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The first reason is the ATO’s “justified trust” program, about to be rolled out to the largest multinationals and public companies. If your company has revenues of $250m or more, broadly speaking you will be in the ATO’s sights.
A company will earn ATO “justified trust” when it can provide or display objective evidence that would lead a reasonable person to conclude that it paid the right amount of tax. The ATO approach is tailored to each taxpayer, and is based around a review of four broad areas:
A strong and robust risk management and governance framework is one of the key focus areas for achieving justified trust. In reviewing this, the ATO is of the view that the company directors have front and centre responsibility for ensuring that tax risks are properly identified and managed through the existence, application and testing of a robust tax risk management and governance framework. With this in mind, the ATO has provided a tax risk management and governance review guide on its website to illustrate exactly what is expected in terms of best practice from both company directors and senior management in managing tax risk.
Some of the more important matters that directors should be focused on are: endorsing a properly formulated tax governance and risk management framework, understanding their personal responsibilities in relation to tax risk and ensuring that both board and sub-committees dealing with tax risk are appropriately qualified.
The second reason why directors need to prioritise tax risk management is brand and reputation. We live in an era where business actions are increasingly under the spotlight. The tax governance philosophy, tax behaviour, and approach to tax transparency adopted by a company can protect and enhance brand and reputation if done well.
Where directors elevate tax goals to sit alongside other corporate responsibilities, a strong foundation is laid for better long term outcomes in a financial and reputational sense – good corporate citizens positively impact their communities, employees and markets.
Those corporates which have signed up for the Australian tax transparency code also benefit by proactively developing their own unique tax narrative, and reassuring wider stakeholders of the governance practices of the business. Investors too are recognising that unaddressed governance risks have the potential to impact an organisations fundamental viability (recent wage investigations in franchise operations have emphasised this risk).
The third reason is to build trust in Corporate Australia, in order to drive change and influence the direction of tax reform.Corporates have been arguing for a change in the tax mix and a lower corporate tax rate for all companies, but the political environment both within Canberra and more generally is making this challenging.
As Corporate Australia delivers on better transparency and positive tax behaviours, Government can work collaboratively towards creating a more certain and positive business environment. A true partnership of mutual obligation must exist to build, drive and encourage economic growth.
The future of Australia’s taxation system requires business, industry, community and government to work together to create real change in a sustainable manner.
These three reasons are why company directors and senior management within Corporate Australia are getting more involved in building trust via stronger tax risk management; to build a better tax environment and in turn a more prosperous Australia.
David Watkins is the leader of the Deloitte Australia Tax Insights & Policy group. David has over 25 years’ experience in corporate income tax and international tax covering a wide range of tax issues across various industry sectors. David has worked in Malaysia, Singapore and New York. In his current role, David’s focus is on emerging tax developments and in particular, the Australian tax reform debate and the international process addressing Base Erosion & Profit Shifting (BEPS). The Tax Insights & Policy group is involved at various stages in these emerging issues including consultation and submissions, publications and presentations and assessing the impacts of tax law changes.
Stuart is a senior partner at Deloitte with a focus on helping businesses to solve their most challenging problems to create and maximise opportunities for growth. Stuart has over 25 years’ of experience in the profession, much of which was spent in tax where he dealt with managing the compliance function of large corporate groups, regime and the provision of taxation advice on all major areas of Australian corporate tax, dealings with the ATO, and tax due diligence. During his time in tax Stuart held many leadership roles, including leading the Business Tax group, was a long-term member of the Tax Executive and established and led the digital tax practice in Australia. In more recent times, Stuart has been focussing on his role as the lead relationship partner for Deloitte for a selection of Multinational clients and has been working on the development of a new leadership program for our commercial tax practitioners with leadership aspirations. His career spans the Technology Media and Telco, Consumer and Property sectors across a portfolio of clients including private businesses through to large corporations and government. Leveraging his experience, Stuart brings the full power of Deloitte to all situations to ensure the best possible outcomes.
An account director in Deloitte's Tax Insights & Policy Group, Peta has more than 25 years experience in the Taxation arena. Her current role includes writing/reviewing our taxation publications and thought leadership, tax related practice projects, and more.