Tax Tips Alert February 2020 - Tax governance and Inland Revenue transformation Research and development (R&D) tax incentive: What is ...
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Tax Tips Alert February 2020 Tax governance and Inland Revenue transformation Research and development (R&D) tax incentive: What is ‘eligible core R&D’?
Tax governance
and Inland Revenue
transformation
Inland Revenue recently issued a tax governance checklist for boards
of directors of New Zealand, and re-endorsed OECD guidance on
corporate tax governance.
Corporate tax governance is increasingly becoming a focus area for tax
authorities globally. Being able to demonstrate that a strong tax control
framework exists provides tax authorities with confidence that the right amount
of tax is being paid. A key theme from all tax authorities is that tax should be on
the boardroom agenda and company directors should have an understanding,
and take oversight, of tax risk.
In New Zealand, the recently released Multinational Enterprise Compliance
Focus document makes it clear that corporate tax governance is a key focus Let’s talk
area for Inland Revenue. The Compliance Focus publication highlights that
Organisations should be
“compliance begins with the right tone from the top being set by directors
looking at formalising the
and senior management” and provides a checklist for board directors of
way they manage tax and
New Zealand companies. Although this was published in the context of the leveraging technology to
Multinational Enterprise Compliance Focus document, our view is that the enhance their tax control
Inland Revenue checklist should be adopted as best practice for all large frameworks. To find out more
New Zealand corporations. about how, please contact
your PwC adviser.
Tax Tips February 2020 | 2
When working through this checklist the key question
Inland Revenue checklist organisations should be asking is “how can I prove that
for boards of directors we are doing this?” And is it being done effectively?
For example, it would be easy to tick yes to “does the
company have a tax control framework (TCF) to manage
Does the board have a well-
1
documented overarching tax strategy? ü day-to-day risk”; the harder questions that should be
asked include: Is this framework documented? Does
the documentation reflect current practice? Is the TCF
2
Is this strategy actually followed
in practice by the company’s ü effective at managing not just technical risk but also
operational risk? How is compliance with the TCF being
management? tested? Is the TCF fit to meet current and future needs of
the organisation?
3 Is the strategy and its implementation
regularly reviewed and updated?
ü
Tax governance is a global trend…
4 Does the company have a tax control
framework to manage day-to-day ü The focus on corporate tax governance is a global trend
tax risk? and we are seeing a number of revenue authorities in the
OECD adopting tax governance measures. Examples of
jurisdictions that have taken action in this area include:
5 Is senior management confident in
the capacity and capability of the
ü • Australia – as part of its Justified Trust regime
systems, procedures, and personnel the Australian Tax Office (ATO) has implemented a
in place to achieve overall company structured streamline assurance review for the top
tax compliance? 1000 Australian taxpayers. Under this programme,
the ATO requires evidence of the existence of a tax
6 Is the tax or finance team on top of
all relevant law changes (such as the
ü control framework, that the design of the framework
is fit-for-purpose and is operational in practice. The
anti-BEPS measures, the Common upside of meeting these requirements is a reduction in
Reporting Standard and revisions to the intensity of ongoing enquiries that the ATO would
tax treaties)? seek of the taxpayer. The ATO also has a voluntary
tax transparency code aimed at larger organisations
7 Does management report regularly
to the board on potentially material ü to disclose key information regarding their tax affairs.
The ATO has also set out expectations regarding tax
tax issues and risks? governance for privately owned groups.
• United Kingdom (UK) – HM Revenue & Customs
Has the operation of the tax control
8
framework been tested independently ü introduced a requirement for large businesses to
publish their tax strategy in relation to UK taxation,
in the last three years?
with penalties imposed if this is not complied with. In
addition, the Senior Accounting Officer (SAO) regime
9 Is a clear statement made in the
company’s annual report as to
ü requires the Chief Financial Officer (or equivalent)
tax governance? to sign off on whether there are appropriate tax
accounting arrangements in place, with personal
Is annual reporting of tax payments penalties imposed on the SAO for failure to meet the
10
and provisions sufficiently transparent ü requirements.
for all relevant stakeholders to fully
understand the company’s overall tax
position in New Zealand?
Tax Tips February 2020 | 3• Singapore – Inland Revenue Authority of Singapore So what should organisations be doing?
is currently developing a voluntary tax governance
framework in consultation with taxpayers and looking at Strategic level: Tax policy
ways to encourage taxpayers to adopt.
