Inland Revenue (IR) recently released its new tax compliance initiative – the Participating Advisor programme. The programme is intended to recognise tax reviews undertaken by select, approved advisers for taxpayers and leverage off that work when IR scopes its audit activities, reducing compliance costs.

The Participating Advisor programme represents a change in IR compliance approach by relying on the work of externals where appropriate, taking into account taxpayer systems and controls as part of its overall review activities, termed ‘collaborative assurance’.

Potentially it’s a win for IR, but what’s in it for taxpayers? Increased certainty and peace of mind. It enables taxpayers to proactively manage tax risk. It should also reduce the required length and breadth of audit activity to provide IR assurance. The more time that taxpayers and their managers are able to focus on doing business, the better.

Scope and coverage

The Participating Advisor programme is currently only available to large taxpayers (enterprises with annual entity or group turnover of at least NZ$30 million or more than 50 employees). Currently, review areas within the programme are limited to the following tax types and/or processes:

• Tax governance, policy and processes

• GST systems and processes, and GST-specific risks

• Risks related to employee remuneration and benefits

• Remuneration (including FBT) systems and processes.

Participating Advisor programme reviews can be initiated by the taxpayer, potentially as part of a wider business risk assessment process, or as a substitute for a specific IR audit review. If the latter, IR must agree to the substitution and a mutually acceptable timeframe. Reviews are not automatically shared with IR but if they are not provided on request, IR will be compelled to undertake a full tax compliance review.

Early days and approval of advisors

To date, only a limited number of advisers have sought approval under the programme. This is likely to increase, given the commercial advantage in the marketplace and the ability to tap a further potential revenue stream.

The approval process that advisers are required to satisfy is relatively involved and will take time to complete. A prospective adviser must have demonstrated expertise (completion of a minimum number of reviews) and procedures (checklists and questionnaires) for each of the review areas they are seeking approval for. In addition, they must put forward a test client to be reviewed by both the adviser and IR, presumably to ensure findings are suitably aligned and that the processes adopted meet minimum requirements.

A comparable offshore experience

Singapore has the Assisted Compliance Assurance Programme (ACAP), which is specific to GST and aimed at larger complex businesses with high transaction numbers. ACAP enables businesses to complete a comprehensive review of their GST controls, including entity, transaction and GST reporting level controls. The ACAP review must be completed by Inland Revenue Authority of Singapore (IRAS) accredited reviewers within a specified timeframe.

Businesses which pass the review and reach a certain status level are entitled to penalty waiver, faster GST refunds and should be subject to reduced audit compliance activity. In addition, IRAS may fund up to 50% of the fees charged by accredited ACAP reviewers, provided quality standards are satisfied.

In essence, this cost sharing reflects the compliance benefits derived by IRAS – an improved or best practice taxpayer GST compliance environment, plus an ability to rely on those controls to reduce the scope and cost of GST audit review procedures in respect of that taxpayer.

There is no suggestion here that IR will contribute towards the costs of a Participating Advisor programme review.

The New Zealand and Singaporean programmes are part of a wider suite of taxpayer compliance initiatives. A number of tax jurisdictions have various forms of pre-lodgement review of tax type returns for top-tier significant enterprises. These can take different forms and be either voluntary or mandatory and can involve a variety of inducements/incentives.