We have all heard the constant chatter about some of the world’s biggest multinational companies not paying enough tax to match their profits, Google, Amazon, Apple to name a few.
Justified trust is a concept that is put in place to create and maintain a sense of confidence between the Australian Tax Office (ATO) and large, high earning companies to ensure they are paying the correct amount of tax.
This initiative by the ATO known as Justified Trust has included large private groups over recent years, and this aspect of the initiative is being expanded with a view to reaching the top 500 private groups.
To understand such changes, it is important to recognize the purpose of such an initiative. The Justified Trust system works to consult closely with these taxpayers to ensure that the correct amount of tax is paid, to create a closer engagement between these taxpayers and the ATO and create public reassurance that these top performing businesses are contributing the correct tax in accordance to their earnings.
To achieve this, specialized tax performance teams work alongside each top performer to deal with their taxation develop a tailored compliance method to assess possible tax risks and provide ongoing advice.
How do the ATO achieve Justified Trust?
A focus on obtaining objective evidence that would allow a ‘reasonable person’ to decide that the correct amount of tax has been paid by the specific taxpayer. This extra level of compliance involves reviewing the four key areas:
- Understanding a taxpayer’s tax governance framework: Confirm or adjust the company’s governance framework – understanding that companies will vary in size, employees, complexity, industry, history.
- Identifying risks in the market/future
- Understand significant or upcoming transactions
- Understanding why the accounting and tax results vary between companies
Effective Tax Governance Principles
The expansion of the Justified Tax program across the privately owned and wealthy groups is aimed at ensuring this segment of taxpayers are meeting the effective Tax Governance Principles:
- Accountable management and oversight
- Recognise tax risks
- Seek advice
- Integrity in reporting
- Professional and productive working relationship
- Timely lodgements and payments
- Ethical and responsible behaviour
What are the intended outcomes of Justified Tax for privately owned and wealthy groups?
- Improve ATO’s understanding of this segment
- Build a working relationship with the segment
- Enable the ATO to provide the right services to support the segment
- Establish an environment for the two-way sharing of information
- Allow the ATO to working with the segment to understand businesses circumstances