Good tax governance will ensure that your enterprise gets its tax compliance right. We expect all enterprises to review their tax governance framework and make sure they have good policies, procedures and controls in place. All documents should be up to date.
It is in an enterprise's best interests to have a tax governance framework. If we investigate an enterprise's compliance with tax legislation, find an error and need to consider imposing a penalty, we can take into account the enterprise's tax governance practices when considering which penalty to apply.
We also look at how good an enterprise's tax governance is when we establish annual risk ratings for some enterprises.
Tax control frameworks
Tax governance should include a tax control framework (TCF) to focus on specific internal controls and processes, and manage daily tax activities.
Our guidance will help you to:
- develop or improve a TCF
- evaluate if your TCF design is robust
- demonstrate the operational effectiveness of your key internal controls
- identify areas that need work, so that your TCF evaluation improves from reactive to proactive/predictive.
The benefits of effective tax governance
There are many practical benefits of effective tax governance.
- Get your tax compliance right and pay the right amount of tax by the due date.
- Ensure accurate financial reporting and the integrity of business records. This prevents risky tax positions and reduces tax inefficiency.
- Ensure your enterprise is in control of tax risks and have real-time assurance.
- Promote operational and strategic effectiveness.
- Assist decision-makers to be more efficient and effective.
- Support business planning and transparent decision-making.
- Help to manage commercial and business risks, such as succession.
- Assist with building greater management capability.
- Protect and promote your enterprise's reputation, particularly with any environmental, social and governance reporting obligations.
Inland Revenue's approach
Our advice follows the guidance on TCFs released by the OECD Forum on Tax Administration in 2016.
An enterprise's board and management both play key roles in tax governance. A board sets the strategy. Management put the strategy into operation with policies, procedures and specific controls.
Boards and management will be better at seeing potential tax risks and lifting an enterprise's overall level of tax governance if they make sure to:
- document their tax strategy and TCF
- test and update controls
- undertake regular reporting.
Different enterprises can have different tax governance practices. A simple tax governance document may suit a small business, but is not comprehensive enough for a large or complex business. We recognise that a 'one size fits all' approach cannot suit every enterprise in New Zealand.
Multinational enterprises
If your multinational enterprise has a global TCF, it should be customised to the New Zealand environment. Your TCF should reflect New Zealand business operations and how specific tax risks are managed across New Zealand's tax types.
Your TCF should:
- state appropriate tax policies and procedures (including appropriate transfer pricing documentation and tax process documentation for key tax types)
- set out clear roles and responsibilities for New Zealand tax obligations (including tax compliance, transactions, tax reporting and complex issues such as hybrids or base erosion and profit shifting)
- report tax to the New Zealand board (or other governance body).