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Answers for Tax Professionals

The ATO’s “justified trust” agenda

Ben Scull  Managing Director, Thomson Reuters Australia and New Zealand

Ben Scull  Managing Director, Thomson Reuters Australia and New Zealand

What does it mean for corporate Australia?

Australians are fed up with companies that don’t appear to pay their fair share of tax. In response, the Australian Taxation Office (ATO) is looking to demonstrate governance and transparency so people can understand how the system works and be confident that Australia’s top 1,000 companies are paying the right amount of tax.

While the Organisation for Economic Co-operation and Development (OECD) acknowledges that most businesses pursuing aggressive international tax strategies aren’t breaking the law, it also suggests they’re not meeting community expectations about paying the appropriate amount of tax for the profits they earn. Most Australian corporations are already well underway with actions and strategies to address the Base Erosion and Profit Shifting (BEPS) initiatives; establishing justified trust is the next step.

What is justified trust?

The justified trust initiative requires organizations to provide fact-based evidence to justify their tax position. That means you’ll need to reexamine how your business structures its finance and tax teams, and how you approach data and technology. Much more collaboration is required in a justified trust environment, so you must ensure your systems and culture can adapt to the new justified trust mind-set.

While every business will have a different program, justified trust covers four key areas:

  1. Understanding the business’ tax- and risk-management framework
  2.  Reviewing the tax risks communicated to the market
  3. Developing an understanding of significant new transactions
  4. Developing an understanding of why accounting and tax results may vary

Who does this affect?

Even if your company isn’t subject to the official justified trust initiative, following these steps will help your business become more cognisant of your tax obligations and tax minimisation opportunities within the law. The CFO, CIO and the board in general must be aware of the changes happening. This is a crucial issue that business leaders need to understand for their business. Make sure everyone in the company contributes to the level of transparency required. Involve everyone from the board and senior leadership team through all the different departments, not just finance and tax, but also risk, internal audit and human resources.

It’s important first to conduct a gap analysis in coordination with stakeholders from various departments, then to develop an action plan.

By creating a spirit of collaboration and breaking down information silos, it will become possible to understand how each part of the organisation is accountable for ensuring your business pays the right amount of tax: no more and no less.

What if I don’t have time to devote to this?

Technology is the key enabler to let you achieve a Justified trust position. Many businesses are undertaking transformation projects to achieve justified trust. for example, corporations are moving away from using manual spreadsheets in favor of automated systems that reduce the risk of errors. This could include accounting software that automatically pulls in accurate bank data, for instance.

Breaking down silos is crucial. Embedding the tax department in the activities of the finance department and other areas of the business can create a spirit of collaboration and a genuine appreciation for why each department needs certain information.

While technology and data are clearly integral to the justified trust process, you must be careful to avoid overcommitting resources to compliance. The right technology can expedite the compliance process but it’s important to ensure valuable resources remain focused on the strategic needs of your business.

Where to from here?

Businesses cannot meet the ATO’s obligations and expectations alone. It’s vital to work with the right partners who can contribute best-practice technologies, processes and data to support your organisation’s justified trust position.

Thomson Reuters has released a report, “Technology Builds Transparency: Achieving Justified Trust.” The report aims to drive awareness of the ATO’s justified trust initiative for 2017 and the need for active preparedness, while highlighting the important role technology plays in enabling corporate tax transparency.

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