Tax Workings & Assumptions

What are Tax Workings & Assumptions?

A tax workings and assumptions document records the calculations and assumptions used by your company to calculate and file past tax returns.

A tax workings and assumptions document is the supporting document used by your company to file tax returns across jurisdictions. It outlines the calculations and assumptions used by your company to estimate your tax liabilities and obligations for a particular financial year.

It covers:

• Tax Gains and Losses: Previous and current tax gains and losses, including tax losses that can be carried over to the next year
• Tax Provisions: Amount of tax that your company expects to pay in the current financial year and any provision made for tax payments in the next financial year
• Tax Accounting Methods: Description of methods, assumptions and rules followed by your company to report your income and expenses in order to calculate your tax liabilities
• Tax Calculations: Process of calculating tax rebate from R&D expenses and determining net income for accounting purposes against income tax purposes (tax timings differences)

Why are Tax Workings & Assumptions important for business today?

The documentation of tax workings and assumptions enables your company to:

• File accurate tax with various tax authorities across jurisdictions
• Establish consistency in tax accounting and calculation processes across your company and jurisdictions
• Determine the amount of tax your company expects to pay in the current financial year and make tax provisions for the upcoming financial year
• Document the calculations and assumptions used by your company to calculate your tax liabilities and communicate them to tax authorities
• Evaluate the tax rebates applicable to your company from R&D expenses and from carry- forward of historical tax losses
• Determine the tax timings difference and assess its impact on your tax liabilities

Why are Tax Workings & Assumptions important for an event tomorrow?

The documentation of tax workings and assumptions is important for an event tomorrow, as it helps:

• Assess the tax accounting and calculation policies used by your company
• Evaluate the historical and current tax position of your company
• Review the assumptions and calculations used by your company for tax filings or returns across jurisdictions
• Assess the reserves made by your company to meet future tax liabilities
• Determine the amount of tax rebate that your company can claim for the upcoming financial year
• Measure consistency in tax liability assessment across group companies and evaluate internal calculation processes

Pros of addressing Tax Workings & Assumptions

• Reduced potential for overstatement or understatement of your company’s tax liabilities
• Transparency between your company and tax authorities across jurisdictions
• Acts as a training manual for new and existing employees to ensure accurate tax calculation
• Facilitates the formulation and implementation of processes to manage your company’s tax filings

Cons of not addressing this topic

• Increase the risk of tax non-compliance as calculations and accounting methods are not documented
• Potential impact on the financial health of your company due to inability to reduce taxable income and tax liabilities
• Restriction on your company’s ability to prepare and file accurate tax returns
• Increase in the time required to file tax returns with regulators across jurisdictions
• Potential overstatement or understatement of your company’s tax liabilities.