Australian subsidiaries must act now to ensure compliance with increased anti-avoidance measures

11 October 2016

Australian subsidiaries of foreign owned multi-national companies must act now to ensure their global head offices support them so they can comply with Australian Taxation Office (ATO) laws regarding international taxation reporting.

While it seems the wrong way around – a subsidiary urging a larger global conglomerate to comply with regulation - the consequences of non-compliance for local Australian businesses can be severe (including fines of up to $450,000) and they need the support of their parent company to ensure full disclosure.

I recommend this ‘back-to-front’ approach because Australia has taken the lead on implementing a range of anti-avoidance measures to tie in with the G20/OECD 15 point Base Erosion Profit Shifting (BEPS) Action Plan. This means Australian entities that are “significant global entities” must comply with new measures earlier than some of their global counterparts.

Australian regulations – new and proposed

In particular, the Australian tax measures local subsidiaries should be aware of are:

  • Country-by-Country (CbC) reporting from 1 January 2016
  • Multinational Anti-Avoidance Law (MAAL) from 1 July 2016
  • Obligation to lodge general purpose financial statements with the ATO for years commencing on or after 1 July 2016 and later
  • Diverted Profits Tax (DPT) from 1 July 2017*
  • Anti-hybrid rules to apply from 1 January 2018*
  • 10,000% increase in administrative penalties for late lodgement of documents and the doubling of the shortfall penalties for false or misleading statements from 1 July 2017*.

*Not yet legislated

Defining which Australian subsidiaries are impacted

If an Australian entity is part of a larger global conglomerate that is defined as a significant global entity, all of the above reporting requirements could impact them. This is irrespective of the size of the Australian entity in its own right, in fact, it could be quite small (except DPT, which generally applies to entities with local turnover greater than $25 million).

A significant global entity is defined as an entity with an annual global income of A$1 billion or more, or an entity that is a member of a group of accounting consolidated entities where the group’s global income is A$1 billion or more.

Alarmingly, some Australian entities are still unaware of their compliance requirements, and as a result, there has generally been little discussion about it at the Boardroom table. This puts these entities at significant risk of attention from regulators. My BDO colleague, Anthony Hayley is a Transfer Pricing expert and is seeing this trend every day in our local market.

If you work for an Australian subsidiary of a larger global company, or indeed a large Australian Headquartered Group, I strongly encourage you to determine whether you are a significant global entity, or not, as an immediate priority. If so, it is most definitely in your best interests to engage with your ultimate parent entity to raise their awareness of potential issues, encourage their support to facilitate local compliance with Australian regulation, and avoid some potentially severe penalties.

Learn more at BDO’s upcoming event series

BDO is committed to ensuring Australian companies are appropriately prepared to comply with their international tax and transfer pricing obligations. With this in mind, we are hosting a series of national events to outline the new requirements, and educate companies on how to engage with stakeholders and leverage the changes to achieve tax and transfer pricing efficiencies.

Register for a session near you

If you are unsure of whether your Australian entity is impacted by the new regulation, or you want to find out more about what’s involved in ensuring compliance, please contact me.