Australia Publishes Guidance For Large Public And Multinational Businesses On Assessing Tax Governance

; posted on
June 26th, 2018

The Australian Taxation Office (ATO) issues practical guidance to assist large public and multinational businesses in understanding how tax authority rates tax governance when applying justified trust methodology.

Definition of Tax Governance

Tax governance is a key focus area under the justified trust methodology for large public and multinational businesses. These businesses can reduce the intensity of enquires by demonstrating how they have designed and implemented tax governance controls, processes and procedures and by providing ATO with evidence that it can rely upon.

Assessing Tax Governance

In order to assess large public and multinational businesses’ tax governance, ATO looks for evidence that a tax control framework exists, focusing on the controls set out in the director’s summary within the Guide. Following staged rating system is used by ATO:

  • Tax control framework exists(Stage 1): Itis reached when objective evidence that a tax control framework exists is provided. This includes one or more of the followings:
    • Board endorsed tax policy documentation describing how the organization identifies and manages tax risk
    • Documented procedures for preparing returns, including income tax returns and Business Activity Statements
    • A testing program to validate the operating effectiveness of the tax control framework.
  • Tax control framework is designed effectively(Stage 2): ATO recommends companies prepare a gap analysis by self-assessing the design of your framework against the Guide. If a gap exists, companies should describe their compensating controls and document why particular aspects of the Guide may not be applicable to their circumstance.
  • Tax control framework is working in practice (Stage 3): This stage is the highest rating for tax governance. To achieve this stage, companies must be able to demonstrate that their tax control framework has not only been designed effectively, but is also operating as intended.This stage can be evidenced by a periodic tax controls testing program as well as reports describing the outcomes of that testing. The program scope should include testing of the six controls as set out in the director's summary.
  • Red flagofnot evidenced or significant concerns: A red flag may be assigned where companies cannot provide evidence to demonstrate a tax control framework exists or if ATO has significant concerns with companies’ tax risk management and governance.

Sources: Australian Taxation Office

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