In 2022 Tax Tips

The Moral Compass for Tax Decision Making by Corporations in Australia

The obligation to pay income tax is placed on taxpayers in Australia; but, what about the taxation of corporations? How do they arrive at the amount of tax that they will pay? Is there some sort of moral compass that they use while making these judgments, or is the primary concern the maximization of profits? Within the context of Australia’s corporate tax policy, this article will investigate the part that morality plays in decision-making.

Are you unsure about the tax regulations that apply to corporations in Australia? You’re not alone! Many people who run businesses do not have a clear understanding of what tax deductions are and are not allowed.

This post will provide a complete overview of the company tax laws in Australia and offer our advice for making the most ethical judgments possible when it comes to taxation. The post will also be published as a blog post on our website. You have therefore arrived to the proper location if you are looking for direction on how to make morally sound decisions on the taxes your company should pay. Keep an eye out for further updates and information.

The process of making ethical decisions regarding taxes can be difficult for organizations, but following some fundamental standards can be helpful. This essay will discuss the ethical compass that should be used when making decisions regarding taxes and will provide an overview of some of the most important factors that Australian firms should bear in mind.

In addition to this, we will present an overview of the current corporate tax structure in Australia and analyze the ways in which it influences ethical decision-making. Businesses have the ability to make decisions that are more informed on their tax obligations and to guarantee that they are acting ethically at all times if they have a solid understanding of these ideas.

No matter what your specific circumstances are, making the correct decision about your taxes is never simple. When it comes to navigating the complicated web of rules and regulations around taxes in Australia, firms can have a particularly difficult time. You may, thankfully, use your internal moral compass as a map to help you make decisions that are as ethical as they can possibly be.

Ethical tax decisions are influenced by a variety of circumstances, and each company will have its own internal moral compass to help lead it. In this article, we will discuss some of the most important things that companies in Australia need to think about when it comes to taxation.

As the second topic of discussion, we will investigate the ways in which decisions about taxes can be influenced by corporate social responsibility. You’ll be able to make more educated decisions for your company if you familiarize yourself with the primary considerations involved in making ethical tax decisions.

Which variables do Australian firms take into consideration when it comes to determining their tax obligations? This subject is taking on a greater degree of significance in light of the recent publication of a report by the Tax Justice Network Australia (TJN), in which it is alleged that certain large corporations engage in unethical tax avoidance strategies.

The paper offers a moral compass for the decision-making process that firms go through about their tax obligations by drawing on case studies of 36 Australian businesses. It emphasizes the significance of being responsible and transparent throughout the process in the hopes of assisting small firms in making more informed decisions regarding their tax obligations. Therefore, what does this mean for the direction of taxation on corporations in Australia in the years to come?

It can be challenging for any individual or organization to make the decisions that are best for their tax situation. in order for large firms in Australia to maintain a positive legal standing while also increasing their financial gain. The good news is that a moral compass can help make these judgments easier, and the term for this compass is “corporate social responsibility” (CSR).

When it comes to taxes, making judgments is not an easy task, and it can be difficult to determine what course of action to take. When it comes to matters of this nature, each company operates according to its own unique set of core beliefs and principles.

In Australia, businesses have access to a variety of taxation models from which they can choose the one that best aligns with their values. This article on the blog will examine these frameworks and provide you with an overview of what they consist of.

At the end of the day, it is up to each organization to pick which structure works best for them; nevertheless, before making significant choices, it is helpful to have a fundamental awareness of these rules.

Let’s get started!

Structure of Ethical Conduct

Information regarding the tax payments made by significant companies has been made available to the general public as a direct result of tax transparency policies being implemented by governments in a number of countries all over the world. Companies are expected to maximize both their profits and their dividend returns, in accordance with the conventional shareholder primacy paradigm.

On the other hand, this process does not take place in a sterile environment. The growing significance of the danger to one’s reputation puts pressure on those who make decisions on taxes to take into account a wide range of stakeholders, including the community as a whole.

The discussion and commentary on the subject of company tax payments have, at times, taken an extremely pessimistic tone. This is largely due to the fact that the media and lobby groups have reported on companies that pay very little or no tax in the country in which they have a substantial presence.

