Large international companies operating in Australia will be significantly impacted by new reporting requirements.
Australia recently introduced new tax laws which require multinational companies with annual revenue in excess of AU$1 billion to provide the Australian Taxation Office (ATO) with general purpose financial statements on or before the due date for the lodgement of their income tax returns.
The new laws will affect Significant Global Entities (SGEs) that currently do not lodge financial statements with the Australian Securities and Investment Commission (ASIC) and those that lodge special purpose financial statements with ASIC.
The ambit of these new rules is not yet clear, and the ATO recently released a consultation paper providing some guidance on the envisaged process and requesting input from taxpayers.
We’ve addressed below; who may be affected by the new rules, the timing of reporting obligations and some frequently asked questions.
Who is affected?
A taxpayer will be required to provide general purpose financial statements if they satisfy all of the following conditions:
- The taxpayer must be a “corporate tax entity”. A taxpayer will be a corporate tax entity if the taxpayer is a company, a corporate limited partnership or a public trading trust.
- The taxpayer must be a SGE. A taxpayer will be a SGE if one of the following criteria are met:
- the taxpayer is a global parent entity (i.e. an entity that is not controlled by any other entity) whose global income for the income year exceeds AUD$1 billion; or
- the taxpayer is a member of a group that is consolidated for accounting purposes and the total global income of the consolidated group for the income year exceeds AUD$1 billion.
- The taxpayer must be an Australian resident for tax purposes or a foreign resident that operates an Australian permanent establishment.
- The taxpayer must not be required to lodge a general purpose financial statement with ASIC.
- The taxpayer must be required to lodge an Australian income tax return.
These new laws apply in respect of financial years starting on or after 1 July 2016.
The new rules do not give the ATO any power to extend the due date for taxpayers to provide their general purpose financial statements. However, if the taxpayer can obtain an extension of the due date for the lodgement of their income tax return, then the extended due date will also become the new deadline for the lodgement of the taxpayer’s general purpose financial statement.
Frequently asked questions
Can consolidated general purpose statements be lodged with the ATO?
A taxpayer can provide general purpose financial statements prepared on a stand-alone basis. If they are a member of a consolidated group, consolidated general purpose financial statements can be provided.
Do I need to comply with these rules if I already lodge special purpose financial statements to the ATO?
If you are an SGE that prepares special purpose financial statements, these rules will apply to you, and you will need to prepare and lodge general purpose financial statements with the ATO.
Do I need to comply with these rules if I am a grandfathered company or relieved from lodging financial statements with ASIC in terms of a Class Order?
Again, if you are an SGE, general purpose financial statements will need to be prepared and lodged with the ATO.
Do the general purpose financial statements need to be audited?
Strictly speaking, no, but from a practical perspective, this will likely be the case. The ATO will require that evidence is maintained to demonstrate that the financial statements have been prepared in accordance with the Australian Accounting Standards or commercially accepted principles relating to accounting. In practice, this is likely to be achieved by external audit verification processes.
Can the general purpose financial statements be prepared with limited disclosure?
Where financial statements are prepared in accordance with Australian Accounting Standards, these standards specify the extent of disclosure required. Typically, publicly accountable entities in the for-profit private sector will need to complete Tier 1 (full disclosure) financial statements. Other entities are required to complete either Tier 1 or Tier 2 (reduced disclosure) financial statements.
Do foreign companies with a permanent establishment in Australia need to comply with these rules?
These rules will apply to foreign companies with a permanent establishment in Australia where the global parent entity is an SGE. However, if a foreign entity is registered with ASIC and obliged to file general purpose financial statements on an annual basis, these rules will not apply.
What accounting standards should be used to prepare my financial statements?
The taxpayer’s general purpose financial statements need to be prepared according to Australian Accounting Standards, or commercially accepted principles of accounting. Currently, there are two potential alternatives – first, the taxpayer will be obliged to provide general purpose financial statements prepared in accordance with Australian Accounting Standards where it is obliged to prepare financial reports in terms of Part 2M.3 of the Corporations Act. Alternatively, the taxpayer will have a choice regarding accounting methodologies applied, taking into account the basis on which its global parent’s financial report is prepared.
For find out more about how the rules might affect your business, please contact your local William Buck advisor.