Skip to main content

The Forum on Tax Administration (FTA) has acknowledged the importance of tax governance and published guidance on tax control frameworks. Our initial advice set out how the guidance applied in New Zealand.

The FTA's guidance follows 2 earlier OECD publications, Principles of Corporate Governance and Guidelines for Multinational Enterprises.

You can read the full Co-operative Tax Compliance - Building Better Tax Control Frameworks on the OECD website.

Co-operative Tax Compliance - Building Better Tax Control Frameworks (OECD)

Summary of the OECD guidance on tax control frameworks

The guidance recommends that the essential features of a tax control framework (TCF) are determined at the top level of an enterprise, rather than decisions being made at a lower level down in the organisation.

Top-down building block approach

The guidance identifies 6 essential building blocks that TCFs should have. 

TCF building block Description

Tax strategy

This should be clearly documented and owned by the senior management of the enterprise (the board of directors).

Comprehensive

All transactions an enterprise enters into can affect its tax position, so the TCF needs to govern the full range of the enterprise's activities. Ideally, the TCF should be embedded in the day-to-day management of business operations.

Responsibility

The board of an enterprise is accountable for the design, implementation and effectiveness of the TCF. The role of the enterprise's tax department and its responsibility for implementing the TCF should be clearly recognised and properly resourced.

Governance

There needs to be a system of rules and reporting that ensures transactions and events are compared with the expected norms and potential risks of non-compliance identified and managed. This governance process should be explicitly documented.

Testing

Compliance with the policies and processes embodied in the TCF should be the subject of regular reporting, testing and maintenance.

Assurance

The TCF should be capable of providing assurance to stakeholders, including external stakeholders such as Inland Revenue, that tax risks are subject to proper control and that outputs, such as tax returns, are reliable.

This is accomplished by establishing the entity's 'risk tolerance' and ensuring that the risk management framework can identify departures from that tolerance. There should be mechanisms to mitigate or eliminate any additional risks.

The final building block, assurance, is the result of having all the other building blocks in place. If all the building blocks are there, it is possible to achieve assurance.

Application in New Zealand

Our initial guidance applied to significant enterprises (particularly enterprises that file a basic compliance package with us), and high-wealth individuals (HWIs) who have complex business interests.

We agree with the FTA that the specifics of a TCF for any business depends on the circumstances of the business and the relevant industry.

An enterprise's tax governance framework should reflect its size and complexity. Your enterprise's tax governance framework should include a TCF to focus on specific internal controls and processes, and manage daily tax activities.

Boards and high-wealth individuals

As a minimum, we recommend that boards and HWIs address the following key questions.

  • Is there a documented tax strategy and has it been kept up to date?
  • Have effective systems, procedures and resources been put in place to manage tax risks, and is this clearly stated in the annual report?
  • Is annual reporting transparent and can all stakeholders analyse and effectively interpret the information provided on taxes paid?

In setting the right tone from the top, we also recommend that boards of directors consider endorsing a set of overarching principles.

Tax governance checklist

We recommend that boards of directors consider the 10 questions in the tax governance checklist.

Question Checklist

1

Does the company have a well-documented overarching tax strategy?

2

Does the chief financial officer or tax manager formally confirm, at least once annually, that this strategy has been regularly reviewed, updated where necessary and followed in practice?

3

Does the company have an effective tax control framework to manage day-to-day tax risks?

4

Has the operation of the tax control framework been tested independently in the last 3 years?

5

In the last 3 years, have any tax control deficiencies been identified? If so, have follow-up actions been taken to remedy those deficiencies?

6

Are key internal policies, procedures and controls covering the data collection, analysis, calculation, recording and reporting for tax filing, and other tax compliance requirements, documented and available for examination by Inland Revenue if required?

7

Does a review take place at least annually for changes to accounting policies on which group financial statements are prepared, and all items examined where tax treatment may differ materially from financial accounting treatment?

8

Is there a robust process in place for the finance or tax team to stay on top of all relevant changes in tax law and related Inland Revenue guidance?

9

Is a process in place to identify significant transactions (including those which need to be reported to the board or relevant board sub-committees) regarding which external advice or binding rulings may be required?

10

Do senior management report regularly to the board or relevant board sub-committees on potentially material tax issues or risks?

Last updated: 04 Apr 2025
Jump back to the top of the page