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  • How we assess tax governance for Top 500 privately owned groups

    Tax governance is a key part of our Top 500 private groups tax performance program. Demonstrating that your tax governance is effective provides us with confidence that you are paying the right amount of tax. This leads to greater certainty for you and more tailored and streamlined engagements with us.

    We have developed practical guidance to help you make sure your tax governance is effective.

    How we review your governance is different to how we review governance for the Next 5,000 privately owned groups population.

    See also:

    How we assess your tax governance

    We assess your tax governance when we engage with you. We may ask you questions about your business and the controls and processes you use to govern tax and super risks. We may also request objective evidence from you to support our assessment.

    Every business is different. There is no 'one size fits all' approach. Tax governance arrangements will look different for each business.

    We have developed seven principles of effective tax governance. We use these principles to assess the quality of tax governance across the Top 500 privately owned groups in the context of your business and industry.

    We will provide you with our view of the effectiveness of your tax governance. We then work with you to address any areas of concern.

    Seven principles of effective tax governance

    To assess the effectiveness of your tax governance, we look across certain focus areas for evidence you have applied our principles of effective tax governance.

    The focus areas prompt specific questions, that help us understand your business, and the day-to-day processes and controls you have in place to ensure you are meeting your obligations.

    The areas we focus on are:

    • roles and responsibilities
    • control framework
    • control testing
    • risks flagged to market
    • significant or new transactions
    • tax and accounting results.

    Your tax governance rating

    Based on our discussions with you, your responses and the evidence you supply, you will be provided with a rating of green, amber or red for each focus area. These ratings feed into an overall rating for the effectiveness of your tax governance. You can use this feedback to make improvements to your tax governance.

    Where your overall rating is green it means we have assessed your tax governance as effective. This means we are confident that your tax outcomes are accurate and correct. This outcome contributes to achieving Justified Trust.

    Key focus areas

    For each focus area, you can present evidence that shows your tax governance is effective. The types of evidence you provide will be in the context of your business. Below are some examples of the types of evidence we look for.

    Roles and responsibilities

    We focus on accountability of decision makers. Clear roles and lines of authorisations give evidence that decision making is transparent and adequately addresses tax risks.

    What we look for:

    • roles and responsibilities are clearly documented
    • clear lines of authorisation and sign off for tax decisions and administration
    • owners, board and management understand their tax and super obligations, including registrations, lodgment, reporting, payment and record keeping.

    Control framework

    Systems and controls are in place to ensure accurate reporting and transparency of decision making.

    What we look for:

    • formalised tax strategy, or similar, documenting controls and processes that identify, assess and mitigate tax risks
    • controls to identify and manage tax risks integrated into IT systems and processes
    • documented communication process to escalate tax risks.

    In limited circumstances, we may use our Information System Risk Assessment tool (ISRA) tool to assist in assessing a Top 500 private group's tax governance.

    Control testing

    Processes exist to regularly test the effectiveness of your control framework and rules to manage and report on business risks.

    What we look for:

    • audit plans for testing systems and controls relating to tax functions
    • documented process for retaining working papers, reconciliation processes and error exception processes.

    Risks flagged to market

    Tax risks are managed with an understanding of our view on tax treatments and published advice. A reasoned approached is taken to tax risks and decision making, including consideration to any risk of dispute.

    What we look for:

    • a thorough review process considering our published view and identifying potential difference in law or factual interpretation that may give rise to a dispute
    • early identification of potential risk of dispute with management informed and steps taken to engage with us.

    Significant or new transactions

    Significant or new transactions are identified, well documented and subject to a review and sign-off for tax risk purposes.

    What we look for:

    • documented process to identify and map major categories of transactions to relevant tax classifications
    • plans to manage commercial and tax risks, limiting the impact on your business.

    Tax and accounting results

    Tax and accounting results are subject to review processes. Tax outcomes either reflect economic performance or variances, are understood and can be explained.

    What we look for:

    • risk registers and escalation processes for risks
    • reconciliations of accounting data to financial statements
    • audit reports.

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    Last modified: 30 Apr 2021QC 59345