Tax Corporate Governance TCG Framework and Guidelines

Tax Corporate Governance (TCG) Framework and Guidelines

The Inland Revenue Board (IRB) has published on its website the new TCG Framework dated 11 April 2022, and the Guidelines to TCG Framework (Guidelines). The Guidelines are to be read together with the TCG Framework.

The TCG Framework provides an overview of the IRB’s expectations on the application of TCG principles within an organizational setting. Broadly, the TCG encompasses the rules, relationships, systems and processes under which authority is exercised and controlled within an organization in relation to tax matters. It comprises the mechanisms by which businesses, office holders, and those in control are held to account.

The 19-page TCG Framework comprises the following paragraphs:

1.0          Introduction

2.0          Objective of TCG Framework

3.0          The scope of TCG Framework

4.0          Benefits of having a framework

5.0          Key focus areas

6.0          Implementation

7.0          Conclusion

Appendix 1:    The six principles of a TCG Framework

Appendix 2:    Example of an organization’s corporate income tax preparation and submission flowchart

Some of the salient points are outlined below.

• The components outlined in the TCG Framework should be regarded as the IRB’s view of best practices and is not intended to be a rigid set of rules.                                                                                                                                                                                                                                                          
• The objective of the TCG Framework is to help organizations understand the IRB’s focus areas in terms of TCG and to enable organizations to:
  • Develop and/or improve their tax governance and internal controls framework                                                                                                               
  • Promote tax compliance and reduce tax risks                                                                                                                                                                       
  • Test the robustness of the organization’s framework                                                                                                                                                             
  • Understand how to demonstrate the operational effectiveness of the organization’s key internal controls to stakeholders, including the IRB                                                                                                                                                                                                                                                 
  • Ensure that the financial, regulatory and reputational risks associated with taxation are identified and evaluated                                                        
• The TCG Framework outlines the scope and benefits of having a TCG Framework in place                                                                                                         
• The TCG Framework explains the IRB’s key focus areas and examples of evidence required, including the following:                                                          
  • Roles and responsibilities of stakeholders                                                                                                                                                                                                                                          
  • Systems and control framework                                                                                                                                                                                                   
  • Controls testing                                                                                                                                                                                                                                
  • Management of tax risks                                                                                                                                                                                                               
  • Identification and documentation of significant and/or new transactions                                                                                                                              
  • Review of tax and accounting results                                                                                                                                                                                        
• A TCG Framework Programme (Programme) is established for the implementation of the TCG Framework. The Programme is an arrangement that allows the IRB and taxpayer to work together to improve the organization’s corporate tax compliance affairs in an open and honest manner. It is also a platform to encourage ongoing discussions on tax risk management matters between the IRB and the taxpayer.                                                                                                      
• The TCG Framework explains broadly the types of organizations encouraged to participate in the Programme, including large companies (including public listed companies), companies with structures and business models with medium to high complexity and companies with voluminous transactions. The TCG Framework also outlines the processes and timeframe for the Programme (refer to the Appendix to this Alert). It is relevant to note that there must be an independent reviewer for the TCG Framework, such as an in-house internal audit team or a professional firm. The TCG Framework suggests that the independent reviewer must be accredited tax practitioners.                                                                                                                                                                                                            
• The TCG Framework stipulates that taxpayers will enjoy certain benefits by participating in the Programme, including the following:                              
  • Reduced scrutiny (e.g., no or lesser tax audits will be conducted)                                                                                                                                          
  • Expedited tax refunds                                                                                                                                                                                                                   
  •  Appointment of a dedicated tax officer to expedite discussions on technical matters

The 22-page Guidelines comprise the following paragraphs:

1.0          Introduction

2.0          Objective

3.0          TCG principles

4.0          Terms for application of TCG Framework

5.0          Return form submission

6.0          Requirements for the implementation of TCG Framework

7.0          Tax control framework

8.0          TCG evaluation

9.0          TCG review

10.0        Submission of estimate of tax payable

11.0        Tax payment

12.0        TCG process

13.0        Significant and material transaction approval process

14.0        Supplementary documents

15.0        Scope or application

16.0        Disclosure guide

17.0        Conclusion

18.0        Enquiries

Appendix 1

Appendix 2

Some of the salient points are outlined below.

• The Guidelines were issued to support the TCG Framework through more in-depth explanations.                                                                                                                                                       
• The Guidelines explains more thoroughly the types of organizations encouraged to participate in the Programme, the processes, as well as the timeframe for the Programme. Participation in the Programme is on a voluntary basis.                                                                                                            
• A tax control framework (TCF) is required for the implementation of the TCG Framework. A TCF forms an integral part of an organization’s business or internal control framework, as it is a system to identify, overcome, control and report tax risks. While there is no specific format to follow, the Guidelines provide guidance on the necessary elements and key components for an effective TCF.                                                                                                                                                           
• The Guidelines stipulate that the IRB will conduct a TCG review for organizations that have participated in the Programme. Taxpayers who fulfil the necessary requirements and criteria will qualify for the benefits of the Programme and shall not be subject to audit and investigations.

The taxpayer’s internal TCG review report on tax matters should be made available to the IRB upon request. The IRB may use the documents for the review of the taxpayer’s tax position and consideration of a penalty waiver in the event of any tax issues.

APPENDIX

Processes of the TCG Framework

Step 1: Getting ready

(a)   Satisfy prerequisites

(b)  Preliminary self-assessment*

(c)  Submission of the participation form (notice of acceptance within 14 days from the submission of the participation form) 

Step 2: Review by independent reviewer

(a)   Appointment of an independent reviewer by the participants to perform a review assessment on the TCG Framework

(b)  The independent reviewer can be a public accounting entity or independent in-house internal audit team, as long as the respective team members are accredited tax practitioners.

Step 3: Submission to the IRB

(a)  Submission of a self-review assessment report and report findings prepared by the independent reviewer to the IRB (within 6 months from the approval of participation) 

Step 4: Evaluation by the IRB

(a)   Review the documents submitted

(b)  Meetings with IRB

(c)   IRB to conduct an assessment (within 6 months from the date of submission)

Step 5: Conclusion of assessment by the IRB

(a)   Award of participation status of the Programme 

Note:

• The proposed timeframe from the date of acceptance of the participant by the IRB (Step 1) to the award of the participation status (Step 5) is between 8 to 12 months.     Applications for an extension of time will be subject to the IRB’s approval.                                       
• The validity of the awarded status is 3 years.       

* Refer to Appendix 1 to the Guidelines for guidance on the self-review assessment checklist