22 August 2011: The chairs and boards of big businesses have been put on notice that they could face serious consequences if they fail to fully understand their company’s tax liabilities with the introduction of the ATO’s new Reportable Tax Position Schedule.
Following the controversial Centro Federal Court ruling earlier this year it is now clear board directors must fully understand all the decisions they make even if the issue is outside their area of expertise
Chris Kinsella, a partner in Maddocks Tax Controversy group, says there has never been greater scrutiny by the ATO, shareholders and the courts on Board decisions and their oversight role.
“With the introduction of RTP schedules from July this year, board members will now be under greater pressure to be fully aware of the impact of their organisation’s tax risks and liabilities on share prices and tax obligations.
“Failure by board members to understand this detail and allow RTP schedules to be returned to the ATO without proper disclosure could see their businesses exposed to potentially severe sanctions and the directors potentially exposed to personal litigation,” Mr Kinsella said.
The new RTP schedule requires businesses to disclose forensic detail on a company’s potential tax exposures to the ATO and will accelerate the need for boards and senior management to ascertain the risks associated with uncertain tax positions.
The ATO has indicated that the RTP schedule will initially only be directed to taxpayers seen by the ATO as ‘higher risk’ or as ‘key taxpayers’.
Mr Kinsella said the ATO’s focus on corporate tax risk and tax risk governance will force companies and their directors to identify soft spots in tax positions.
“The Commissioner’s move toward a more imposing approach to compliance and the introduction of the RTP Schedule is a red flag on the landscape of Australian tax law.
“From now on businesses and their Boards need to be prepared to address and justify an uncertain tax position at an early stage.”