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Quick tax risk checklist for CFOs

Last updated 30 January 2023

A high assurance rating means you can focus on growing your business, and don't have to look over your shoulder at tax risk. This was the message from Second Commissioner, Jeremy Hirschhorn to Chief Financial Officers (CFOs) in his keynote speech for the fourth annual Financial Review CFO Live summit.

'Businesses are recognising that investing in their tax governance has tangible real-world benefits' Mr Hirschhorn said.

His speech was primarily for CFOs of public and multinational businesses, but the principles are relevant for all large businesses. The ATO's tailored assurance program applies the justified trust methodology, Mr Hirschhorn explained.

'For many large companies, we have been able to provide a high assurance rating that, from our perspective, those companies are paying the correct tax'.

Around 85% of the top 100 and top 1,000 largest companies operating in Australia have attained a high or medium assurance rating. Many of these companies are now publishing their ratings, demonstrating their environmental, social and corporate governance credentials.

There's also an immediate benefit of lower company tax compliance costs due to the reduction in ATO review intensity.

'Into the future, with the stronger governance frameworks associated with a high assurance finding, it is less likely that a company will stumble into a high risk, high intensity transaction and hence a future dispute' Mr Hirschhorn continued.

Quick tax risk checklist

In his speech, Mr Hirschhorn shared a 'quick tax risk checklist' to help CFOs understand the level of tax risk of their companies. Understanding this risk can support businesses when developing and implementing their tax governance framework.

High level questions for the Board

  • What is your tax governance framework?
  • What is the risk stance and structural tax settings of the company?
  • Do you understand the current (and historic) relationship with the ATO?
  • If profits are not fully taxed, why not?

Questions for the tax team

  • Are there KPIs that supports the organisation’s goals and stated tax risk appetite?
  • Is the tax corporate governance clear, and is it is ‘lived’?
  • Do you understand the relationship between financial reporting and tax, including GST and indirect taxes?
  • Do you understand where you sit relative to your business peers?
  • Do you have high levels of assurance over your tax ‘infrastructure’?
  • What is your conduct in resolution of tax disputes (including applying the LPP protocol)?
  • Could you call yourself a transparency role-model?
  • Have you received a high assurance rating previously? If not, why not?

Questions for significant transactions

  • Is the position for significant transactions consistent with the risk appetite of the organisation?
  • Is the ATO likely to dispute this position? Have you sought certainty from the ATO in the form of a ruling?
  • What would happen to revenue collections if everyone did this?
  • What is our level of confidence as compared with that required on our physical infrastructure (with like levels of economic exposure)?
  • Has the adviser been given a full scope, or are there areas that have been scoped out that are relevant?
  • Are the facts and assumptions underpinning the advice supportable and could be evidenced in Court proceedings? What happens if they are wrong / disproved?

You can read more about large business tax risk management and governance reviews on our website.