Often people say – Death & Taxes are the only two certainties in life!
For businesses understanding the complex web of tax compliance, the latter is undoubtedly a constant source of anxiety.
As the standards imposed by tax authorities across the globe keep on getting tougher, adherence to the Organisation for Economic Cooperation and Development’s (OECD) requirements has become imperative for multinational companies.
Pillars of OECD are geared towards fair taxation and transparency in which tax avoidance is discouraged with the need to facilitate the growth of economy across the globe.
For example, the Bahamas Par value or no par value of shares, these principles only constitute the thrust of the law and do not represent compliance in this case.
This blog deconstructs each OECD compliance pillar and provides useful recommendations on how to facilitate the processes for the companies.
1. Large Corporate Group Registration: Ensuring Proper Enrolment
The Australian Taxation Office (ATO) has stringent requirements for registering large corporate entities, especially those with annual revenues exceeding $250 million.
Proper registration is essential because it reflects a company’s intent to comply with tax laws and its understanding of its obligations under the OECD framework.
Tip: Ensure your corporate structure is transparent and up to date, with each entity registered accurately. This is especially important if your group includes non-operational or dormant entities, as they may still need to maintain proper records.
2. Lodgment Obligations: Meeting Deadlines And Avoiding Penalties
Lodgment compliance is critical. In Australia, large corporate groups are expected to lodge their tax documents on time.
According to recent ATO data, approximately 88.7% of large groups managed to meet their deadlines for the 2022–23 fiscal year. However, a minority did experience delays, often due to complex business circumstances.
Tip: Implement automated reminders and dedicated compliance personnel to manage lodgment timelines. Even if delays occur, having a strategic engagement plan with tax authorities can help in reducing penalties and showing compliance intentions.
3. Accurate Reporting: Building Confidence In Compliance
Ensure that firms pay the appropriate amount of tax. The compliance paradigm at the ATO also evaluates the level of tax reporting accuracy. Tax Assurance is the approach, which is drawn from various aspects, which involves primary data from tax payers and other information on risk management practices.
As an illustration, in the fiscal year 2021-22, the uptake of income tax assured for large corporate groups reached $36.9 billion, which is indicative of ATO’s trust in reporting of income tax.
Tip: Periodically pick a sample of financial records to appraise the level of compliance. This is more instrumental in embedding internal system controls and trust in ATO than carrying wide-reaching censuses.
4. Preventative Actions: Proactive Steps To Ensure Compliance
This is evident in the fact that the ATO, as part of OECD’s preventive measures, works with large corporate groups ahead of time with measures that seek to avert any incidents of non-compliance.
This entails both sweeping strategies and engagements with the very few and the very largest corporate entities. This helps in combating and mitigating the chances of issues regarding compliance requirements being misunderstood or committed.
Tip: Incorporate a yearly compliance practice assessment and consider obtaining tax ratio recommendations for complicated business operations. This is a healthy approach toward the authority for it involves working with them rather than after the issue has festered and more serious repercussions are required in order to resolve.
5. Corrective Actions: Handling Non-Compliance With A Targeted Approach
With regards to any corrective actions, the ATO concentrates on a targeted approach by undertaking enforcement measures in specific cases where tax planning is abused by corporations.
They achieve this through monitoring and analysis of information, intelligence, and risk management – which helps to pinpoint and explore non-compliant arrangements.
One such approach is the alerting and warning of the wider market on particular tax avoidance strategies, which help in curbing large-scale adoption of such strategies by businesses.
Tip: Subscribe to tax redistribution alerts and news from the ATO. Refrain from aggressive tax planning as it can lead to investigations. Seek the assistance of tax advisors when a particular strategy or scheme appears to be a grey area in compliance.
6. Compliance Results: Monitoring The Impact Of Actions
The outcomes of the compliance measures designed and implemented by the ATO over a given period of time are reflected in the challenge to reinstate the reparation addresses. Each financial year, the ATO also assesses the results of tax compliance, among other factors, the cash taken from the audits.
Though quite a number of people pay their taxes, there is a high compliance corrective action yield, which suggests that the corporate groups have to be very compliant with the tax laws.
Tip: Within your group, monitor compliance outcomes, compare them with these figures for the compliance efficiency of your tax compliance. Modifying and reviewing your management systems regularly will help improve compliance and lower the risk of liabilities.
7. Payment Compliance: Meeting Financial Obligations On Time
Payment compliance is an essential aspect of the OECD’s compliance pillars.
Most large corporate groups in Australia pay their taxes on time or within agreed timetables, minimising debt and maintaining cooperative relationships with the ATO.
Tip: Establish a structured payment schedule to ensure timely payments. This not only reduces penalties but also strengthens trust with the ATO, positioning your company as a responsible corporate taxpayer.
8. Observing Behavioural Compliance: Avoiding Penalties Through Best Practices
The ATO has set in place a straightforward penalty system aimed at encouraging tax compliance based on the behaviour of the taxpayer. In this way, this model aims at preventing the occurrences of non-compliance while at the same time encouraging voluntary disclosures and transparency.
In most instances, penalties are less for the organisations which do earlier and willingly disclose even when there are inaccuracies.
Tip: Encourage compliance to the members of your organisation, their understanding of the tax risks and OECD guidelines would be appropriate especially for the financial reporters and decision-makers.
Partner With KPG Taxation To Simplify Your Compliance Requirement
Comprehending tax compliance is not a piece of rocket science. By applying the practical strategies we have suggested, you can make the process more efficient and risk averse.
For further help, please contact KPG Taxation calls. We will assist you to cut costs and KPG Taxation manage to do your work timely. Call us right now.
