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.
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 t