Financial reporting

Clauses 109–111

Issue: Support for the proposal

Submission

(Corporate Taxpayers Group)

The CTG supports the general proposal that Inland Revenue, as the biggest user of financial statements, should prescribe the minimum financial reporting requirements.

Recommendation

That the submission be noted.

Issue: Support for the consultation requirement

Submission

(CTG, NZICA)

The submitters endorse the requirement that the Minister of Revenue be satisfied that consultation has been appropriate before the Orders in Council are recommended.

Recommendation

That the submission be noted.

Issue: The minimum requirements should be no more than what is presently required

Submission

(NZICA)

That the Inland Revenue requirements should be no more extensive than what Inland Revenue generally requires taxpayers to provide currently.

Comment

Currently Inland Revenue does not set requirements for the specific form and detail of financial statements that it requests. One of the outcomes of the project will be the setting of minimum requirements by Inland Revenue, which will allow some consistency in the information requested.

Officials discussed this with NZICA who advised that compliance cost concerns are behind this submission. Officials have always been aware that the question is the balancing between these compliance costs and the availability of appropriate information. All parties are agreed that there is no point setting the minimum financial reporting requirements such that general purpose financial statements are required and this has never been Inland Revenue’s intention.

The consultation process is intended to ensure that this balance is right.

Recommendation

That the submission be noted.

Issue: Timelines for compliance with request to produce financial statements

Submission

(NZICA)

That it be made clear that taxpayers will be given reasonable time to furnish the financial statements following a request by Inland Revenue. The body of the submissions suggests a three month period. The submitter would prefer this to be codified into the legislation rather than confirmed in a statement issued by Inland Revenue.

Comment

The submission raises two separate but associated points, the period and the codification of the period.

NZICA advise that there should be a reasonable time period. Officials agree. Officials expect that the financial statements would be prepared, or largely prepared, as part of the tax return preparation process. Thus the production of financial statements should not be a time consuming exercise.

The NZICA submission seems to envisage that the preparation of financial statements and supporting data analysis may in some cases commence after the request. If this is accepted then the question must be asked as to the basis on which the tax return was prepared.

Generally Inland Revenue allows 28 days for the provision of requested information, but it will take into account circumstances where different periods are appropriate. For example, when the taxpayer is subject to an adverse event a longer period might be appropriate. Alternatively, where the taxpayer is an insolvent company a shorter period might be appropriate.

The 28 days could be codified, but that would reduce flexibility and would be unusual given that none of its other information requests are subject to codified periods. Rather the more general practice seems to work satisfactorily while proving appropriate flexibility.

Recommendation

That the submission be accepted in principle, but, consistent with current practice, the time period generally be limited to 28 days and that the codification request be declined.