The Australian Taxation Office (ATO) on 27 January published guidance designed to help taxpayers understand the ATO’s views on what better tax corporate governance practices look like so companies can develop or improve their own tax governance and internal control framework.
According to the ATO, the new Tax Risk Management and Governance Review Guide, was developed primarily for large and complex corporations, tax consolidated groups, and foreign multinational corporations conducting business in Australia. The principles outlined can be applied to a corporation of any size if tailored appropriately, though, the ATO said.
Using the guide, companies can test the robustness of the design of their framework against ATO’s best practice benchmarks and understand how to demonstrate the operational effectiveness of their key internal controls to their stakeholders, including the ATO.
Following the principles for board-level and managerial-level responsibilities and the examples of evidence set out in the guide, companies may demonstrate the design and operational effectiveness of their control framework for tax risk, the ATO said. In fact, the guide provides “better practices” on how to manage tax risks, giving practical examples to be followed.
The guide also lays down guidance on how to understand the type and frequency of control testing that the ATO can apply to assess a company’s tax governance framework.
Hence, taxpayers should be able to demonstrate that their processes are sufficient to evaluate the effectiveness of tax-related key controls, that all key controls related to the tax function have been clearly identified, that testing frequencies of these controls are known by the tax function; that testing results are reported to the tax function, and that any control breakdowns and remediation actions are communicated to the tax function.
The ATO also points out that if taxpayers follow the principles set out in the guide, the assessment of a company’s tax governance process will be easier and quicker as companies will have a robust risk management framework and procedures to identify, implement, and report on the design and operational effectiveness of internal controls in place to mitigate the identified risks.
Alternatively, the absence of a strong tax control framework may be the signal that more resources are necessary to fully assess tax risks, the ATO said.
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Davide Anghileri
Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.
Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues.
Davide can be reached at [email protected].
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