As part of a wider effort to combat corporate tax avoidance and improve the transparency of multinational companies’ financial affairs, in late 2015 the Australian Parliament amended existing Australian tax legislation to require significant global entities (SGE), or their Australian subsidiaries or branch offices, to prepare and lodge general purpose financial statements (GPFS) with the Australian Taxation Office (ATO). GPFS are required to be lodged at the same time such entities lodge their annual tax return if they do not already lodge GPFS with the Australian Securities and Investments Commission (ASIC).
The amendments will potentially impact Australian subsidiaries or branches of foreign companies, which prior to the introduction of these amendments, were otherwise relieved from preparing or lodging financial statements or had only limited financial reporting obligations. They will also affect entities that previously only prepared special purpose financial statements (SPFS) to comply with their financial reporting obligations.
The ATO conducted a consultation process on these amendments in 2016 and it is expected it will issue guidance on the new requirements during 2017, in time to assist impacted entities to organise their affairs following the first year end – 30 June 2017 – in which these new requirements will apply.
Who will be affected?
The amendments are directed towards the financial reporting by entities in SGE groups that are corporate tax entities in Australia (which would usually, but not exclusively, be companies).
An entity will be part of a SGE group for a period if:
- it, or its global parent entity, has an annual global income of A$1 billion or more for the period (based on its global financial statements); or
- it is a member of a group of entities consolidated as a single group for accounting purposes where another group member is a global parent entity with an annual global income of A$1 billion or more (based on its global financial statements).
In general, if an entity (including a small sized company):
- is part of a SGE group;
- is an Australian tax resident or is a foreign resident that operates an Australian permanent establishment; and
- does not lodge general purpose financial statements with ASIC,
then the entity must, on or before the tax return lodgement date, provide GPFS to the ATO.
The ATO, in turn, must give a copy of those GPFS to ASIC. Although the ATO will be subject to the taxpayer confidentiality obligations contained in the tax law in relation to its dealings with GPFS, GPFS forwarded by the ATO to ASIC are taken to have been ‘lodged’ with ASIC and form part of ASIC’s public register which is available for inspection by any person.
Impact on existing reporting obligations (and reliefs)?
One impact of the amendments is that entities which would usually be exempt from financial reporting obligations will (if a member of a SGE group) be required to prepare and lodge GPFS, including:
- grandfathered proprietary companies which are usually exempt from the requirement to lodge a financial report with ASIC;
- wholly owned subsidiaries ASIC has relieved from their financial reporting obligations. These entities will only be able to continue to rely on this relief if the parent company lodges a GPFS;
- small proprietary companies relieved from their obligation to lodge financial statements because they form part of a foreign group. If these companies are controlled by a group considered to be a SGE, the Australian company will have to prepare and lodge GPFS notwithstanding this relief;
- entities that lodge SPFS in satisfaction of their reporting obligations to ASIC; and
- other entities which do not have financial reporting obligations under Australian corporations law such as some partnerships and trusts.
Consequently, the new obligations imposed by the amendments cut across the reliefs currently existing under Australian corporations law by imposing additional financial reporting obligations on those entities forming part of a SGE group notwithstanding that they have otherwise obtained the benefit of an exemption from their financial reporting obligations. The consultation paper released by the ATO confirmed that any relief or exemptions provided under the Corporations Act will not affect the new reporting obligations under the tax law amendments.
The amendments have other impacts which were highlighted by the ATO’s consultation process, including questions as to:
- which accounting standards would apply to the GPFS required to be provided to the ATO;
- the potential misalignment of existing financial statement filing dates with ASIC as compared to the new GPFS filing date with the ATO; and
- whether the GPFS lodged with the ATO need to be audited.
The consultation process closed on 30 September 2016, the ATO is currently preparing final guidance on the amendments which is expected to be released in the coming months.