Tax systems that try to keep up with the times end up becoming more complicated, driving up administration expenses and causing the government to lose money. This is one of the costs associated with aggressive tax structures. In addition, factors such as corporate social responsibility and environmental sustainability are gradually imposing a more extensive ethical obligation on the decision-makers of companies.

The long-held and traditionally conservative perspective of corporate ethics, which holds that firms are established with the primary purpose of producing a profit and are therefore exempt from being obligated to work toward societal goals, is giving way to a more progressive interpretation of the topic.

More and more, people are demanding that businesses be held responsible for the benefits that come with having a separate legal entity status and perpetual succession. When viewed through the lens of this social obligation, tax avoidance transfers the tax burden to other members of society. On the other hand, the payment of tax revenue is the very fabric that makes up society itself, including schools, hospitals, and welfare.

Research conducted in 2010 that consisted of 15 in-depth, semi-structured interviews and a subsequent survey conducted in 2011/12 that explored the nature of tax risk management practices in large Australian companies pointed to the absence of an ethical framework or lens in managing tax risk. Both of these studies were conducted in Australia.

Therefore, it is necessary to investigate whether or not there is a possible increase in revenue, as well as benefits for the firms themselves when such an ethical framework is used to the management of tax risks.

Ethical Framework For Tax Risk Management

An ethical framework can be used to support and guide decision-making, and it can also help a firm and its decision-makers determine what amount of tax risk is acceptable for the organization.

To fill the void in the application of the tax laws caused by uncertainty and complexity and to dictate where a company sits on the spectrum in terms of tax aggressiveness or acceptable tax risk, the contents of an ethical framework could be embodied in a company code of ethics. This would help to fill the void in the application of the tax laws.

Listed companies in Australia are already obligated to conduct ethically and responsibly in accordance with the Principles and Recommendations of the Corporate Governance Council of the Australian Securities Exchange (often known as the “ASX”).

According to the commentary that accompanies Principle 3, acting “ethically and responsibly” involves more than simply complying with one’s legal responsibilities. It encompasses “being, and being seen to be, a “good corporate citizen”.” In addition, Principle 3 mandates that the essential values of a publicly traded corporation be included in a code of conduct that is implemented throughout the organization at all levels of decision-making.

Senior executives and other key decision-makers in a company serve as gatekeepers. They play an essential role in establishing the “tone at the top.” According to the findings of a recent poll conducted in six countries among professionals working in the banking and financial industries, “business policies and regulatory requirements are the most powerful elements influencing ethical actions.”

Decision-makers need a crystal clear set of guiding values and principles to ensure moral reasoning. This is necessary so that terms like “ethical” and “legal” can be defined without ambiguity by the board and typically included in a code of ethical conduct, with examples provided and demonstrated at all levels of the organization. Moral reasoning is essential to the success of any organization.

There is a significant amount of effort that needs to be done to untangle the organization’s existing ethical culture, anchoring an ethical framework, and ensuring that it permeates all aspects of the organization, particularly the process of making tax decisions. According to the results of our poll, the Chief Financial Officer (CFO) and the company’s Tax Manager are the most influential executives in large Australian businesses when it comes to making decisions about the firms’ exposure to tax risk.

A considerable part is also played by the company’s board of directors, the Chief Executive Officer (CEO), and the company’s policies. In almost every instance, we found that the CFO was involved in determining the acceptable level of tax risk for the company.

Individual Ethics

Personal morality is also an important consideration. For instance, many chief financial officers are members of professional accounting organisations that require individual conformity with a high degree of ethical conduct, which includes taking into consideration the concept of the “public interest.”

In Hong Kong, Shafer and Simmons conducted a poll targeting tax experts working in both public accounting and private business. They discovered that the attitudes that tax professionals have toward ethics influence the decisions that they make. Those who give unethical and socially irresponsible behaviour little importance are more inclined to allow aggressive business tax avoidance tactics.

According to studies conducted on the subject of business ethics, the individual attitudes of corporate managers might have an effect on the ethical decision-making processes that take place within a firm. Therefore, the individual ethics of decision-makers offer a risk to the firm, which, in terms of a corporate perspective on ethics, needs to be identified and dealt with in order to prevent further damage to the organization.

When the aims of a firm involve ethical behaviour in relation to tax compliance, there is a need for clearly specified rules and standards, which must be adhered to in order to reduce the impact of individuals’ inconsistent ethical preferences.

