More entity types are now required to submit Country-by-Country files and General Purpose Financial Statements, explains Partho Guha.
In Australia, Significant Global Entities (SGE) are required to submit Country-by-Country (CbC) files, which include the country-specific Local File, group Master File and CbC report, for income years starting on or after 1 January 2016. Corporate tax entities that are SGEs must also lodge General Purpose Financial Statements (GPFS) with the Australian Tax Office (if not lodged with ASIC) in relation to income years commencing on or after 1 July 2016.
SGEs are broadly defined as entities that are part of groups which must prepare consolidated accounts under relevant accounting standards, and the group revenue as disclosed in the consolidated accounts exceeds AUD $1 billion. SGEs defined in this way generally only include companies in groups headed by a parent listed on a stock exchange, since such groups would be required to prepare consolidated financial statements under the accounting standards.
New: CbC reporting entity
Recent legislation changes have extended the class of entities required to submit CbC files and GPFS through the concept of 'CbC reporting entities' (CbCRE). Such entities are members of groups of entities with group revenue in excess of AUD $1 billion, headed by an entity that may – or may not – be a listed company.
Notional Listed Company Group
For groups headed by entities that are not listed companies, the CbC and GPFS requirements apply in the same way as they would to groups headed by a listed company, by introducing the concept of a Notional Listed Company Group (NLCG). A NLCG is a group of entities that would be required to be consolidated for accounting purposes as a single group, if it's assumed that one of the entities in the group were a listed company. It's further assumed that exceptions to requirements to consolidate, such as materiality and investment entity exceptions, were disregarded.
Whether a group of entities is required to consolidate will depend on whether one of the entities controls the other members of the group. This assessment is generally on the basis of AASB10 and considers such factors as ownership percentage, voting rights, provisions of trust deed, identity of directors and shareholder agreements.
This legislative change brings into the ambit of CbC reporting members of large Australian or multinational groups headed by such entities as:
- private companies
- private equity investors
- pension funds.
By deeming groups headed by the above types of entities as NLCGs, members of such groups would be regarded as CbCREs, even where there is no requirement under the accounting standards to prepare consolidated financial statements for the group.
When do these changes apply?
These legislative changes apply retrospectively for income years beginning 1 July 2019.
For entities with financial years aligned with the calendar year, the first year that the change applies will be the year ending 31 December 2020.
However, transitional provisions apply, and penalties that arise from non-compliance with the new laws do not apply until 1 July 2020 for entities that were not previously SGEs.
It's critical for businesses and groups using structures other than listed company vehicles to carefully consider the applicability of the legislative changes to their tax and reporting obligations.
The risk of being non-compliant with these obligations is amplified by the significantly higher penalties that apply to SGEs as compared to other entities. For example, administrative penalties for late lodgement of tax-related documents by SGEs start at $111,000 and can be as much as $555,000 per document.
These changes bring the Australian requirements more into line with the OECD approach.
Talk to TMF Group
TMF Australia monitors changes to all rules and local regulations. Our accounting and tax team can help you assess whether the CbC Reporting entity and Notional Listed Company Group rules apply to your group.
We can also help you ensure full compliance with your CbC reporting and GPFS obligations, and assist you with cross-border tax issues, including preparing Transfer Pricing documentation.
Need more information? Get in touch with our experts.
The above information is general in nature for information purposes, and should not be considered tax advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.