Additional items for an effective tax governance framework

Find out what additional items Top 500 groups can implement for principles 1 to 4 for an effective tax governance framework.

Introduction

In addition to evidencing the required items, you will need to show that your group has at least 3 of the following 10 items in place in order to obtain a high assurance rating for tax governance for your group.

Principle 1: Accountable management and oversight

• In regard to roles and responsibilities, the responsibility for tax and reporting governance is segregated, so that one sole person is not charged with both the group's tax reporting obligations, and the evaluation of the effectiveness of governance over the group's tax function.

For example, an independent director could be responsible for overseeing the implementation and operational effectiveness testing of the group's tax governance.

• Whilst reporting lines may be in place to ensure that the controlling minds of your group are aware of the group’s tax outcomes, the controls that are in place over your group’s tax reporting functions show that your group’s tax outcomes are produced independently.

For example, whilst one of your group’s controlling minds may sign off the groups’ tax returns, the process of preparation, review and the escalation of tax issues, occurs independently of the controlling mind’s input.

Principle 2: Recognise tax issues and risks

• Regarding your tax return procedures:
  • The return preparation process includes a procedure that involves an independent review of the draft return by an external advisor.
  • You provide evidence demonstrating that the procedure requiring independent review of your returns is operating effectively in practice.
   
• To the extent that returns are prepared by external tax agents, you or your agent can show that the agent has procedures in place to:
  • help ensure that the correct tax treatments have been applied to your group’s significant ongoing and atypical transactions
  • brief you about their conclusions about your tax position and any differences between your group’s economic outcomes and the tax outcomes in your returns
  • brief you about tax positions that they have adopted on your behalf and any other matters they have identified during the return preparation process
  • show that the procedures are operating effectively in practice.
   
• With respect to the tax governance framework for your group’s trading entities:
  • The documented tax governance framework for your group’s trading entities is reviewed and endorsed by the Board annually - the process of endorsement includes:
    • identification of the documents that are to be presented to the Board for endorsement
    • nominates the person responsible for seeking the Board’s endorsement
    • how the review is to be conducted (for example by an external consultant)
    • what factors the Board is to review in the process (for example results of operational effectiveness testing, changes to the groups’ structure or the tax issues the group has to manage).
     
  • There is guidance in place to address any weaknesses in the tax governance framework, processes or procedures identified as part of the review and endorsement process - the guidance includes
    • timelines
    • allocation of specific duties to responsible personnel
    • a requirement to report back to the Board on progress
     
  • There is evidence demonstrating that the guidance to address any weaknesses in the tax governance framework, processes or procedures is operating effectively.
   
• Regarding fringe benefits tax (FBT) – where deductions claimed for expenditure that is subject to FBT is a material issue for tax governance purposes, there are documented procedures to ensure that FBT is being reported correctly including:
  • where the FBT return is prepared in-house, the procedures to ensure the correct amount of FBT is being paid include sufficient detail so that a new but experienced staff member can prepare the return, and guidance to identify and address FBT issues within the context of your group.
  • where the return is prepared by an advisor, the advisor has procedures in place to identify, address and quantify FBT issues in your group
  • evidence demonstrating that the procedures around the management of FBT issues are operating effectively such as
    • workpapers
    • populated checklists
    • finalisations letters from the tax agent outlining issues
    • notes or minutes of meetings with the tax agent.
     
   

Principle 3: Seek advice

• You or your group’s representatives have conducted an annual check in with us to discuss issues such as:
  • your group’s trading environment
  • any atypical transactions that have occurred or that are being contemplated
  • any material changes to your group
  • changes to your group’s approach to the tax issues it must manage
   
• Your group has undertaken an atypical transaction or has had to manage an uncertain tax position, and you are able to show that the procedures you have in place to seek advice in getting the tax treatments right are operating effectively in practice.

Principle 4: Integrity in reporting

• A documented policy that requires the financial records of entities within your group that have tax reporting obligations, reflect a true and fair view of those entity’s financial performance and position, and that:
  • financial accounts that are required to be audited, an unqualified audit report is provided.
  • financial accounts that are not required to be audited show:
    • a documented procedure that requires an external accountant to review key account balances
    • the scope of review is sufficient to identify material errors within those accounts.
     
  • there is evidence that the policy and procedure is operating effectively including verification that the agreed upon review procedures were carried out by the external accountants.
   
• If your group is, or is comprised of, a tax consolidated group that is derived from an accounting consolidated group:
  • there is a documented procedure to identify and capture any differences between the financial performance of the tax consolidated group and the accounting consolidated group
  • there is evidence the procedure is operating effectively in practice, such as reference to the accounting group to tax consolidated group reconciliation.
   

Find out what additional items Top 500 groups can implement for principles 1 to 4 for an effective tax governance framework.