More headaches for more Significant Global Entities - August 2018
On 20 July 2018, the Government released draft legislation and explanatory memorandum, which will extend the definition of a Significant Global Entity (SGE). The extended scope is intended to include members of large business groups (>A$1 billion in income) headed by unlisted companies, trusts, partnerships and investment entities. The measure is proposed to apply to income years commencing on or after 1 July 2018.
The draft legislation makes three substantial changes:
- Amending the definition of SGE so that it applies to groups of entities headed by an entity other than a listed company in the same way as it applies to groups headed by a listed company
- Amending the definition of SGE so it includes in the test those entities excluded from consolidation under the accounting rules. The definition also now includes those entities not required to be consolidated under the accounting rules due to the materiality exception
- Creating a new definition or category of taxpayer – a Country-by-Country Reporting Entity- more closely aligned to the OECD standard, which will have obligations to lodge Country-by-Country reports.
This divergence of definitions and obligations creates further levels of complexity for large multinationals. Given the significant penalties that SGEs are subject to for late lodgement, an error which results an incorrect classification of a group or a non-lodgement of a CbC report or other ATO document, could be costly.
With more taxpayers potentially within the definition of Significant Global Entity, it is timely to revisit the obligations of a SGE.
- Significantly increased administrative penalties where tax documents are lodged late, or false or misleading statements are made, from 1 July 2017
- The doubling of penalties from 1 July 2015 in respect of tax avoidance schemes and profit shifting activities where there is no “reasonably arguable position”
- The MAAL, which has applied from 1 January 2016, targeting multinational entities that seek to avoid having a taxable presence in Australia
- CbC reporting from 1 January 2016
- The need to lodge general purposes financial statements with the ATO if not already required with Australian Securities and Investments Commission (ASIC), applicable from 1 July 2016
- The DPT which from 1 July 2017 will target tax benefits in connection with schemes involving foreign associates and the diversion of profits to medium-to-low tax countries.