Tax governance – new Inland Revenue guidance

By Annamaria Maclean, Kirstie Anderson & Hamish Butterworth-Snell
 

Most corporate taxpayers in New Zealand are no longer strangers to Inland Revenue’s increased focus on tax governance, which has continued to grow in recent years. With significant enterprises and companies/groups owned by high net wealth individuals (HNWI) now expected to have a robust tax control framework in place, a key question for many businesses has been: What exactly is a robust tax control framework, and what does that look like in practice?

In April 2025, Inland Revenue released additional guidance for taxpayers, taking a “principal based approach” to help taxpayers understand what it is looking for when considering whether tax governance is up to scratch.

This latest guidance is a timely reminder to “get your tax governance house in order”, especially given the significant increase in Inland Revenue review and audit activity that we have seen in recent months – with most of this having a focus on tax governance in one way or another. In addition, the guidance is clear on Inland Revenue’s view on tax governance and how this relates to the application of shortfall penalties, with Inland Revenue stating:

“It is in an enterprise's best interests to have a tax governance framework. If we investigate an enterprise's compliance with tax legislation, find an error and need to consider imposing a penalty, we can take into account the enterprise's tax governance practices when considering which penalty to apply.”

All enterprises are expected to review their tax governance framework, making sure they have good policies, procedures and controls in place, with all documents up to date. Inland Revenue expects enterprises to undertake an initial gap analysis assessment on their tax control framework, and then act on the identified gaps, acknowledging that there is no “one size fits all” framework and it should reflect the enterprise’s size and complexity.

What does Inland Revenue look for in a tax control framework?

Although the guidance doesn’t introduce any materially new concepts, it builds on Inland Revenue’s existing guidance and maturity model, helpfully setting out additional guidance on what is looked for in a tax control framework, and how to assess your current tax governance practices.

Again, recognising that there is no one size fits all approach for tax control frameworks, Inland Revenue has set out some key components under each of the building blocks of a tax control framework that it wants to see when reviewing an enterprise’s tax compliance.

The key components have a focus on:

• Documented tax strategy, roles/responsibilities, processes, policies and procedures for each tax type – notably including a specific call for checklists showing the steps, required reviews and sign-offs obtained for each tax process;
• Testing of tax processes and controls, requiring a testing plan to test the effectiveness of the control framework and evidence of independent testing/findings – noting that this should be tested regularly to ensure it remains fit for purposes and retested following a major change in business activity or systems;
• Reporting to the Board on tax on a regular basis, not just when issues arise.

While not a prescriptive list of requirements, the guidance gives taxpayers the ability to determine what makes sense for their business.

Checklist and tax process documents

One area that had not been clear in the past was Inland Revenue’s expectations around tax process documentation.  There is now additional clarification in the guidance that the processes should include the steps from key tax data, calculations and procedures through to filing of the tax return.  The processes should be included in process maps, flowcharts and written manuals. Inland Revenue also outline what they expect for in house and tax agent prepared returns:

In house returns

If your enterprise's returns are prepared in-house, procedures should be set out to show:

• how data is extracted and who is responsible to ensure the correct data sets are used
• how to ensure that the correct tax treatments are applied to material ongoing and atypical transactions
• consideration of Inland Revenue’s view, including in treating material ongoing transactions
• references and reconciliations to accounting reports, workpapers or source documents
• separation of duties in the preparation and review processes
• compliance with the relevant tax legislation.
  

Returns prepared by a tax agent

If your enterprise engages a tax agent for tax compliance obligations, procedures should be set out to show:

• effective controls to ensure accurate data and information is provided to the tax agent
• the agent's work is consistent with the agreed scope and tax obligations are met
• oversight of the tax agent's work and output, including review and approval.

Source:  Inland Revenue - What we look for in a tax control framework

Assessing your tax governance practice

Good tax governance is not just about having a framework in place, but having a framework that is both designed effectively and operating effectively to manage tax risk.

Inland Revenue recognises this is a journey to having a fully effective framework, and that an important step in this journey is assessing how your framework stacks up, to then identify where further components need to be established or enhanced.

Using the guidance, taxpayers can understand where they are currently at and whether their tax risk management and control framework are meeting Inland Revenue expectations. In particular, a two step starting point in the journey is suggested:

1. A gap analysis assessment to assess the existence of the key components of a tax control framework;
2. Active progression through the Inland Revenue maturity model and process journey.

Inland Revenue “process journey”:
 

Where to from here?

Regardless of where you are in your tax governance journey, the new guidance from Inland Revenue provides a clear call to action for all corporates and HNWI groups and a heads up on what they expect to see if you are selected for review/audit.

While developing a tax control framework can seem like a big job, we can assist with undertaking a gap analysis review of your current framework to see where you currently sit against Inland Revenue’s expectations. This allows you to focus your time and efforts on the key risk areas which will be of most value when it comes to managing tax risk and paying the right amount of tax. We can also assist you with progressing through the maturity model with development and testing of your tax process documentation.

Contact your Deloitte advisor to discuss this and other tools we have available for enhancing your tax control framework.
 

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