The introduction of new tax measures, increasing insolvencies, and the growing incidence of digital disruption in the corporate sector in Australia means there are a number of key areas that CEOs, executives, directors, and boards should be aware of in 2016, according to RSM Australia.
1. The introduction of multinational tax avoidance law
In early December, the Coalition Government and the Australian Greens struck a last-minute political deal passing the government’s proposed Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (Bill), which included the Multinational Anti-avoidance Law (MAAL).
The new legislation, which passed with several amendments, will come into action from the beginning of 2016. It will compel multinational companies with (AU) $1 billion or more annual global income, and private companies that earn more than (AU) $200 million annual revenue in Australia to report income, tax, and transfer pricing arrangements to the Australian Taxation Office.
The aim of the new legislation is to dissuade large companies from engaging in profit-shifting practices to avoid paying taxes in Australia. With the new laws coming into effect so soon, multinationals and larger local organisations need to examine their existing finance and tax structures, and move quickly to prepare for the new associated compliance obligations in the coming year.
2. Avoid phoenix activity
Illegal phoenix activity is on the rise. Fraudulent phoenix activity is when a company deliberately goes into liquidation to avoid paying debts such as employee entitlements, taxes, and supplier invoices, then transfers the assets to a new company and continues to trade. This leaves creditors, including employees and suppliers, out of pocket with no recourse.
The rise of phoenix manoeuvres among Australian businesses is leaving individuals, suppliers, and other stakeholders up the chain out of pocket, as well as negatively affecting the economy as a whole. With a parliamentary inquiry into insolvencies in the Australian construction industry wrapping up in December 2015 and an increased focus on phoenixing in several industries, the ATO is likely to continue to crack down on it in 2016.
Company directors need to avoid illegal phoenix activity and make sure they’re not associated with it, as the penalties can range from fines to prison terms. For individuals and suppliers, it’s important to keep an eye out for potential illegal phoenix activity to avoid being owed money that will never be paid.
3. Company tax disclosure
The first disclosure of taxpayer data will be uploaded to the data.gov.au website in December 2015 in the Australian government’s first tax transparency report. This data will be extracted from taxpayer returns for the 2013-2014 income year, and applies to public companies with a total income in excess of (AU) $100 million for the 2013-14 financial year.
Large companies that face public disclosure of their tax data in the coming year need to understand the likely figures that will be released, and consider the message those figures will deliver.
For companies anticipating a low effective tax rate, it is critical to have on hand information that balances the minimalist ATO reporting and explains the underlying commercial reasons for the lower tax rate such as foreign income, accelerated depreciation rates, tax losses, and research and development tax incentives.
4. Understand the risks to shadow CROs
Employing shadow chief restructuring officers (CROs) puts at risk those individuals helping Australian businesses to restructure or wind up. Their role, if things go wrong, means they can be pursued as a company ‘shadow director’ and may be held personally liable.
With increasing insolvencies in 2016, getting expert help when a company is in trouble is the ideal response. However, these consultants must take steps to protect themselves; they should not just assume they’re untouchable just because they aren’t official company directors.
If the consultant is involved in a company’s management and decision-making, or has similar responsibilities to a director, then they can be seen as a ‘shadow CRO’ and subject to the same legal ramifications as a company director.
5. Combating the risk of a digital environment
Organisations must put the right security and processes in place to remain safe and sustainable as digital disruption will continue to occur in 2016.
There are many factors to consider from a risk perspective, and getting it right is critical. However, these steps do not require complex solutions in all cases, merely diligence and attentiveness to the risks. It is vital for organisations to identify threats early and respond appropriately. The key is to balance risk and control to enhance the value that organisations can deliver to stakeholders.
In 2016 organisations will need to stay at the cutting edge of technology risk management to combat evolving risks.
For more information about this article, please contact your nearest RSM Office