A tax policy should be established and endorsed by the
• United States – now requires all applicants of its
Board. For those that already have a tax policy, it should
Compliance Assurance Process (CAP) to adhere to a tax
be reviewed in the light of the current tax environment to
control framework requirement.
ensure it meets Inland Revenue’s expectations and the
current/future needs of the organisation. Organisations
should ensure that the tax policy does not “sit in a drawer”,
Data analytics and the impact on tax control
that it is specific to them, and that it is implemented in
framework practice through embedding key elements into day-to-day
Revenue authorities are now requesting transactional processes.
level data, and they are using analytical tools to identify
exceptions and target where to allocate resources. In New Operational level: Tax process and controls
Zealand, Inland Revenue is currently investing in a data The effectiveness of the current tax control framework
analytics platform and is already deploying technology to should be assessed at an operational level. This can be
make decisions on who and where to focus its compliance done using diagnostic tools such as PwC Tax Management
activity. With the huge amount of data and information Maturity Model (T3M). In addition, an operational risk
sharing between revenue authorities globally and the assessment should be performed for key tax processes.
substantial investments into technology and analytical tools, This involves looking at both the design and operational
it has never been easier for a company’s business and tax effectiveness of processes and controls. Analytical tools
affairs to be visible to revenue authorities. should be deployed to highlight key areas of risk as well as
For many organisations, an enhancement to their TCF is potential errors or exceptions.
required to ensure that the data used for tax is accurate at
source and any errors are identified prior to submissions to
the tax authority.
Tax Tips February 2020 | 4Get ahead of the curve
Inland Revenue will continue to increase its focus on tax governance. The
Multinational Enterprises Compliance Focus document is a very good example
of this. However, having a strong tax control framework is not just for the
benefit of Inland Revenue – it also ensures that an organisation’s tax affairs
are operating effectively and decisions are made in accordance with the tax
management principles of the organisation. There are a number of ways this
can be approached. Below is a three-step methodology that we have found to
be successful when working with other organisations in this area:
1 Assess the effectiveness of your tax control framework
Board
Key Roles and Level of Communication
Committee
obligations responsibilities opinion & relationships
reporting
2 Conduct an operational risk assessment across key taxes
Direct Indirect Employment Other
tax tax tax taxes
3 Implement changes that will mitigate risk and value
Process
Policies People Data Technology
and controls
Starting your organisation’s tax governance journey now is the best way to
prepare for the shift in Inland Revenue’s focus on tax governance and the
three-step methodology outlined below is a very good place to start. Please
contact your PwC tax adviser for further information.
Tax Tips February 2020 | 5Research and development
(R&D) tax incentive: What
is ‘eligible core R&D’?
The R&D tax incentive came into force on 7 May 2019 for the
2019/2020 tax year. The regime introduces a 15% tax credit on
eligible R&D.
‘Eligible core R&D’ is defined as an activity that:
• uses a systematic approach
• has the main purpose to create new knowledge, or new or improved
processes, services or goods
• has the main purpose to resolve scientific or technological uncertainty.
Inland Revenue’s guidelines state that this definition is intended to ensure
accessibility across all sectors. Let’s talk
Our view is that this definition has set the bar so high as to render the majority We believe that Callaghan
of “R&D” undertaken in the software sector ineligible under this regime – Innovation and Inland Revenue
including R&D that would have been eligible under the Callaghan Innovation will interpret the definition
Growth Grant R&D definition, which this new regime replaces. of R&D against software
companies narrowly at this
To be able to demonstrate eligibility, businesses will need to state what the early stage in the regime.
technical uncertainty is that they are trying to resolve and articulate how they
We can help you to ensure
know this knowledge is not already publicly available (on a worldwide basis
that your claim is robust.
not just your business or New Zealand) or that a competent professional in the Please get in touch with your
relevant area could not deduce the answer. usual PwC adviser if this is
relevant to your business.
Tax Tips February 2020 | 6Contributors
Sandy Lau
Partner
T: +64 4 462 7523
E: sandy.m.lau@pwc.com
Phil Fisher
Partner
T: +64 274 627 505
E: phil.j.fisher@pwc.com
Megan Scott
Director
T: +64 27 596 7650
E: megan.c.scott@pwc.com
Nadine Williams
Director
T: +64 21 846 464
E: nadine.williams@pwc.com
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Tax Tips February 2020 | 7You can also read
