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On 11 December 2015, the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 received royal assent. The Bill which takes effect from 1 July 2016 introduces tax laws which apply to very large multinational corporations (“MNC”) and includes changes to multinational anti-avoidance measures, upgraded penalty provisions and new tax transparency reporting and transfer pricing documentation requirements (Country by Country reporting).
The laws have been introduced to prevent multinationals from using artificial arrangements in order to avoid paying tax in Australia. Multinationals found avoiding tax will have to pay back tax they owe (plus interest) and face increased penalties of up to 100%.
The amendments, which also include a requirement to lodge general purpose accounts with the Australian Taxation Office (“ATO”), will only apply to very large MNC groups, their subsidiaries and branch operations where the MNC/MNC group satisfies the test requirement of being a Significant Global Entity (“SGE”).
To be an SGE, the annual global income of the MNC parent and its consolidated group must exceed $A1 Billion. To determine if the annual global income exceeds the threshold, special rules apply to the conversion of foreign currency into Australian dollars. In general, average foreign exchange rates will apply for the period the financial statements are prepared.
Requirement to lodge General Purpose accounts
If the corporate tax entity is a SGE and meets the following eligibility criteria, the entity will be required to prepare and provide the Commissioner for Taxation (“Commissioner”) with general purpose (“GP”) financial statements by the due date for lodgement of the entities Australian Income Tax Return.
The reporting requirement will apply where a corporate tax entity is an SGE and at the end of the income year, the entity is:
- An Australian resident; or
- A foreign resident who operates an Australian permanent establishment.
This will mean that a foreign company with an Australian branch or permanent establishment will be required to prepare accounts for the entire foreign company operations, not just its Australian branch operations and these accounts will be required to be lodged with the ATO. The ATO will also be required to provide the Australian Securities and Investments Commission (“ASIC”) with a copy of the GP accounts lodged by the relevant entity.
GP accounts are required to be prepared in accordance with accounting principles or commercially accepted principles relating to accounting, whichever is applicable.
The legislation is silent on whether the GP accounts are required to be audited. RSM are of the view that in the absence of any specific requirements inferred through the Corporations Act, the GP accounts provided to the ATO would not be required to be audited.
Action Items
Many Australian subsidiaries or branches of foreign companies will need to assess whether they;
1) Are likely to meet the $A1 Billion threshold on a global basis, and if so;
2) Consider if they need to make changes to their Australian financial statement preparation and reporting processes.
For further information on the tax law changes and how they impact on you, please contact the RSM Tax Services team in your capital city.