With the limelight on ESG, companies need to demonstrate prudent tax governance - a key aspect of sustainable and ethical business practice.
In this article, Sim Siew Moon, Senior Partner and Head of Tax, Bernard Yu, Tax Partner, and Yvonne Chua, GST Partner, break down what tax responsibility means, how important it is, and how companies can get there.
This article was first published in The Business Times on 30 March 2024.
Tax governance – a blueprint for tax health
“An ounce of prevention is worth a pound of cure,” said Benjamin Franklin.
Historically, this was said to protect towns from fire risks. Amid rising healthcare costs, we use this familiar saying to explain our evening run or green smoothie. Perhaps it is due time to apply this saying to tax as well.
The tax world has become increasingly challenging. Many companies in Singapore, regardless of size, have cross-border operations and need to consider the interaction of foreign and local taxes. Singapore will implement the Base Erosion and Profit Shifting (BEPS) 2.0 Pillar 2 rules from 2025. These developments, among others, have added complexity to the administration and management of tax risks.
Tax authorities around the world have begun emphasising the importance of the ‘governance’ in environmental, social, and governance (ESG). Companies are expected to demonstrate tax responsibility as part of their broader ESG commitments, aligning with global trends towards sustainability and ethical business practices.
In other Asia-Pacific regions, the Australian Taxation Office, the Inland Revenue Board of Malaysia, and the Inland Revenue Department of New Zealand have introduced corporate tax governance and control frameworks or compulsory questionnaires and declarations.
The Inland Revenue Authority of Singapore (IRAS) has likewise introduced a tax governance and tax risk management framework for corporate income tax, which includes a tax governance framework (TGF), a tax risk management and control framework (CTRM) for corporate income tax, and the Assisted Compliance Assurance Programme (ACAP) for Goods and Services Tax (GST).
Why implement tax governance programmes?
The objective of the tax governance programmes is to help companies review and ensure that they have adequate and effective controls and processes in place to manage their corporate income tax and GST risks.
While all three programmes are currently voluntary, IRAS has signalled that it strongly encourages large companies to participate. There are also substantial benefits associated with participation in the programmes. Penalties for errors uncovered and disclosed during the CTRM and ACAP reviews will be reduced, if not waived.
In addition, companies that have implemented the TGF or have obtained CTRM/ACAP status are generally viewed by IRAS as being tax-compliant and enjoy a step-down on compliance audits by the authority.
Companies that implement and maintain tax governance frameworks benefit in other ways too. Robust tax controls help to minimise mistakes in the extraction and categorisation of information, ensure that documents go through the appropriate levels of review, and tax risks are properly identified, escalated, and dealt with.
With efficient and effective tax processes in place, businesses will also be prepared to respond to tax risks such as expansion to new jurisdictions, new taxes being imposed, or structural issues such as major changes in personnel or mergers and acquisitions.
For large companies in particular, a management and control framework will demonstrate to their various stakeholders that they prioritise ESG and risk management while maintaining a healthy relationship with the tax authorities.
How should a firm put in place tax controls and processes?
Companies can begin by adopting a TGF and publishing their TGF policy on their corporate website or in their annual reports. They can also refer to the control checklists in IRAS’ CTRM and ACAP review criteria as a starting point, to understand the people, processes, and technologies that they should have to form a strong governance framework.
Once sufficient measures are in place, they can appoint a qualified CTRM/ACAP reviewer to conduct a CTRM/ACAP review before applying to IRAS for CTRM and ACAP status. This status will help to confirm that the companies’ corporate income tax and GST compliance processes and controls are adequate and effective, and that they have low compliance risks.
In short, a good tax governance structure signifies lower tax risks and, consequently, reduced tax audits and controversies. It fosters trust with IRAS and potentially mitigates excessive tax liabilities due to oversight and poor internal controls.
While the initial thought to adopt tax governance may seem complex and daunting, once the machinery is put in place, the long-term benefits and enhanced standing with IRAS would outweigh the pain of implementing it. After all, a strong immune system is vital for defending the body.
The writers are from Baker Tilly Consultancy (Singapore). Sim Siew Moon is senior partner and head of tax; Bernard Yu is tax partner; Yvonne Chua is GST partner. The views are the writers' and do not necessarily reflect the views of the global Baker Tilly organisation or its member firms.
Get in touch with the authors:
Sim Siew Moon
Senior Partner, Head of Tax
FCA (Singapore), ATA (Income Tax & GST),
FCPA (Australia)
| Email
Bernard Yu
Partner, Tax
ATA (Income Tax), CA (Singapore), ACCA | Email
Yvonne Chua
Partner, Goods and Services Tax (GST)
ATA (GST) | Email