RESEARCH by Thomson Reuters into Australian authorities’ new focus on transfer pricing and profit shifting has identified four key areas of focus for organisations in meeting the new requirements of the Australian Taxation Office (ATO).
Thomson Reuters managing director for tax and accounting, Ben Scull, said organisations must focus on four key pillars of trust to achieve “justified trust status as per the ATO’s new regulations.
Mr Scull said in its bid to make Australian corporations comply with the international Base Erosion and Profit Shifting (BEPS) regulations, the ATO is working towards a ‘justified trust’ position, in which the community can be satisfied that large organisations are paying their fair share of tax.
“To achieve the required level of tax transparency, businesses must be able to provide fact-based evidence to support their tax position,” Mr Scull said.
“In an environment in which the ATO is pursuing a much more active compliance program, every business to which the justified trust program applies must be able to demonstrate it has a robust control framework in place to prove the assertions it makes about its revenue and expenses.
“While this sounds simple, the reality is much more complex. Businesses must focus on this consistently or risk heavy fines and penalties.
“Tax transparency and compliance is complex and, in a landscape of evolving regulations, becoming even more difficult to navigate,” Mr Scull said.
“Most organisations are unlikely to have the deep skill levels and expert knowledge on staff, making it crucial for affected businesses to partner with expert advisers. This will give them the best chance of compliance, helping them avoid heavy penalties.”
Mr Scull said Thomson Reuters had identified four key pillars to achieve justified trust: process, people, technology and data.
By implementing repeatable processes, businesses will be able to demonstrate consistency, one of the key elements of trust. To develop effective processes, businesses must first review the existing process steps, and identify and address gaps. They must be able to apply the same process across the organisation’s various locations and demonstrate a consistent output. There must be strong controls in place to ensure the process is reliably repeatable. Businesses should test the processes by doing practice runs before each process goes live.
People fulfil another key element of trust; congruity. This means ensuring the people responsible for tax compliance have the required skill sets in place, are involved in reviewing processes and technologies, and are suitably motivated.
Manual processes are inherently error-prone, so putting technology in place to automate aspects of the process can help deliver reliability, another key element of trust. Technology should enable process and controls, and include comprehensive tools for oversight and tracking.
Using the wrong or outdated data can severely curtail an organisation’s ability to comply with tax regulations effectively. Being able to guarantee data integrity is another crucial element of trust. Doing so requires consistency of inputs. This extends beyond financial data to include all the information a business uses to make decisions or conduct operations.