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IRAS Introduces 2 New Tax Frameworks

IRAS Introduces Two New Tax Frameworks on Tax Governance and Tax Risk Management

07/06/2022
IRAS Introduces 2 New Tax Frameworks

The Inland Revenue Authority of Singapore (IRAS) has introduced two (2) new tax frameworks, the Tax Governance Framework (TGF) and the Tax Risk Management and Control Framework for Corporate Income Tax (CTRM), on 17 February 2022.

Tax Governance Framework

The TGF is a voluntary compliance initiative that a company can adopt to demonstrate that it has good tax governance and tax risk management.

Tax governance encompasses a well-defined and communicated corporate policy on taxation that is approved at the strategic level of a company, and reflects the attitude and culture of the company towards managing its tax risks. The objective is to set the tone at the top and regard tax governance and tax risk management as an integral part of sound corporate governance, where the Board is aware of the tax governance policy and material tax matters.

Features

The TGF features a set of broad principles and key practices around three (3) main building blocks of good tax governance:

  • compliance with tax laws, where the company is committed to comply with the relevant tax laws, regulations and requirements, and respects the intent of the laws and regulations
  • governance structure for managing tax risks, where the Board is apprised of the company’s governance structure and policy for managing tax risks, and
  • relationship with tax authorities, where the company supports a collaborative and transparent relationship with tax authorities based on mutual trust and respect.

Applicability

  • The TGF is applicable to corporate income tax (CIT), withholding tax and goods and services tax (GST).

Key Requirements

The company must publish its tax governance policy on its corporate website or in an annual report which is publicly accessible. The tax governance policy should include details of how the company manages tax risks under the three (3) building blocks of good tax governance. The company must also complete and submit the Declaration Form for Tax Governance Framework to confirm that it has adhered to the guiding principles and key practices outlined in the TGF. The declaration form must be signed off by the company’s Chief Executive Officer or Chief Financial Officer.

The application for the TGF status is subject to the IRAS’ approval. The IRAS will review the application based on various factors such as the applicant’s past compliance records, and may request for additional information in the course of reviewing the application.

Who can Adopt

The TGF can be adopted by any company willing to commit to good tax governance. It is suitable for companies that:

  • have complex structures and business models
  • recognise the importance of tax accountability and transparency, and
  • are willing to commit to good tax governance practices to manage the ongoing performance and tax affairs of the company.

Benefits of adoption

Companies that attain the TGF status can enjoy a longer grace period for voluntary disclosure of tax errors:

  • a one-time extended grace period of two (2) years for voluntary disclosure of CIT and/or withholding tax errors made within two (2) years from the date of award of TGF status
  • for a GST-registered business accorded Assisted Compliance Assurance Programme (ACAP) status, a one-time extended grace period of three (3) years for voluntary disclosure of GST errors made within two (2) years from the date of award of TGF status
  • for a GST-registered business without ACAP status, a one-time extended grace period of two (2) years for voluntary disclosure of GST errors made within two (2) years from the award of TGF status.

In all cases, the extended grace period does not apply to fraudulent errors or errors discovered during an IRAS audit or investigation.

Validity

The TGF status is valid for as long as the tax governance policy remains published on the company’s website or annual report, the tax governance policy adheres to the 3 building blocks of the TGF, and the tax governance practices are still in place. The IRAS may periodically request for confirmation on the company’s tax governance structure to ensure that it is still adhering to the TGF.

Tax Risk Management and Control Framework for Corporate Income Tax

The CTRM is another voluntary compliance initiative that a company can adopt to demonstrate that it has good tax governance and tax risk management.

Tax risk management involves implementing a robust tax control framework to identify, mitigate and monitor key tax risks on an ongoing basis.

The CTRM aims to provide guidance to large companies in establishing robust internal controls and systematic risk management processes to identify, mitigate and monitor key CIT risks. It involves an ongoing review of the effectiveness of the internal controls and processes for managing tax risks.

Features

The CTRM comprises a self-review checklist featuring processes and measures that would demonstrate that sound controls are in place to manage tax risks.

The CTRM checklist comprises control features at the following levels:

  • tax governance structure, to establish whether the Board and senior management have incorporated a CIT risk management framework and policies as part of the CIT control framework in the company
  • entity-level controls, to establish whether the senior management has adopted an effective risk management framework to identify, evaluate and manage CIT risks and compliance
  • tax reporting controls, to establish whether the tax values are compiled correctly for CIT reporting, and the tax treatment of CIT issues is applied appropriately and complies with the relevant tax laws and rules.

