Country by Country Reporting: how super funds may obtain an exemption

The Australian Government has adopted the Country by Country reporting (CbyC) regime, intended to address significant cross border transfer pricing risk. Australian superannuation funds are caught by the regime where they qualify as ‘Significant Global Entities’, bringing the potential for very onerous annual compliance reporting.

We understand that the Commissioner does not intend to exercise the discretionary power under the regime to grant an exemption to superannuation funds as a class of taxpayers. However, the Australian Taxation Office (ATO) will consider exemption applications on a case by case basis for individual funds.

Superannuation funds wishing to obtain an exemption will be required to lodge a written application to the ATO explaining why an exemption is warranted. Given the onerous annual compliance reporting, we believe superannuation funds should consider whether they qualify as a Significant Global Entity first, and if so, seriously consider an application for an exemption.

US FIRPTA exemption for Qualified Foreign Pension Funds (QFPFs): ongoing work to ensure Australian super funds qualify

The Real Estate Roundtable and National Association of Real Estate Investment Trusts (NAREIT), which are US based property investment industry groups, have been addressing the definition of Qualified Foreign Pension Plans (QFPPs) and surrounding matters with Congressional staff and the IRS. Issues being addressed include:

  1. adding additional clarity that Real Estate Investment Trusts (REIT) distributions through partnerships are covered by the new rules
  2. qualification of an entity held by multiple QFPF’s and other structuring uncertainties
  3. application to super funds that have selfemployed members and government super plans that may not be tied to an employer
  4. providing things other than pension benefits will not cause a problem
  5. the nature of information that needs to be provided to taxing authority for certainty on the exemption.

We have been assisting our PwC US colleagues who are participating in the discussions with Congressional staff and the IRS to ensure the FIRPTA exemption applies to Australian super funds. We will continue our involvement in this matter and provide updates to you.

Division 293 Tax

The ATO has released an update to its online guide on the Assessment of Division 293 tax concerning the operation of Div 293 deferred debt assessments.

Super funds should consult the guide and ensure that Division 293 is being appropriately attended to.

New tax regime for managed funds becomes law

The attribution MIT regime (known as the AMIT regime) received Royal Assent on 5 May 2016. The ATO has also issued a number of Law Companion Guides which discuss certain aspects of the AMIT regime which now have the status of public rulings. The new rules apply from 1 July 2016, with early adoption available from 1 July 2015 for any qualifying managed funds that wishes to apply the rules early.

Fund Managers will need to determine whether to elect in to the new regime and from what date. The AMIT regime is meant to be beneficial for the finds management industry and its investors. As investors, super funds may wish to engage with their fund managers to ensure the benefits of the AMIT regime are maximised.

CGT Tax Propagation: heighten scrutiny from ATO

As most super funds have now used up all their realised capital losses from the Global Financial Crisis, and have now started paying capital gains tax (CGT) again, many super funds which have not already adopted Tax Propagation are now considering the merits of adopting the process. Tax Propagation is a parcel selection process which looks at all the parcels of a share held by a super fund across all of its managers, in order to select the optimal parcel for the most tax efficient outcome when some of those shares are sold.

This has resulted in a number of super funds lodging Private Binding Ruling requests with the ATO. However, notwithstanding that the ATO has ruled in favour of the Tax Propagation process in the past, the ATO is now seriously reconsidering its position regarding the application of the general anti avoidance rules.

The ATO has referred several recent ruling requests to the General Anti-Avoidance Rules (GAAR) Panel. The fact that this issue has been referred to the GAAR Panel highlights the seriousness of the matter.

This is a serious development for the superannuation industry as a number of super funds are already adopting Tax Propagation (some of which had previously obtained a favourable ruling) and other super funds seeking to commence Tax Propagation.

PwC has been in regular dialogue with the ATO on this matter, as we attempt to resolve the matter in favour of the superannuation industry.