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August 15, 2023

New Zealand's Inland Revenue Department announces 2022 tax governance work results, further program expansion

  • New Zealand's Inland Revenue (IR) provided an update on its work on tax governance with New Zealand business taxpayers
  • The IR provided an overview of the results of its 2022 questionnaire process, reflecting on information provided by 279 large business taxpayers
  • The IR shared information on how its program of work is being expanded during the course of 2023 and 2024, including how future tax audits and risk reviews will focus more closely on testing for effective tax governance

Executive summary

During a 31 July 2023 webinar for members of the tax profession, New Zealand's Inland Revenue (IR) provided an update on its tax governance program of work. During the webinar, the IR described results of its 2021 and 2022 work on tax governance with some of New Zealand's larger companies and shared plans on how it will expand its program of work in 2023 and 2024.


The IR collected data on the overall state of tax governance in New Zealand by sampling large taxpayers from two groups in 2021 and 2022, asking them to complete a tax governance questionnaire:

  • Members of the "Top 50" program: Members of the Top 50 program are taxpayers who paid the highest amount of income tax in New Zealand each year, excluding tax loss-making companies. The Top 50 companies each have a dedicated IR Compliance Manager who assesses the level of tax risk posed on an annual basis. This assessment includes a review of the taxpayer's tax governance approach.
  • Significant Enterprises1 (SEs): An SE may be either an inbound company with annual turnover of more than NZ$30 million or an outbound company with annual turnover of more than NZ$80 million. In 2022 there were 1,200 SEs. More than 700 are foreign-owned multinationals, contributing approximately NZ$4.4 billion in corporate tax, a significant part of New Zealand's corporate tax base.

The IR's tax governance questionnaire is made up of 10 simple Yes/No questions, plus one free text box that was used to collect any other contextual information. Unlike detailed questionnaires used by tax authorities in many other countries, the IR's tax governance questionnaire does not ask a series of questions on how a company manages each tax type.

The 10 questions asked in the questionnaire are as follows:

  1. Does the company have a well-documented, overarching tax strategy?
  2. Does the chief financial officer or tax manager formally confirm, at least once annually, that this strategy has been regularly reviewed, updated where necessary and is followed in practice?
  3. Does the company have an effective tax control framework to manage day-to-day tax risks?
  4. Has the operation of the tax control framework been tested independently in the last three years?
  5. In the last three years, have any tax control deficiencies been identified?
  6. If you answered yes to 5(a), have any follow-up actions been taken to remediate those deficiencies?
  7. Are key internal policies, procedures and controls covering the data collection, analysis, calculation, recording and reporting for tax filing and other tax compliance requirements, documented and available for examination if required?
  8. Does a review take place at least annually for changes to accounting policies upon which group financial statements are prepared and all items examined where tax treatment may differ materially from financial accounting treatment?
  9. Is there a robust process in place for the finance and/or tax teams to stay on top of all relevant changes in tax law and related Inland Revenue guidance?
  10. Is a process in place to identify significant transactions (including those which need to be reported to the board or relevant board sub-committees) in respect of which external advice and/or binding rulings may be required?
  11. Does senior management report regularly to the board or relevant board subcommittees on potentially material tax issues or risks?

Upon completion and prior to submission to the IR, the questionnaire had to be signed by the company's Chief Financial Officer (CFO) or most senior tax manager, demonstrating the IR's expectation that company management takes responsibility for tax governance implementation.

Detailed discussion

Results of the 2022 questionnaire process

Introducing results of its 2022 questionnaire process, the IR noted that the topic of tax governance is trending upward internationally and that its preference is to foster an environment of mutual trust and cooperation on the topic. A broader aim of the IR, it noted, has been to raise visibility, at the executive level within companies, of the importance of tax governance, ensuring attention is paid to the topic and thus raising the overall standard of tax governance in New Zealand.

Regarding the results of the 2022 questionnaire process, the IR remarked that in 2022 the questionnaire was sent to 279 SEs (approximately 25% of the total SE population), up from 143 in 2021, a 95% increase.

