ATO Tax Risk Management Workshop Plenary session

Transcription

1 ATO Tax Risk Management Workshop Plenary session April / May 2015

2 Reinventing the ATO We are improving the client experience Make it easier to comply for those doing the right thing We are future focussed Prevention is better than reaction Most large corporates have strong tax risk management frameworks, but these frameworks are not always applied at the operational level. ATO Tax Risk Management Workshop - Plenary - April/May

3 ATO expectations for governance and tax risk management Adequate staff training and capability Clear policies and process documentation Investment in tax and accounting functions Investment in systems maintenance, enhancements and upgrades Robust tax risk management A policy and process of review Good corporate governance ATO Tax Risk Management Workshop - Plenary - April/May

4 Managing tax risks Assurance environment Ensure appropriate systems, governance and controls are in place and are appropriate for the business. Regular reviews and testing to ensure all systems are operating effectively. Seek appropriate advice on contentious or uncertain issues. Work collaboratively with the ATO to share information, reduce compliance costs, and promote a positive working relationship. While prevention is the preferred strategy, if errors do occur ensure the ATO is advised early. ATO Tax Risk Management Workshop - Plenary - April/May

5 Elements of good tax risk management What are the elements of good tax risk management? Elements of managing tax risk at a strategic level Elements of managing tax at an operational level What are some pragmatic approaches to getting things right? Ensure tax outcomes align with business outcomes Ensure systems are working properly ATO Tax Risk Management Workshop - Plenary - April/May

6 Key governance questions Are you confident that: your organisational structures dealing with tax are sound? your organisation has well documented policies and procedures on tax issues? staff responsible for the organisation's tax and accounting functions have sufficient knowledge, skills and experience to do their jobs properly? any computerised accounting systems your organisation uses has correct GST codes and calculates tax correctly? your practical obligations regarding tax registration, lodgment and payment are completed on time? ATO Tax Risk Management Workshop - Plenary - April/May

7 Useful resources Large Business and Tax Compliance Publication GST governance and risk management guides for Large and SME market taxpayers PS LA 2004/14 : Access to corporate board advice on tax compliance risk COMMONWEALTH OF AUSTRALIA 2015 This presentation was current in April ATO Tax Risk Management Workshop - Plenary - April/May

8 ATTACHMENT Managing tax risks risk management policies The group s risk management policies are adhered to by all stakeholders and include a documented framework to manage tax compliance risk. There is a documented internal control framework for the specific purpose of ensuring the complete and accurate flow of information from accounting records to the tax return and activity statements. The control framework documents the processes, systems and approvals the group s tax area uses to ensure compliance with tax laws. The control framework ensures contentious or unusual items that have an associated tax compliance risk are identified, reviewed and the tax treatment appropriately authorised. Staff roles and responsibilities are clearly defined and documented within the control framework to ensure the groups tax obligations are well managed and complied with. ATO Tax Risk Management Workshop - Plenary - April/May

9 Managing tax risks Alignment with expected outcomes The board is aware whether the amount of tax paid aligns with business results. Are there significant permanent adjustments, deferred tax assets or liabilities represented in the financial accounts that differ from the tax treatment taken in the tax return / activity statement? If so, can the reasons for these differences be adequately explained? Does the accounting profit and loss and total assets and liabilities align between the financial accounts and income tax return, taking into account differences in the group structures? Is there a reasonable explanation for any significant variance between the accounting and tax performance of the group? If the group does not lodge audited financial accounts with ASIC what other level of assurance can be provided that the accounts reflect an accurate financial position? ATO Tax Risk Management Workshop - Plenary - April/May

10 Managing tax risks data and systems integrity The group has operational processes which ensure that the data and information they rely on for tax purposes is accurate and reliable and systemic failures are identified and addressed. Are information systems that process and store data regularly reviewed to ensure they operate effectively and correctly calculate, allocate, record and report tax data. Procedures for identifying and reporting major control weaknesses and failures are embodied within the organisation s system of internal control Where control weaknesses impact tax compliance appropriate remedial action is undertaken to ensure future compliance. ATO Tax Risk Management Workshop - Plenary - April/May

11 ATO Tax Risk Management Workshop Internationals session April / May 2015

12 Overview International and local developments The nature of international tax risks Best practice governance Case study ATO Tax Risk Management Workshop - Plenary - April/May

