Following on from our article in November Accounting News, the Australian Securities and Investments Commission (ASIC) continues to remake class orders because the relief currently available in class orders would otherwise lapse ten years after the class orders were made. This 10 year ‘sunset clause’ ensures that legislative instruments are kept up to date and only remain in force while they are fit for purpose, necessary and relevant.
Consultation Paper, CP 248 Remaking ASIC class orders on reporting by foreign entities, issued by ASIC in December 2015, proposes combining the following two class orders into one legislative instrument:
Small foreign controlled proprietary companies, whose results and financial position are not included in consolidated financial statements lodged with ASIC, would otherwise be required to lodge financial reports with ASIC under s292 of the Corporations Act 2001, putting such companies in a more onerous financial reporting position than small proprietary companies that are part of an Australian group. Provided such small proprietary companies are not part of a ‘large group’, as defined in CO 98/98, they are not required to lodge financial reports with ASIC (if all conditions of CO 98/98 are met).
A registered foreign company must, at least once every calendar year, and at intervals of not more than 15 months, lodge a copy of its balance sheet, cash flow statement and profit or loss statement (the financial statements) with ASIC (which can be required by ASIC to be audited). The financial statements must comply with the law in the country of origin, and if there is no such law, ASIC can require financial reports as if the company were a public company under the Corporations Act 2001.
Again, this puts such companies in a more onerous financial reporting position than Australian small proprietary companies.
Similar to the relief provided by CO 98/98 for small foreign controlled proprietary companies, provided such small proprietary companies are not part of a ‘large group’, they are not required to lodge financial reports with ASIC (if all conditions of CO 02/1432 are met).
The relief provided by both CO 98/98 and CO 02/1432 will be retained in the new combined instrument, except that ASIC will have the ability to notify an individual entity that it may not rely on the relief. While the draft new instrument does not specify conditions for ASIC denying relief, the Consultation Paper notes that ASIC will have regard to information provided by the Australian Tax Office (ATO) or other regulators, and will consider whether preparing and lodging financial reports is in the public interest, and whether benefits will outweigh the costs.
The Consultation Paper provides a non-exhaustive list of examples where ASIC may notify that relief cannot be used:
- The ATO has or is undertaking a review of a taxpayer and the lodgement is considered to support transparency leading to improved compliance (without limiting the circumstances, an example may be where the ATO is undertaking a profit shifting inquiry); and
- information received suggests that an entity is relying on the relief when it is not meeting the conditions for relief. ”
ASIC is seeking comments by 29 February 2016.