On January 27, 2017 the Australian Taxation Office (ATO) published a tax risk management and governance review guide. According to ATO the guide sets out principles for board-level and managerial-level responsibilities, and examples of evidence that entities can provide to demonstrate the design and operational effectiveness of their control framework for tax risk.
ATO furthermore states that the guide was developed primarily for large and complex corporations, tax consolidated groups and foreign multinational corporations conducting business in Australia. However, according to ATO the principles outlined in the guide can also be applied to a corporation of any size if tailored appropriately. When appropriate ATO assesses the tax governance processes of large business entities that it has under review.
According to ATO the aim of the guide is to help taxpayer understand what ATO believes better tax corporate governance practices look like, so that taxpayers can:
· develop or improve its own tax governance and internal control framework;
· test the robustness of the design of the taxpayer’s framework against ATO’s best practice benchmarks;
· understand how to demonstrate the operational effectiveness of the taxpayer’s key internal controls to the taxpayer’s stakeholders, including ATO.
The Guide is divided in the following sections:
· Director's summary
· Board-level responsibilities
· Managerial-level responsibilities
· Tax control frameworks for medium and small corporations
· How to test controls
· Self-assessment procedures for reviewers
Director's summary
In this section a.o. the follwing topics are discussed:
· Corporate governance and risk management
· Justified trust and key controls
· Three lines of defence
· Board-level controls
· Internal controls testing
· Managerial-level controls
· Directorship responsibilities and liability
Board-level responsibilities
In this section a.o. the follwing topics are discussed:
· Establish a framework to identify and manage tax risk
o Board-level control 1: Formalised tax control framework
o Board-level control 2: Roles and responsibilities are clearly understood
o Board-level control 3: The board is appropriately informed
· Policies and controls are regularly assessed
o Board-level control 4: Periodic internal control testing
Managerial-level responsibilities
In this section a.o. the follwing topics are discussed:
· Ensuring sufficient capacity and capability
o Managerial control 1: Roles and responsibilities are clearly understood
o Managerial control 2: Senior management confident of capacity and capability
o Managerial control 3: Significant transactions are identified
· Ensuring information technology controls are in place
o Managerial control 4: Controls in place for data
o Managerial control 5: Record-keeping policies
· Assuring the flow of information from accounting records
o Managerial control 6: Documented control frameworks
o Managerial control 7: Procedures to explain significant differences
o Managerial control 8: Complete and accurate tax disclosures
· Dealing with law and administrative updates
o Managerial control 9: Legal and administrative changes
How to test controls
In this section a.o. the follwing topics are discussed:
· Methods used to test controls
o Testing control design effectiveness
o Testing the operational effectiveness of a control
§ Testing plan
§ Assessing the effectiveness of the control framework
· Outsourced tax functions
Self-assessment procedures for reviewers
According to the Guide these procedures are for use by:
· ATO Client Engagement teams when they undertake tax governance reviews
· large corporates (management or internal audit) when self-assessing their tax risk management and governance compared against the ‘better practices’ in the guide
· professional firms engaged by entities to perform an agreed-upon procedures review of a tax risk management and governance framework.
Click here to be forwarded to the tax risk management and governance review guide as available on ATO’s website.
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