13 International and domestic developments BEPS profit needs to reflect true economic activity within each tax jurisdiction Specific areas of concern (including digital economy; hybrids; ability of transfer pricing rules to address emerging issues) The policy response transparency and disclosure initiatives; changes to the rules Australia New transfer pricing rules enacted 2013 Active participant in OECD BEPS discussions FATCA (1 July 2014); CRS reporting (1 January 2017) Potentially more to come (e.g. CbC reporting) ATO Tax Risk Management Workshop - Plenary - April/May

14 International tax risks What do we look for? Indicators relative to industry peers (e.g. profitability and commercial outcomes; capital structure; effective tax rates) Restructures Sale of intellectual property/intangibles Use and location of sales/marketing hubs Complex financing arrangements ATO Tax Risk Management Workshop - Plenary - April/May

15 Best Practice governance There are numerous parts to Australia s international tax regime Transfer pricing rules are a prominent component for MNEs 815-B requires self assessment of your position Law does not require documentation, but good governance Questions to ask Do your arrangements make commercial sense and how can this be evidenced? Are your dealings and arrangements transparent? Are the outcomes commercially realistic? Do they vary significantly from what is found in the open market? ATO Tax Risk Management Workshop - Plenary - April/May

16 Case Study Australian subsidiary of large global MNE operating in the oil and gas extraction industry (main compliance issue transfer pricing) Why were the Australian entities looked at? ATO risk indicators pointed to: Significant international related party dealings, including royalty payments and payments for a variety of technical services Poor long term profit and tax performance On further examination, inadequate documentation explaining commerciality of the outcomes ATO Tax Risk Management Workshop - Plenary - April/May

17 Case study (cont) Practical difficulties for the taxpayer and the ATO in evaluating compliance with the arm s length principle: Identification of comparable transactions and arrangements industry composed of global controlled MNEs unique businesses and dealings Analysis required: Understanding of the relevant parts of the global value chain Identification of the contribution of the Australian operations Evaluation of the substance of the Australian contribution ATO Tax Risk Management Workshop - Plenary - April/May

18 Transfer pricing as an example Global value chains can be very complex Increasingly, regulators will seek to understand more than one side of an intra-group arrangement Intra-group dealings unique not commonly found in the market Regulator is not here to tell businesses how to operate, but is here to ensure compliance with the rules How comprehensive is the supporting documentation? Is it proportionate to the materiality of the dealings? Is there evidence that the profit and tax position is reviewed regularly? ATO Tax Risk Management Workshop - Plenary - April/May

19 Recap Assess risk Demonstrate the commerciality of the arrangement (including structure and pricing) Does it look like an arrangement independent parties would agree to? Document Existence of contemporaneous information supporting key decisions (including inter-company agreements) Monitor Is the structure still working as per agreements? Keep up to date on changes Australia and OECD ATO Tax Risk Management Workshop - Plenary - April/May

20 Questions? COMMONWEALTH OF AUSTRALIA 2015 This presentation was current in April ATO Tax Risk Management Workshop - Plenary - April/May

21 ATO Tax Risk Management Workshop GST session April / May 2015

22 Overview Our focus on large corporates: - real time engagement and future compliance - strong tax governance and risk management Integrity of business systems areas highlighted: - use of multiple systems or systems integration - failure to implement processes and procedures - manual intervention points ATO Tax Risk Management Workshop - Plenary - April/May

23 Integrity of business systems risk IBS risk is the most significant GST risk for large businesses. The multiplier effect of incorrect transactions can lead to significant revenue risk The majority of ATO adjustments relating to IBS could have been avoided if robust tax risk management processes were in place. Most common reasons for errors: Activity statement preparation - 30% System related issues - 23% Unsure of supply status - 18% How effective are tax risk management processes if unintentional errors continue to occur? Pre-lodgement prevention is preferable to post-lodgement detection and revision. Greater focus on E-audit tools to detect systemic errors when dealing with businesses that have a high volume of transactions. ATO Tax Risk Management Workshop - Plenary - April/May

24 Multiple accounting systems or systems integration risks Operational and transactional systems Operational and transactional systems Operational and transactional systems Enterprise resource Planning (ERP) System Enterprise resource Planning (ERP) System Enterprise resource Planning (ERP) System Financials Financials Financials Consolidated Enterprise Reporting ATO Tax Risk Management Workshop - Plenary - April/May

