By Jodee Webb, Annamaria Maclean & Kirstie Anderson

Tax governance often seems like a boring “tick the box” procedure or something “nice to have” but there is much more to it now, since Inland Revenue’s renewed focus on tax governance and the key role tax governance plays in Environmental, Social and Governance (ESG) strategies.

Our March 2022 and October 2021 articles discussed Inland Revenue’s renewed focus on tax governance and since then Inland Revenue has issued another round of questionnaires in late 2022, proving that tax governance is a long-term focus area for Inland Revenue.

Tax governance is not only important to Inland Revenue. Other stakeholders are valuing well-documented tax governance and policies when looking at an organisation’s ESG metrics. Forsyth Barr illustrated this when they released their Carbon and ESG scores for NZX-listed companies. Companies with a publicly available tax governance policy added 5.6% to their overall rating.

Has Inland Revenue’s tax governance campaign changed since the prior year?

While the questionnaire issued by Inland Revenue in 2022 asked the same 10 yes/no questions as the 2021 questionnaire its aim is deeper than solely ensuring an organisation has a tax strategy in place and reviews how it is embedded into systems and processes. Inland Revenue also focuses on senior management (i.e. the CFO) taking responsibility for tax governance.

For both the 2021 and 2022 questionnaires Inland Revenue have provided ‘close-out letters’, which tend to take one of two forms.

1. To inform the recipient that the review was complete and Inland Revenue had no further questions at this stage; or
2. If the questionnaire indicated the taxpayer is still working on developing/improving tax governance policies and processes, the taxpayer is notified that they are being placed on Inland Revenue’s watchlist for six months. After six months, taxpayers in this category are sent a follow-up questionnaire. The follow-up questionnaire asks whether tax governance had been reviewed and documented, and asks for a copy of the documentation. If documentation is complete, taxpayers are asked to supply further information about when it will be completed.

We expect Inland Revenue to continue to issue these questionnaires to all large businesses in due course, and a proactive approach is to review the questionnaire now and consider how your organisation would answer the questions.Although there are no penalties imposed for poor tax governance itself, it is a factor that will be taken into consideration by Inland Revenue when determining the frequency of risk reviews/audits and the level of any shortfall penalties on tax reassessments.

The Deloitte global tax leader survey – How can tax teams help with ESG?

Deloitte surveyed 335 tax leaders globally and found that while tax departments are supporting their businesses’ sustainability efforts through compliance and ESG reporting, they can do more to help their organisation accelerate their sustainability goals. The report provides five steps that tax teams can take to input into optimising a business’ sustainability performance which is summarised below.

Sustainability measures are likely to start to permeate every aspect of business in the not-too-distant future. The ability to embed tax into ESG strategies and investment decisions by having conversations on these topics from the outset can help businesses ensure that value isn’t being left on the table.

Deloitte can help you on your tax governance journey, so if you would like to discuss tax governance further and its role in helping your organisation reach its ESG targets, please get in touch with your usual advisor.

Hot off the press: Deloitte Tax Reporting and Transparency Trends

Deloitte UK examined the trends across a sample of the FTSE350 to see how businesses are responding to the transparency and ESG reporting demands from authorities, shareholders and stakeholders. The report and their findings can be found here.

February 2023 – Tax Alerts