ATO issues guidelines for boards

The Australian Taxation Office’s (ATO’s) 'Tax risk management and governance review guide' has been published with a specific section on board-level responsibilities.

The guide is mainly aimed at large and complex companies, but also has some additional information for small and medium companies. The guide has specifically targeted two levels – board and managerial.

The board-level responsibilities may be familiar to most directors of large companies but they do offer an insight into the ATO’s view of how directors’ responsibilities regarding tax matters should be considered.

It suggests that at the highest level the board endorses a “formal tax framework that is understood across the organisation”. It suggests that better practice is to also have such a framework published in the annual report. The ATO also suggests that the board formalises director responsibilities for tax risk management including forming a tax risk committee or allocating that responsibility to the risk committee.

Referring to the skills matrix as discussed in the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, the ATO suggests that gaps in director knowledge (presumably tax in particular) are mapped and then addressed with ongoing education.

There are several other suggestions on better practice, such as producing “board (or sub-committee) minutes or documentation that demonstrate members have been briefed on the effective tax rate of the business, including whether the amount of tax paid aligns with business results and, where relevant, reasons for significant misalignment.”

Given that most large public companies already provide a financial reconciliation between the normal corporate tax payable (prima facie tax at 30 per cent) and total income expense, it would suggest that this guideline is directed at the “foreign multi-national corporations conducting business in Australia”.

Such a reconciliation should be available to all directors of any size organisation as part of normal internal financial reporting.  However, use of the term “business results” would also infer that there would be results other than profit, which should be considered when considering the effective tax rate.  

See the 'Tax risk management and governance review guide'.