The implementation of effective tax governance is an important step in helping ensure that Top 500 privately owned groups (Top 500 groups) are complying, and will continue to comply, with their tax and super obligations. When combined with achieving high levels of tax assurance, having effective tax governance in place over each of the areas should result in a Top 500 group achieving Justified Trust.
From a Top 500 group perspective, tax governance helps with the retention of organisational knowledge which can be easily lost with the departure of key personnel. In addition, documented tax governance frameworks, processes and procedures, ensures that new personnel understand their roles and responsibilities and how the group interacts with its advisors when minimising risk.
When reviewing the approach taken by a Top 500 group in implementing tax governance, we consider how the 7 principles of effective tax governance have been applied in the context of the group. We consider all 7 principles, with an increased emphasis on the first 4 principles.
To achieve a high rating for tax governance, a Top 500 group must tailor and provide evidence to show that for each of the key tax governance principles:
- The required items have been implemented, designed effectively, and where required operating effectively in practice.
- At least 3 of the additional items have been implemented, designed effectively, and where required operating effectively in practice.
Where your Top 500 group undertakes complex or diverse activities, the tax governance that is required will need to be robust. Accordingly, more of the required and additional items will be relevant to your group. Conversely, where your Top 500 group undertakes less complex or diverse activities, such as a narrow range of passive investment activity, the tax governance that is required over those activities is likely to be somewhat simpler.
The process of implementing effective tax governance in your group doesn’t need to occur in a single year. The process of implementation can occur incrementally and where required, in collaboration with our Top 500 engagement teams.
We recommend that Top 500 groups have an overarching tax governance framework in place that is fit for purpose. We recognise that a Top 500 group may have more than one tax governance framework to accommodate:
- diverse income producing activities
- its ownership structure
- existing approach to management and reporting.
For example, if a Top 500 group operates its business activities along divisional lines, it may wish to keep the frameworks governing each of those activities separate. It could also maintain another framework to manage the tax issues arising from its investment or non-trading activities. Conversely, a Top 500 group may operate a centralised finance or tax function, or both, and may wish to ensure that its tax governance framework is also structured using a centralised approach.
At any level of centralisation or decentralisation, an overarching tax governance framework should include:
- specific roles and responsibilities
- structure around the management of lodgments and payments
- a list of the tax issues that the Top 500 group is required to manage
- a policy governing how and when to seek external advice
- policies and procedures to ensure high levels of integrity around the information that the group reports for accounting and tax.
In addition to an overarching tax governance framework, to the extent that tax issues are managed internally, documented processes or procedures should exist within the framework to manage material tax issues that arise at a group or entity level.
If responsibility for the management of tax issues is shared with, or placed in the hands of an external advisor, an overarching engagement letter or accompanying communication should contain:
- a list of tax issues requiring management
- a clear scope of the advisor’s work
- the responsibilities of the Top 500 group in ensuring the engagement produces the right output.
It is also important that the processes and procedures provide governance over the management of tax issues that arise from both wealth creation and its wealth extraction activities.