Better Ethics Can Improve Reputation

Both the recent investigation into corporate tax avoidance that was conducted in Australia by the Senate Economics References Committee and the reporting by the media of the low effective tax rates paid by high-profile companies demonstrate that aggressive tax arrangements can be detrimental to a company’s reputation.

Disclosure to the public has the potential to foster a better alignment between the public interest and the best interests of the corporation. Businesses that have a limited presence in the public sphere do not run the same risks to their reputations and are not subject to the same kinds of demands. It is no longer sufficient for the tax function to simply ensure compliance with the laws governing taxes.

In order to persuade stakeholders and the general public that a company is paying its fair share of taxes, those responsible for making tax decisions within the firm need to create a compelling tale about the company’s taxes.

At the moment, ethical values, including those upheld by professional organizations, do not play a direct part in the way that large Australian businesses manage their exposure to tax issues.

To ensure that the tax decisions made by individual decision-makers take ethics seriously and address reputational and regulatory risks for companies, a company should have a comprehensive tax risk management system. A key component of this system should be an ethical framework, which is typically embodied in a company code of ethics. This framework should also be a key element in the company’s other decision-making processes.

APESB Professional And Ethical Requirements

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1. APES 230 Financial Planning Services

1. Objective

Members who are engaged in providing quality and ethical financial planning services are required to comply with the mandatory requirements and recommendations outlined in APES 230 Financial Planning Services. The counsel given to a customer regarding that client’s personal financial affairs, including wealth management, retirement planning, estate planning, risk management, and related advice is included as part of the financial planning service.

2. Scope and application

APES 230 entered into force on July 1, 2014, with the exception of its rules relating to professional fees and payments made to third parties, which entered into force on July 1, 2015. Members in Australia must comply with the standard’s necessary standards in order to maintain membership.

The necessary requirements of APES 230 have to be followed by members who are located in countries other than Australia, provided that these criteria do not conflict with the unique laws and regulations that are in place in such countries.

In spite of the fact that APES 230 is, in many respects, merely an extension of the previously established standard APS 12 Statement of Financial Advisory Services, it does establish a new benchmark that outlines the professional and ethical requirements for the provision of financial planning and credit advice.

It is mandatory that anyone who offers financial planning services and is a member of CPA Australia or Chartered Accountants Australia and New Zealand (Chartered Accountants ANZ) comply with the standard.

The following are components of a financial planning service:

  • guidance given in accordance with the terms of an Australian Financial Services (AFS) license, which may include wealth management, risk management, and estate planning advice;
  • the guidance offered in accordance with the requirements of an Australian Credit Licence (ACL) in relation to the acquisition of loans and other borrowing arrangements;
  • related advice such as taxation, real estate, and non-product advice on financial plans or structures offered as part of the advice provided under an AFS or ACL.

Importantly, just like with any other accounting professional and ethical standards, APES 230 should be read in conjunction with the APES 110 Code of Ethics for Professional Accountants as well as any other relevant professional or legal obligations that may apply. This is because APES 230 is intended to be applied to the same situations as APES 110.

A Guide to APES 230 Financial Planning Services has been published by CPA Australia and Chartered Accountants ANZ. The purpose of this guide is to assist members in understanding the relevant obligations that come along with providing a financial planning service and in adhering to those obligations.

3. What is in the customer’s best interest

A member who provides financial planning advice in accordance with the requirements of APES 230 is obligated to act in the client’s best interest at all times (paragraph 3.6). The duties outlined in Division 2 of Part 7.7A of the Corporations Act 2001, which were enacted as a part of the changes for the Future of Financial Advice, constitute the definition of the Client’s Best Interests.

When members provide retail advice to customers, they are already obligated to comply with these responsibilities because they are operating under the authority of an AFS license.

When giving credit advice, members who provide advice under an ACL are required to be guided by the spirit of these requirements, while also being aware that there may be particular aspects of the best interests obligations that members cannot comply with.

4. The stipulations for the use of the financial planning service

In addition to being in compliance with the requirements of the Terms of Engagement for APES 305, members are required under paragraph 5 of APES 230 to further include the following in their terms of engagement:

  • the name of the individual or organization that is primarily responsible for providing the service;
  • any substantial circumstances that impact or may affect the member’s capacity to offer the service in a manner that is objective and impartial;
  • details concerning any actual, possible, or apparent conflicts of interest, as well as any precautions that have been put into place to mitigate these issues.

