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Technology is the key to 'justified trust'

New tax regulations will require large Australian and global businesses to become more transparent than ever when it comes to tax. Technology will play an integral role in meeting these new standards.

The Australian Taxation Office is looking to give the public increased confidence in the corporate tax system. Consequently, it will demand demonstrable governance and transparency for taxpayers.

The new regulations stem from Australia’s acceptance of the Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting initiative. Australia is one of 100 countries backing the initiative, which aims to reduce the non-payment of fair tax by international businesses.

Thompson Reuters Ben ScullITWire spoke to Ben Scull, managing director of Thomson Reuters Tax Accounting, about the new standard and why technology will be crucial to complying with the new standards. Scull has been at Thomson Reuters since 2007.

What is the Justified Trust initiative?

"Justified trust" means businesses must be able to demonstrate to the ATO that they have the right systems in place to test significant transactions for tax risk. The programme applies to the top 1000 Australian companies and each one will need to take a tailored approach depending on variables such as size and industry.

Why is there a need for this initiative?

There are many questions to be addressed. How will requirements around data and technology use change? Why will closer collaboration between finance and tax departments be so important? What are the steps that businesses need to take to protect their interests throughout the journey to transparency?

Broadly speaking, each business will need to cover four key areas:

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

Businesses must also be able to show the ATO they have the right systems in place to test significant transactions for tax risks.

Why will technology play a key role in meeting these new standards?

A business needs to use the right tools and technology to embed tax across the organisation.

Technology is the key enabler to let businesses achieve this. Many businesses are undertaking transformation projects to achieve justified trust. For example, corporations are moving away from using manual spreadsheets in favour 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. Technology will be the key to success.

Why did Justified Trust come about?

While the 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 BEPS initiatives and establishing "justified trust" is the next step.

And, while technology and data are clearly integral to the "justified trust" process, organisations 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 business’s strategic needs.

Businesses cannot meet the ATO’s obligations and expectations alone. It’s vital to work with the right technology partners that can contribute best practice technologies, processes, and data to support and maintain an organisation’s justified trust position. The correct combination of internal focus from the board down, in combination with insights from expert partners, gives organisations the best chance of achieving tax compliance in an increasingly-complex global regulatory environment.

Why is data so important when it comes to meeting these new regulations?     

Using the wrong or outdated data can severely curtail an organisation’s ability to comply with tax regulations effectively. Being able to guarantee data integrity is another crucial element of trust. Doing so requires consistency of inputs. This extends beyond financial data to include all the information a business uses to make decisions or conduct operations.

Are organisations ready for these changes?       

Tax transparency and compliance is complex and, in a landscape of evolving regulations, becoming even more difficult to navigate. Most organisations are unlikely to have the deep skill levels and expert knowledge on staff, making it crucial for affected businesses to partner with expert tax advisers. This will give them the best chance of compliance, helping them avoid heavy penalties.

How can companies learn more?

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

The clock is ticking on the ATO’s justified tax programme which has significant implications for the way businesses in Australia need to structure their finance and tax teams and their approach to data and technology across these areas. Much more collaboration is required in a justified trust environment and organisations must ensure their systems and culture can adapt to a tax landscape based on a justified trust mindset.

Businesses cannot meet the ATO’s obligations and expectations alone. They need to work with partners that can contribute best practice technologies, processes and data to support an organisation’s justified trust position.

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Ray Shaw

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Ray Shaw ray@im.com.au  has a passion for IT ever since building his first computer in 1980. He is a qualified journalist, hosted a consumer IT based radio program on ABC radio for 10 years, has developed world leading software for the events industry and is smart enough to no longer own a retail computer store!