Understanding the Tax Governance Framework

What is the Tax Governance Framework

The Tax Governance Framework (“TGF”) is a voluntary compliance initiative recently launched by Inland Revenue Authority of Singapore (“IRAS”) to encourage companies to demonstrate that they have good tax governance and tax risk management in place. The initiative is modelled along the lines of Goods and Services Tax Assisted Compliance Assurance Programme (“GST ACAP”) and other tax governance initiatives implemented by tax authorities around the world.

Purpose of introducing TGF

	Promote the adoption of good tax governance principles and practices.
	Strengthen the tax governance standards of companies.
	Reflect the company’s attitude and culture towards identifying and managing tax risks.
	Raise the Board’s awareness that tax risk management is an integral part of sound corporate governance.
	Lower tax compliance costs in the long run.

Key features of TGF

TGF is principle-based and features a set of broad principles and key practices companies should incorporate when formulating their Tax Governance Policy for the effective management of corporate income tax and GST risks.  

The framework is about setting the tone from the top, outlining the guiding principles and key practices centred around the following three essential building blocks of good tax governance. 

	Compliance with Tax Laws
	Guiding principle:     Commit to comply with Singapore income tax laws, regulations and requirements, observing the spirit and the letter of the law.  Key practices: Align the company’s policies, procedures and activities with Singapore income tax laws and regulations. Update policies and procedures when necessary to reflect changes in tax laws. Undertake tax planning driven by bona fide commercial reasons. Avoid engaging in aggressive schemes or artificial arrangements solely for tax benefits without economic substance.
	Governance structure for managing tax risks
	Guiding principle:     Ensure the Board of Directors is apprised of the company’s governance structure and policy for managing tax risks. Key practices: Formalise the governance structure, including an outline of the roles, responsibilities and functions of its key personnel for tax risk management. Maintain systems of controls and processes and employ personnel with the right skillsets to make accurate income tax return submissions.      Engage qualified advisors for their opinion and advice on complex tax issues if necessary. Apprise the Board of the Tax Governance Policy and key tax risks.
	Relationship with tax authorities
	Guiding principle:    Foster a collaborative and transparent relationship with tax authorities based on mutual trust and respect. Key practices:        Engage proactively with IRAS to resolve issues that pose tax uncertainties. Perform regular reviews of its tax filings and voluntarily disclose and rectify errors made in a timely manner. Provide accurate and full disclosure of relevant facts when responding to queries or seeking tax rulings from IRAS.

Benefits of adopting TGF

The ultimate aim is for companies to commit long-term to TGF, establish a trusting and collaborative relationship with IRAS and in time to come achieve a reduction of tax compliance costs.

It would also give confidence to internal and external stakeholders that the company is transparent in its tax matters and paying its fair share of taxes.      

Companies which have successfully secured the TGF status may enjoy the following benefits. 

Type of Tax	Benefits
Corporate income tax and withholding tax	A one-time extended grace period of two years for the avoidance of penalty imposition if corporate income tax errors and unpaid withholding taxes are voluntarily disclosed within two years from the date the TGF status is awarded.
GST	For GST-registered businesses with ACAP status, a one-time extended grace period of three years for the avoidance of penalty imposition if GST errors made are voluntarily disclosed within two years from the date the TGF status is awarded. For GST-registered businesses without ACAP status, the one -time extended grace period is reduced to two years.

Applying for TGF status

There is no restriction on which companies may commit to the TGF. Companies with complex structures and business models are likely to gain the greatest benefit from the adoption of TGF in terms of managing their tax risks, achieving tax accountability and transparency for its stakeholders.

The application for the TGF status is a simple process. It involves the completion of a Declaration Form by the applicant entity, to be signed off by its Chief Executive Officer or Chief Financial Officer, confirming that the company has met and will continue to adhere to all the requirements laid out by IRAS on the guiding principles and key practices under the TGF. The company must also publish its Tax Governance Policy Statement on its corporate website or in its annual report which must be publicly accessible.

The approval of TGF status rests entirely with IRAS which will evaluate the application by taking several factors into consideration, such as the company’s past compliance record and how it has addressed prior queries raised by IRAS. During the evaluation process, IRAS may request for additional information, clarifications and/or supporting documents.

Once awarded, the TGF status will remain valid as long as the Tax Governance Policy remains published online and the company continues to adhere to all the TGF requirements.

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Tax risk management involves implementing a robust tax control framework to identify, mitigate and monitor key tax risks on an ongoing basis. The TGF introduced by IRAS helps companies achieve high standards of tax governance by brining tax governance policies and material tax issues to the attention of their Board.

With increasing demands from stakeholders and the general public for greater transparency in tax reporting, global companies are taking a proactive step by adopting TGF in the management of their tax risks.