5. The foundation upon which the recommendations for financial planning are built

A member is required to establish the basis for providing the advice in accordance with Section 6 of APES 230. This includes making specific reference to the information provided or agreed upon by the client, the scope of the advice, and any assumptions that were used to develop strategies that could meet the client’s objectives and needs.

These standards mainly match the existing obligations that financial advisers already have when it comes to providing financial advice, as well as the responsible lending obligations that members already have when it comes to providing credit advice.

6. Providing information on the recommendations for financial planning

Documentation of the advice given to a client and delivery of that advice to the client in written format are both requirements (paragraphs 6.8 and 6.9).

The information that is expected to be included in the report is, for the most part, reflective of the responsibilities that are already in place. In most cases, members who provide advise on financial products will be able to meet this requirement by delivering a statement of advice to the customer (SOA). A declaration that the financial planning advice was offered in accordance with APES 230 needs to be included in the document as well, as this is another obligation.

Members that offer credit advice have the ability to fulfil this criterion by presenting their credit guide, credit proposal disclosure document, and the written assessment that determines that the credit will not be “unsuitable” for the client.

If you offer both financial products advice and credit advice, there may be opportunities to merge the contents of these documents. Please refer to Information Sheet 134 provided by the ASIC.

Professional fees and third-party payments

On July 1, 2015, the specific responsibilities relating to Professional Fees (section 8) and Third-Party Payments (section 9) became effective.

Members who charge an asset-based fee are required by the duties to the following:

  • Before charging and collecting the fee (as part of the conditions of engagement), you must first obtain the client’s written informed consent;
  • offer an annual disclosure of the fees that are being charged, together with an explanation whenever the amount has significantly changed in comparison to the fee that was previously recommended;
  • To continue charging and collecting the charge on a percentage basis, you should receive written consent at least once every two years.

Members who will be compensated through commissions (which are categorized as Third-Party Payments) as of July 1, 2015, are required to further seek written informed permission and report the commission on an annual basis.

Soft dollar rewards with a value of more than $300 are still prohibited by APES 230, which is in line with the standards of the APS 12 Statement of Financial Advisory Service Standards. On the other hand, it makes an exception for professional development that is either completely free or heavily subsidized and is in line with the FoFA reforms.

7. Control of quality and documentation of processes

It is required of members that they create and keep track of working documents relevant to the guidance and services that they deliver to customers.

It is possible to fulfil this responsibility by creating and storing the required documents that were generated during the process of providing advice. These documents may include file notes, FSGs, SOAs, credit guides, and written assessments.

2. APES 325 Risk Management for Firms

1. Objective

APES 325 Risk Management for Businesses establishes mandatory requirements and advice for members in public practice to build and maintain a risk management framework inside their firms with regard to the supply of quality and ethical professional services. This framework must be maintained.

2. Scope and application

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The initial version of APES 325 was published in December 2011, and subsequent revisions took place in October 2015 and December 2017. By April 1, 2018, members who are in public practice in Australia are required to have necessary amendments incorporated into their risk management framework in accordance with the updated standard.

In the event that a member is engaged in public to practise outside of Australia, the rules of APES 325 must be adhered to, provided that the member does not violate any of the applicable local laws or regulations.

3. The goals of a risk management structure and framework

A company should have an easier time satisfying its broad public interest commitments and its business objectives if it has an effective risk management strategy in place.

The framework for risk management should include rules and procedures that are necessary to implement those policies and monitor compliance with them. These policies should be developed to help the company achieve its goals.

It is important for the company’s entire strategic and operational policies and procedures to incorporate the risk management framework as an essential component. It is important for the policies and procedures for quality control that a company has developed as part of APES 320 Quality Control for Firms to be incorporated into the firm’s risk management framework.

4. Developing and continuing to maintain a risk management strategy for an organization

A company is required to build and maintain a risk management framework that takes into consideration its public interest obligations. Additionally, the company must periodically examine the design of the risk management framework as well as its efficacy.

