• Business and Investment

Expanding the definition of a large multinational

How a large multinational, or ‘significant global entity’ (SGE), is defined is of special importance as the ATO requires certain additional compliance measures from SGEs. It is proposed to expand the definition of an SGE to include a few more types of group structures in order to ensure that certain large multinational companies are not falling through the cracks under the current definition of an SGE.

Current definition of an SGE

An entity is determined as an SGE if itself, or as a member of a group of entities (consolidated for accounting purposes as a single group) it had an annual global income of $1 billion or more during a year.

Under the current definition:

  • For an entity that is a part of a group of entities, earning an annual global income above the $1 billion threshold, the decisive factor becomes whether the group is headed by a public or private company that is required to provide consolidated financial statements
  • A subsidiary excluded from the consolidated financial statements of its global parent entity (GPE) because the GPE is an investment entity, is not an SGE.

Amended definition of an SGE

The SGE definition will be broadened by the Government to ensure that certain other large multinational companies also come under the definition of an SGE. The new definition will include members of large global groups headed by private companies, trusts and partnerships.

Further, the new definition will include entities that are members of groups headed by investment entities.

The extended definition means that a broader set of entities will be required to comply with Country-by-Country Reporting (CbCR) obligations, the Multinational Anti-Avoidance Law (MAAL), the Diverted Profits Tax (DPT) and the substantially increased penalty regime.

The amended definition of an SGE will apply to an entity’s income period starting on or after 1 July 2018.

BDO Comment

The broadening of this definition will impact large multinationals who previously fell out of the definition of an SGE due to their group structuring. This expansion of the SGE definition translates to certain large global companies being required to undertake an additional administrative burden.

From a broader global perspective, the OECD has not yet amended their definition of an SGE, but BDO predicts that this may not be the case for long as, much like the ATO, other tax authorities may also come to notice that certain global companies have been structuring to avoid similar provisions.