Significant Global Entities
22 May 2019
The ATO has been stepping up its activity in relation to the special tax rules applying to Significant Global Entities (SGEs) recently, despite the rules having been around for a few years now.
This is particularly true of the eye-watering levels of penalties that can be imposed on any late lodgements of any tax documents by SGEs.
What is an SGE and who is at risk?
An SGE is an Australian entity that is part of a worldwide group where the worldwide group has a turnover of A$1 billion or more. This is measured using the accounting standards test for consolidation and applies whether or not consolidated accounts are prepared for the group. There is no minimum size for the Australian entity - an Australian entity may be an SGE irrespective of its own size. Any entity that is an SGE clearly carries additional risk.
SGEs are subject to a range of additional compliance obligations, including the:
- Potential imposition of late lodgement penalties of up to 500 times greater than for other entities
- Potential imposition of shortfall penalties for false or misleading statements at double the rates for other entities
- Requirement to lodge country by country reporting documents (constituted by a country by country report, master file and local file)
- Obligation to lodge general purpose financial statements with the ATO, unless such statements have already been lodged with ASIC
- Multinational anti-avoidance law
- Diverted profits tax.
What are the potential penalties?
To put the penalty risk in context, SGEs are subject to potential penalties starting at $105,000 and rising to $525,000 per tax document lodged late.
Understatement penalties for lack of reasonable care will start at 50% of the tax shortfall (instead of 25% for non-SGE entities). These penalties apply to all tax lodgements including BASs, FBT returns, PAYG withholding requirements and superannuation guarantee charge statements, not just those special lodgements required for SGEs.
We have recent evidence of late lodgement of income tax returns and business activity statements being penalised by the ATO at these rates – even where the penalty exceeds the net market value of the Australian entity involved.
If you are unsure about your SGE status or your compliance obligations, please contact your BDO adviser.