Australia's MNC anti-avoidance law to pass; watch out for the stings in the tail

In a last minute political deal between the Coalition Government and minority parties, the Senate has agreed amendments and passed the Government’s Multinational Anti-Avoidance Law (MAAL). The legislation will return to the House, which continues to sit, and will become law ahead of its 1 January 2016 start date.(Read: Multinational anti-avoidance law for real: Australian legislation introduced)

At this point, details are sketchy, and we rely upon media reports and the Senate notice papers. Presumably, a consolidated Bill will be released, although the time to implementation is short.

To win Senate support, the Government had to give significant ground on two issues.

Private companies – transparency reapplied

Income tax transparency laws require the ATO to publish certain tax information of larger Australian taxpayers - those reporting total revenue in excess of $100 million. The reporting requirement first applies to the tax information arising from the 2013 – 14 income year, with the ATO expected to upload the identified data in November or December 2015.

Last-minute changes, in October 2015, excluded Australian private companies from this requirement; as a consequence, the tax information of these companies would not be made public. (Read: Company taxpayers: are you ready for the public disclosure of your tax data?)

But the Government has had to revisit this private company exemption, in order to get the Senate to pass its MAAL.

Australian private companies which have total revenue exceeding $200 million will now have their confidential tax information disclosed by the ATO. This introduces a second separate threshold.

Foreign companies, and Australian subsidiaries with greater than 50% foreign ownership, will have their tax information disclosed where their total revenue exceeds $100 million.

The tax information of Australian private companies, which can include companies with up to 50% foreign ownership, will only be disclosed where total revenue exceeds $200 million.

From the drafting of the agreed amendments, Australian private companies with total revenue exceeding $200 million will have their tax information disclosed from the initial year of the regimes operation, i.e. the 2013 – 14 income year.

All affected companies should anticipate this information will be uploaded by the ATO in the near future, should carefully review their figures, and have ready considered comments to explain any apparent anomalies.

Vested interest groups await the release of this information with great expectation, and the media firestorm that can be expected to follow, is unlikely to discriminate between (so-called) tax avoiders, and those entities with perfectly explicable reasons. The statutory metrics which will be released are simple to the point of misleading, and do not explain why there may be apparent anomalies in company numbers. It will be left to individual companies to fill the vacuum.

General purpose financial statements - requirement to prepare and lodge

The second concession the Government had to give related to “significant global entities” (SGE), those being the target of the MAAL and related amendments. A SGE is a single company, the top company in a consolidated group, or any subsidiary of a consolidated group, where the single company/consolidated group has a global annual turnover in excess of $A 1 billion.

Currently, there is a limited requirement for non-Australian companies operating in Australia, or “small” Australian subsidiaries of multinational groups, to prepare and lodge financial statements with ASIC.

Under the deal done, any SGE operating in Australia (whether a foreign company operating in Australia through a branch, or an Australian subsidiary of a multinational group) which currently does not prepare and lodge financial statements directly with ASIC, will have to prepare general purpose financial statements for each financial year, and lodge them with the ATO.

The ATO will then exchange those financial statements with ASIC.

The requirement to lodge financial statements will apply for income years commencing on or after 1 July 2016. And based on the wording of the proposed amendment, it would appear there is no requirement for the general purpose financial statements to be audited.

These changes have potentially significant implications for those companies affected, both at a commercial level, and also a systems level. We are aware of circumstances in which there is great doubt as to which companies are, and which are not, within the definition of “significant global entity”.

With the start date of this amendment only some 6 months away, companies will need to move quickly in order to best prepare for this new compliance obligation.

For further assistance or advice, please contact your RSM tax adviser.