Australian subsidiaries of large global groups must brace for unique obligations

One corporate accountant has flagged the obligations that Australian subsidiary entities face if part of a group of companies with an aggregated annual turnover above $1 billion.

While the global reporting obligation rules apply to the other entities within the group, the corporate accountant stressed that the Australian entity will be subject to the nation’s own reporting rules.

“Australia applies its own $1 billion global income threshold to determine when a range of additional tax and reporting obligations arise,” Grant Thornton Australia transfer pricing principal Keith To (pictured) told Accounting Times.

The unique requirements include potential country-by-country reporting statements, public country-by-country reporting, general purpose financial statements and Pillar Two.

Each of these has unique Australian rules, deadlines, data requirements and lodgement processes.

Reporting trap

To noted that one of the biggest traps for the multinational group as they approach the $1 billion threshold is that the existing global compliance framework automatically addresses Australian obligations for their Australian entity.

This $1 billion Australian global income threshold determines the point at which a range of additional tax and reporting obligations arise.

“Other jurisdictions operate under different thresholds and rules, meaning a group can become subject to Australia’s enhanced reporting regime before it has encountered equivalent obligations in its home jurisdiction,” To told the brand.

However, To noted that the Australian entities will be the only ones within the group that will be subject to the Australian obligations, leaving them to address requirements that the broader group has never previously had to manage.

Not only will the group’s surpassing of this $1 billion threshold subject the Australian entity to more reporting obligations, but also to tax compliance, enhanced administrative penalties and additional disclosure and lodgement requirements.

“The ATO has also prescribed particular lodgement processes and formats, with some filings requiring Australian-specific formats and additional software capability,” To said.

The role for corporate accountants here is to establish early which obligations apply, who owns each filing, and whether the responsibility lies in Australia or offshore, To said.

“These requirements should be mapped across the reporting calendar rather than addressed when a deadline is approaching.”

“With substantial penalties potentially applying to late lodgements, corporate accountants should be working with multinational groups to establish clear accountability, systems and processes well before the first filing deadline.”

While the threshold puts the Australian entity into the catchment for these rules, it may change when investment entity accounting rules get applied.

“Where a group applies the investment entity accounting rules, entities may legitimately fall outside the accounting consolidation perimeter. This can produce a different outcome, and these entities may fall outside the additional reporting obligations,” To said.

“However, increased failure-to-lodge penalties and additional anti-avoidance provisions can still apply.”

Unique costs

A global group entity with a global income of $1 billion or more is called a significant global entity (SGE).

Entities part of this group could be subject to significant Failure to Lodge (FTL) penalties, not eligible for proposed loss carry-back rules, Multinational Anti-Avoidance Law, and Diverted Profits Tax.

The FTL penalties are currently between $182,000 and $910,000.

“The appropriate starting point is therefore to understand where an entity sits within the ownership and accounting consolidation structure of the global group, including whether the statutory rules require a notional consolidation,” To said.

“Groups should therefore identify the potential Australian reporting obligation as early as possible, determine whether an exemption is available and, where appropriate, engage with the ATO well before the relevant lodgement deadline.”