How to prepare for the IRAS’ Tax Governance Framework programme

Participating in the programme will help companies strengthen their tax governance and tax risk management approach.  

After conducting a pilot phase in 2020 and 2021, the Inland Revenue Authority of Singapore (IRAS) launched the Tax Governance Framework (TGF) and the Tax Risk Management and Control Framework for Corporate Income Tax (CTRM) programmes in February 2022. These initiatives are targeted at large corporations with the aim of encouraging them to strengthen their current tax governance structure and are voluntary in nature. The TGF and CTRM complement another existing IRAS’ voluntary compliance initiative, the Goods and Services Tax Assisted Compliance Assurance Programme^[1] (GST ACAP) in helping corporations strengthen their tax compliance. The TGF, CTRM and GST ACAP operate independently, and corporations may adopt these programmes individually or holistically.

Since their launch, the IRAS has started inviting certain corporations in Singapore to participate in the TGF^[2].

To recapitulate, the TGF requires a board-endorsed tax governance policy that is applicable to the corporation to be published on its corporate website or in its annual report, both of which must be publicly accessible. The published tax governance policy must include details of how the corporation manages tax risks under the IRAS’ three specified essential building blocks of good tax governance. They are namely compliance with tax laws, governance structure for managing tax risks and relationships with tax authorities.

For corporations that are keen to participate in the TGF, how should they prepare themselves? From our experience in participating in the pilot phase and our observations of the good practices of other corporations that have implemented tax governance structures, there are three key considerations for corporations preparing for the TGF.

1.    Existence of group tax governance policy

As a start, one of the key considerations is whether the corporation already has an existing documented group tax governance policy in place with defined components such as key roles and responsibilities in tax risk management, a defined tax strategy and tax governance structure.

In addition, the corporation should ask themselves the following questions:

• To what extent does the group tax governance policy meet the IRAS’ three specified building blocks?
• Does the group tax governance policy extend to the Singapore-based corporations of a foreign-owned corporation group if the said policy is currently implemented at the foreign headquarter, and how this is being documented?
• To what extent are the internal supplementary tax policies (such as escalation of significant tax matters and training matters) that operationalise the group tax governance policy formally documented and aligned with the group tax governance policy?
• Are the group tax governance policy and supplementary tax policies kept current? Outdated policies or guidelines should be refreshed, which means more time will be needed by the corporation to update such policies and engage the relevant internal stakeholders.

In the scenario that the corporation does not have any documented group tax governance policy, the corporation will need to strategically evaluate its approach towards tax risk management (across different tax types). The design, documentation and implementation of the tax governance structure as well as the development of a formally documented tax governance policy is key.

2.    Active involvement and ownership of boards

This is an important aspect as tax not only has a financial impact on the corporation; mismanagement will create reputational and commercial risks. It is also a requirement of the TGF that the eligible corporation publishes a board-endorsed tax governance policy on its corporate website or annual report.

Further, there is also a growing trend of wider stakeholder interest in the tax governance and strategies of large corporations as tax is increasingly linked to corporate sustainability commitments by corporations. Examples of stakeholders include institutional investors, business partners, financial regulators, clients and employees. In this regard, the active involvement and ownership of boards in tax governance is key to ensuring that what the corporation has committed in its tax governance policy is executed and delivered in the organisation’s tax behaviour and tax reporting.

3.    Alignment of tax approach with sustainable business strategy

A current key corporate governance trend is the shift from creating shareholder value to delivering long-term value to stakeholders and the sustainable integration of the corporation in society. The importance of driving sustainable growth in which stakeholder interests are taken into consideration is often reflected in a corporation’s sustainable business strategy.

When designing and implementing a corporation’s tax governance policy, it is essential to align the policy (and supplementary policies) with its sustainable business strategy to demonstrate accountability in its tax approach towards its stakeholders and society.

Final thoughts

With the increased focus on tax governance in Singapore and around the world, large corporations should strategically evaluate their tax approach and tax governance policy, which are crucial elements in driving the corporation’s tax integrity behaviour. In this regard, the IRAS’ TGF programme is a good opportunity for large corporations to strengthen its tax governance not just in Singapore but across other entities within the group, to ensure a certain level of consistency in their tax risk management approach.

The co-authors of this article are Chai Wai Fook, EY Asean Tax Accounting and Risk Advisory Services Leader; Chua Xiu Mei, Director, Tax Services; and Quek Ruoting, Director, Financial Services Tax from EY Corporate Advisors Pte. Ltd. and Moong Jee See, a former EY partner.