solutions for your organisation
  • Assist with the implementation of the above recommendations for your tax governance framework. In particular, assist in identifying both weaknesses and opportunities to enhance your existing framework from a people, process and technology perspective
  • Document your tax risk management and governance policies and framework
  • Assist with the implementation of controls to monitor the changes to ensure your tax governance framework continues to meet the expected outcomes
  • Work with you to ensure that your organisation is adequately prepared for an ATO review in respect of the above, and any future reviews or inquiries