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KPMG has warned companies to comply with a new ATO-set benchmark to establish a tax control and governance framework or face a heightened risk of being audited.
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Companies face new ATO challenge, warns KPMG
22 July 2015
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The firm said its own research indicates few Australian companies currently meet the required level, warning a failure to implement the framework would be taken into account by the ATO when considering a company's audit activity.
The ATO’s tax risk management and governance review guide, released this week, aims to encourage boards to demand their companies establish a formalised tax control framework, with appropriate tax risk appetite set for both strategic and operational risk, which the ATO recommends is published in the annual report, as well as internally.
Following the release of the review guide, David Drummond, KPMG tax partner, described the framework as a major development in the current debate on tax transparency.
“This effectively takes the tax function out of its traditional ‘black box’ and puts tax on a par, within organisations, with financial controls, which boards already have to sign off on as part of the revised ASX Corporate Governance principles in recommendation 4.2,” he said.
“Companies will have to publicly attest that they are reaching these standards of tax governance and tax risk control. If they are not able to do so, then not only will their shareholders and the ATO want to know why, but in today’s climate, no doubt there will be other stakeholders quick to highlight any perceived deficiencies.”
Recent research conducted by KPMG into tax risk management and governance shows nearly half (47 per cent) of companies are not fully confident that their internal controls are appropriate for the size and complexity of the company’s operations while just 7 per cent said they understood and documented their controls across entire tax processes.
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“Our research has shown that most companies have much work to do in various areas: IT controls; data integrity, internal control frameworks and clarity of roles,” said Mr Drummond.
“Internal control testing is important here – boards need to be satisfied that the control framework is robust enough to manage the tax compliance risk effectively, with the ATO watching.
“The tax authority will be making this guide its benchmark for carrying out risk reviews of companies, and as is already the case in other countries, any organisation which tenders for government contracts may in time also be required to demonstrate meeting this tax benchmark to be accepted,” Mr Drummond said.
“The two key questions for Boards are: how does the organisation attest that it is paying the legally right amount of tax due unless it has the core internal foundations in place to file correct tax returns? And does it ensure the design and operating effectiveness of these controls are being tested?”
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