To provide companies with some form of benchmark and evolutionary model within which they can measure progress, the IR also provides a maturity model against which they map the 2022 results. The four stages of the maturity model are:

  1. Emerging: Certain processes have been used to develop some capabilities, but they continue to be ad hoc and hence need further significant improvement.
  2. Progressing: Certain process improvements have been initiated but are not yet systematically implemented and institutionalized.
  3. Established: Robust processes have been put in place, resulting in a high degree of capability and they are institutionalized. (The IR notes that, on average, they expect SEs to cluster around this level.)
  4. Aspirational: Processes have been optimized resulting in a paradigm shift, with use of new or innovative tools or technology and transparent reporting.

Overall, said the IR, the results in 2022 were broadly similar to those achieved in 2021:

  • "No further action" letters were issued to 108 taxpayers.
  • "Watchlist" letters were issued to 160 taxpayers, noting the need for follow-up action by the taxpayer.
  • "Unsatisfactory" letters were issued to 11 taxpayers, requiring follow-up compliance action by the IR as significant improvements by the taxpayers were identified as necessary.

Providing more context around each category of letter, the IR noted that taxpayers to whom "No further action" letters were issued tended to have robust documented processes in place that are kept current, and board-level engagement/reporting also tends to be the norm. Respondents assessed as being at this stage totaled 39% — in effect, meeting the "established" level of the IR maturity model.

Where "Watchlist" letters where issued, the IR noted that most responses demonstrated some good practices, but these were not yet systematically implemented and institutionalized. In these cases, SEs generally acknowledged that some improvements were needed. These SEs have been required to prove to the IR, under a defined timeline, that their governance processes have been improved. Common areas requiring improvement (which the IR refers to as "work-ons") include better documentation of tax strategy and tax control frameworks, more regular testing and updating of tax controls, and more reporting to company boards. The companies on the watch-list must provide a copy of their Tax Strategy and Tax Control Framework to IR, before receiving a closure letter from IR.

The actions to be taken by the IR in regard to the "Unsatisfactory" letters issued to 11 taxpayers were not discussed but are likely to include further review or audit and a more detailed set of required actions around improving tax governance that the taxpayer(s) will be required to carry out.

Over both the 2021 and 2022 questionnaire campaigns, the majority (57%) of respondents were assessed at the "Watchlist" level, which equates to meeting the "Progressing" step of the tax governance maturity model, says the IR. Applying the maturity model, the overall current state of SE tax governance sits between the "progressing" and "established" steps, according to the IR.

Expansion of the tax governance program of work in 2023 and 2024

During the webinar, the IR noted that it had very recently written to all SEs not covered to date, setting out its continuing expectations regarding tax governance and including a copy of the questionnaire. This brings the total number of SEs covered to around 1,200, up from 143 since 2021. Importantly, this questionnaire was sent to the remaining SEs on a voluntary basis, and the remaining SE population is under no legal obligation to return it to the IR. The same process will apply in 2024, notes the IR.

While the IR recognizes that developing a full tax governance process takes time (the IR uses the figure of six months), the scrutiny of tax strategy and tax control frameworks will become a common

practice in future SE compliance reviews and audits, starting in 2024. If deficiencies are identified through these reviews, taxpayers should expect to experience more serious consequences because they have already been alerted that this is a key IR focus area. Conversely, if adjustments arise as a result of future IR compliance activities, the adequacy of tax governance will feature in penalty considerations.

The IR suggests that all SEs conduct a self-assessment of their current state of tax governance using the questionnaire to inform next steps.


New Zealand's growing efforts on tax governance are indicative of a wider push by tax authorities around the world to increase their focus on tax governance. Many national tax authorities are now introducing new tax governance programs, while other countries are expanding the scope of existing programs. Generally speaking, these programs have two aims. The first is to encourage companies to adopt more robust tax governance approaches; the second is to allow tax authorities to more accurately rate companies in low- and not-low categories of tax risk, allocating their tax audit and review resources accordingly.

With so many national tax authorities now embracing the testing of tax governance, multinational companies should make a global assessment of existing programs in the markets in which they operate. They should then develop a global tax governance strategy, defining how they will meet each mandatory program, as well as identifying the voluntary programs in which they may plan to participate. That strategy should include prioritizing an order for participation and establishing a plan for localizing any necessary roles, policies, procedures and controls. Further, companies should consider using platform-based technology tools for the central management of tax controls, including their periodic testing, remediation and documentation.


For additional information with respect to this Alert, please contact the following:

EY Law Limited, New Zealand

Ernst & Young LLP, United States

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor



1 See also


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