Grant Thornton flags critical tax governance considerations
The ATO’s expectations around documented tax governance procedures have recently increased, requiring businesses to prepare ahead of time for a potential ATO review, the accounting firm warns.
Failing to put in place documented tax governance procedures could create financial risk and commercial risk for firms with the expectations around documented tax governance seeing a recent shift, according to mid-tier accounting firm Grant Thornton.
“There is now a genuine expectation that such documentation exists and is readily available upon request by the ATO,” the firm said in a recent article by tax partners Chris Dune, Daniel Kave, Murat Cihanger and Yan Wong.
“If a taxpayer cannot readily provide documented tax governance processes, and also evidence how that tax governance is actually implemented in the business, the taxpayer is already on the back-foot with the ATO.”
Grant Thornton said that given there is no one-size-fits-all tax governance template, it is important for businesses to consider what tax governance looks like specifically for their organisation.
The ATO warned in its latest Next 5,000 group program report that a lack of documented governance procedures was leading to tax issues within intra-group transactions, trust distributions and related-party transactions.
Assurance reviews conducted by the ATO on these groups for the 2022–23 financial year found that while a high proportion of these groups had governance processes and procedures, most weren’t documented.
Grant Thornton said accountable management oversight is an expectation for organisations regarding the specific roles individuals play in tax governance.
“The ATO confirms that having documented responsibilities for key personnel in regards to taxation matters is pivotal for good tax governance,” the firm said.
“We recommend organisations keep documentation that demonstrates how they make purposeful consideration of contentious tax issues as well as analysing where they may have weaknesses in their internal environment.
The firm also recommends having an external third party assess the implementation of relevant governance documentation and procedures to ensure they are at an appropriate standard and are effective.
“Tax matters should not be limited to spreadsheets and workpapers. To demonstrate effective compliance within today’s tax landscape, we recommend that tax is integrated at all levels and should be a key consideration for an organisation’s board,” said Grant Thornton.
“For those organisations that have documented tax governance, it is just as important to implement and not just be a mission statement sitting on the intranet.”
Organisations should have methods in place that exhibit how businesses deal with routine compliance requirements, the accounting firm said.
“Proper documented procedures should be in place that flag any areas of tax risk as well as defining the accepted materiality levels of such risks,” it stated.
“Similarly, where atypical transactions arise, governance procedures should provide for when these are dealt with internally or where external advisers are required.”
Grant Thornton said the ATO is also looking for documentation that considers how organisations deal with atypical transactions.
“Ensuring that policies are in place when atypical transactions arise and that escalation procedures exist to verify the tax consequences of such transactions are critical in pre-emptive tax governance,” it said.
“Where the materiality and comfortability of in-house assessments of such transactions create cause for concern (based on defined materiality), it is of utmost importance to seek external tax advice early to reduce tax risks.”
The firm said that while there is never an ideal time for receiving an ATO review, taking pre-emptive action can reduce the time commitment and costs involved with a review.