25 Failure to implement processes and procedures Documented tax risk management policies and processes Procedures reviewed regularly Regular review of guidelines to ensure they are being implemented Significantly reduced likelihood of GST errors and reduced compliance costs Adequate training Staff responsibilities GST tax coding Treatment of unusual transactions Independently reviewed No regular review of how guidelines are being applied Systemic errors accumulate over time, resulting in substantial GST errors and increased compliance costs ATO Tax Risk Management Workshop - Plenary - April/May

26 Failure to implement processes and procedures Key Learnings: Tax managers need to regularly review operations to ensure documented processes and procedures are being complied with. GST governance processes need to align with the potential for error complex systems, operations and methodologies require a higher level of assurance. Pre-lodgement prevention is always better than post-lodgement revision. ATO Tax Risk Management Workshop - Plenary - April/May

27 Manual journal entries and manual adjustments Entries made direct to journal accounts Manual changes to GST codes Non-standard GST percentages Manual adjustments to GST control accounts Movements into and out of asset registers Staff may not consider flow-on impacts for GST payable/claimable, or the long-term impacts on systems accuracy High risk of GST being incorrectly reported ATO Tax Risk Management Workshop - Plenary - April/May

28 Manual journal entries and manual adjustments Key learnings: Systems should be automated as much as possible. Manual entries are a major source of tax risk, and can result in under or over payment of GST. Governance systems should include regular review of manual entries to prevent long-term impacts on systems accuracy. A single manual entry can result in a very large GST error. ATO Tax Risk Management Workshop - Plenary - April/May

29 Summary Key messages Historically IBS has been the most significant GST risk Build on your existing controls and procedures, and review their effectiveness Pay attention to the practical implementation of controls and procedures Ensure appropriate testing of manual adjustments and journal entries, and unusual or one-off transactions ATO Tax Risk Management Workshop - Plenary - April/May

30 Questions? COMMONWEALTH OF AUSTRALIA 2015 This presentation was current in April ATO Tax Risk Management Workshop - Plenary - April/May

31 ATO Tax Risk Management Workshop Consolidations session April / May 2015

32 Key Consolidation Risks Tax cost setting issues Deductions under the consolidation regime Specific issues relating to Multiple Entry Consolidated (MEC) groups Consolidation reporting and lodgment obligations Part IVA considerations ATO Tax Risk Management Workshop - Plenary - April/May

33 Tax Cost setting Issues Trigger - Arise on entry, exit or as a result of restructure The ACA calculation process Allocation of ACA Market valuations ATO Tax Risk Management Workshop - Plenary - April/May

34 Deductions under Consolidation regime Trigger Rights to Future Income (RTFI) and Residual Tax Cost Setting (RTCS) related deductions: Risk of incorrectly claiming RTFI / RTCS Substantiating RTFI / RTCS claims Interpretation of the law ATO Tax Risk Management Workshop - Plenary - April/May

35 Specific issues relating to MEC groups Trigger Multiple Entry Consolidated (MEC) group Understanding the group picture Pooling rules Restructuring Capital Gains Treasury MEC consultation paper ATO Tax Risk Management Workshop - Plenary - April/May

36 Reporting and Lodgment obligations Trigger Consolidation Event, Transfer and Utilisation of losses Notification forms Available Fraction ATO Tax Risk Management Workshop - Plenary - April/May

37 Part IVA considerations Trigger Application of Part IVA to entries and exits, and restructures Inappropriately accessing the consolidated provisions to facilitate the obtaining of a cost base uplift to the underlying assets Cost base uplifts arising where the economic ownership is unchanged ATO Tax Risk Management Workshop - Plenary - April/May

38 Good Governance Framework To address the consolidation specific risks, a governance framework should ensure: Internal Controls Accuracy of data and calculations Record Keeping requirements Documentation and working papers Corporate governance Taxpayers are encouraged to seek clarification and guidance from the ATO through the rulings process. ATO Tax Risk Management Workshop - Plenary - April/May

39 Questions? COMMONWEALTH OF AUSTRALIA 2015 This presentation was current in April ATO Tax Risk Management Workshop - Plenary - April/May