The framework for risk management must contain rules and processes that can detect, evaluate, and manage the most important organizational risks, which may include the following:

  • governance risks;
  • threats to the continuity of the firm, including plans for future leadership;
  • business risks;
  • threats to one’s finances;
  • hazards posed by regulations;
  • technology issues, including concerns about online safety;
  • hazards posed by human resources;
  • stakeholder hazards.

The type and scope of the policies and procedures will be determined by a number of criteria, including the size and operating features of the company, as well as whether or not the company is part of a network.

The ultimate responsibility for the firm’s risk management framework must be taken on by the company’s chief executive officer (or an equivalent position) or, if more appropriate, by the company’s managing board of partners (or an equal position).

To comply with this standard, a company has the obligation to guarantee that the individuals to whom it has delegated the responsibility of building and maintaining its risk management framework are equipped with the appropriate knowledge, expertise, dedication, and authority.

5. Succession planning

As a component of its overall risk management system, a company is required to publish its succession plan. It is important for a company’s succession plan to detail the particular measures that will be taken by the company in order to continue meeting the firm’s professional commitments to its customers.

For details regarding the following, please refer to the standard:

  • definitions;
  • monitoring the policies and procedures of a company’s risk management system;
  • documentation.

3. APES 330 Insolvency Services

1. The primary goal

Members in public practice who are involved in the provision of insolvency services are subject to the obligatory requirements and recommended practices outlined in APES 330 Insolvency Services.

2. Scope and application

The APES 330 standard was initially implemented on April 1, 2010, and it underwent a revision in November 2011. When offering insolvency services, it is required of members in Australia that they comply to the organization’s mandatory requirements. In addition, the scope of APES 330 must be adhered to by members who are engaged in public practise outside of Australia, provided that the members do not violate any of the applicable local laws or regulations.

3. The fundamental obligations of the members

Members are reminded of their professional responsibilities as outlined in APES 110: Code of Ethics for Professional Accountants, including Section 100: Introduction and Fundamental Principles, by APES 330.

4. In the interest of the public

When offering an insolvency service, members are required by APES 330 to observe and adhere to their obligations relating to the public interest. It is against the rules of APES 330 for a member to offer advice to clients on how to avoid the consequences of insolvency or how to prevent assets from becoming available during administration. Despite this, the member is still free to offer their services to solvent entities in regard to the organization of their financial affairs.

5. Freedom to practice one’s profession

Members are required to maintain their autonomy in accordance with the stipulations of APES 330 whenever they accept or carry out an administration. In order to preserve their autonomy, members are required to:

  • before accepting an appointment, it is necessary to first identify, evaluate, and deal with any potential dangers to the member’s independence.
  • identify and assess any potential hazards that the member has reason to believe are caused by the interests and affiliations that the firm or network firms have with the insolvent entity or any associated entities.
  • not accept an appointment if the member (or the member’s firm, network firm, partners, or managerial personnel) have, or have had, any personal or material business tie, unless the appointment is to operate as a controller.

In APES 330, students will examine real-world scenarios that do not qualify as potential dangers to their independence. Under the Corporations Act of 2011, one example of this type of transition is the promotion of an administrator to the position of voluntary liquidator.

It is against the rules for a member to accept an appointment or carry out an administration that involves referral or other commissions or financial or non-financial benefits; spotter’s fees; understandings or requirements that work in the administration will be given to a referrer; or any other such arrangements that restrict the proper exercise of the member’s judgement and duties.

Regarding an insolvency service, it is necessary for a member to present a Declaration of Independence, Relevant Relationships, and Indemnities.

6. Responsibilities of the expert witness

Under certain conditions, the member may be called upon to testify as an expert witness. The member is required to submit in a Witness Report information such as the scope of the work accomplished, constraints on the scope of the activity, as well as other essential particulars regarding the engagement. The obligation of the member to help the court in relevant topics in an objective manner and the duty to inform the court when issues fall outside the member’s knowledge are the two most important duties that the member owes to the court, and these duties take precedence over all other duties.

For details regarding the following, please refer to the standard:

  • professional engagement matters;
  • potential and available resources;
  • definitions;
  • confidentiality;
  • transactions involving real estate and other assets;
  • professional competence and reasonable care;
  • fees and costs associated with professional services;
  • marketing;
  • documentation and quality control.
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