Unlike U.S. laws, international laws have not contained detailed provisions regarding electronic tax records. However, the issuance of a new Draft Taxation Ruling by the Australian Taxation Office (ATO) changes this situation. This article reviews the main features of Australia's DTR 97/D4, Income Tax: Electronic Recordkeeping, and compares it to Revenue Procedure 98-25, its counterpart issued by the IRS in the United States.
Background of DTR 97/D4
Tax authorities throughout the world want organizations to maintain records, regardless of form or media, that are true and accurate, legible, accessible, and retained for as long as they are needed for tax purposes. However, electronic records pose certain risks not generally encountered with manual, paper-based recordkeeping. In DTR 97/D4, the ATO notes that electronic tax records (i.e., those required to compute a corporation's tax liability and to justify that liability to the government during tax audits) are subject to:
* Inadvertent destruction or corruption as is any digital information
* Unauthorized tampering, which may compromise their integrity as true and accurate records
* Obsolescence of the operating systems used to process them, due to the constant upgrading or changing of computer systems over time
DTR 97/D4 sets forth provisions prescribing the characteristics of electronic recordkeeping systems required to make computerized accounting systems sufficient for tax purposes. The regulation covers electronic records in all common formats, including fixed and removable hard disks, floppy diskettes, CD-ROM, optical disks, and magnetic tapes. The regulation also contains a separate section relating to tax records processed on Electronic Data Interchange (EDI) systems, but it does not address the maintenance and retention of electronic records created from business transactions carried out through the Internet.
The general provisions of DTR 97/D4 pertaining to the use of electronic recordkeeping systems for tax records are:
* Records processed and kept electronically must be in a form which ATO staff can access and understand in order to ascertain a company's tax liability.
* The information contained in a
record kept in a computerized accounting system, must be the same as would be contained in a manual accounting system.
* Businesses operating computerized accounting systems must have in place adequate controls to safeguard the security and integrity of the records processed and retained in such systems. These may include access controls, input and output controls, processing controls, and back-up controls. In any case, the level of controls must be sufficient to demonstrate that the records retained in the computer system are secure and accurate.
Electronic Document Imaging Systems
In promulgating DTR 97/D4, the ATO indicates that it will accept the use of electronic document imaging systems for tax records provided that the electronic copies are a "true and clear reproduction of the original paper records." However, the ruling provides that any tax records stored using this technology must be:
* Read only and must not in any way be altered or manipulated once inscribed
* Retained for the statutory period of five years
* Capable of being retrieved, read and printed upon request of the ATO staff
* Subject to adequate back-up control (i.e., a duplicate back-up copy of the stored records must be kept at all times at a safe location)
Where businesses elect to maintain computerized accounting systems for tax records, DTR 97/D4 requires that certain documents be retained to explain the system's basic aspects so that ATO officers can determine if the system does what it claims to do and whether the records processed in it are true and accurate. …