Applicability

  • The CTRM is only applicable to CIT.

Key requirements

The CTRM is by application only. The IRAS will review and accept the application if all the pre-requisites below are satisfied:

  • the applicant has implemented the key controls listed in the CTRM Checklist for all 3 levels covering the CTRM period. A key control is considered as implemented if 60% or more of the supporting control features under the key control or their equivalents are present
  • the statutory auditor’s opinion of the applicant’s last three (3) years’ financial statements is unqualified
  • the applicant is not currently under any CIT audit for tax avoidance or investigation conducted by the IRAS
  • the applicant has good compliance records for CIT (including withholding tax), GST and property tax for the last three (3) years and no outstanding tax with the IRAS as at the date of application. These include prompt filing of tax returns and tax payment as well as timely response to queries by the IRAS
  • the applicant has committed to appoint a qualified CTRM Reviewer (a qualified independent third party) to conduct the CTRM review. The CTRM Reviewer must be a Public Accounting Entity (PAE) or its tax affiliate with a track record in conducting audits and/or tax return reviews of large entities. The CTRM participant's independent Internal Audit team which reports directly to its Audit Committee (or equivalent) can also be considered.

The eligible company must perform a self-review of its internal control processes by completing the CTRM Checklist, which must be reviewed by the company’s CTRM Reviewer. The checklist and reports by the CTRM Reviewer are then submitted to the IRAS for evaluation.

Who can adopt

The CTRM is targeted at large companies with complex structures and business models, particularly publicly listed companies and multinational corporations.

Benefits of adoption

Companies that attain the CTRM status will enjoy the following benefits:

  • a one-time waiver of penalties for voluntary disclosure of prior years’ CIT and/or withholding tax errors. This excludes any non-compliance involving deliberate tax evasion or serious tax avoidance. The one-time waiver of penalties applies to non-compliance disclosed within three (3) years of effective CTRM. If it is not applied within this period, the one-time waiver of penalties will continue to be applied to any non-compliance disclosed within a further three (3)-year period on the renewal of the CTRM status (if applicable). The one-time waiver of penalties will not be applied after the extended period
  • step-down on CIT compliance audit for three (3) consecutive years of assessment from the date of award of the CTRM status.

Validity

The CTRM status is valid for three (3) years and is renewable before the end of the third year.

Further details of the CTRM can be found in the IRAS e-Tax Guide “Tax Risk Management and Control Framework for Corporate Income Tax”.

Observations

The introduction of the TGF and CTRM follows more than 10 years after the launch of the GST Assisted Self-help Kit (ASK) in April 2010 and the ACAP in April 2011. Although each framework is designed to target different groups of taxpayers, the common objective is to encourage taxpayers to adopt correct tax practices.

While the adoption of the TGF and/or CTRM is completely voluntary, the IRAS has made it mandatory for businesses applying for certain GST schemes to conduct a self-assessment under the ASK, and it has also offered auto-renewal of certain GST schemes as a benefit of attaining ACAP status. It remains to be seen if the adoption of the TGF and/or CTRM will become a future requirement when applying for or renewing tax schemes or incentives.

Conclusion

Ensuring accurate and complete tax filing is important to avoid penalties, interest, surcharges or even imprisonment.

The TGF and CTRM are voluntary compliance initiatives that operate independently, and a company may choose to adopt either or both initiatives depending on its readiness and business needs. Participating in the TGF and CTRM will help companies strengthen their business tax compliance and tax risk management; however, this would require companies to devote more time and resources to their tax matters, this is especially so if they decide to adopt the CTRM. In the long run, the higher administrative burden and costs are likely to translate to lower tax compliance costs.

As a start, medium-sized companies or companies looking to scale up can adopt the TGF to demonstrate their willingness and commitment to manage their tax compliance risks. This may lower the probability of detailed examination and scrutiny of their tax matters by the IRAS.

Larger companies, publicly listed companies or companies enjoying tax incentives can adopt both the TGF and CTRM to give confidence to the IRAS that they are effective in managing tax risks and transparent with their tax matters. This may translate to faster finalisation of their tax assessments or approval of their tax incentives.


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