This article outlines the tax and financial reporting implications for a Significant Global Entity.
What is a Significant Global Entity?
An Australian entity is a Significant Global Entity (SGE) if the entity is a global parent entity or a member of a group of entities with a worldwide consolidated revenue of A$1 billion or more.
The SGE concept was expanded by the Treasury Laws Amendment (2020 Measures No. 1) Act 2020 applicable for income years commencing on or after 1 July 2019. The new SGE concept includes entities that are owned by high wealth individuals, partnerships, trusts, those considered to be non-material to a group as well as certain investment entities (and those that they control), including in circumstances where consolidated financial statements have not been prepared.
What are the consequences of being an SGE?
The SGE concept determines whether an entity is subject to a number of tax integrity and financial reporting measures.
An Australian entity that is an SGE may need to lodge an annual Country-by-Country (CBC) report and may be subject to the multinational anti-avoidance law, the diverted profits tax or increased administrative and other penalties.
CBC reporting is part of a suite of international measures aimed at combating tax avoidance. It achieves this through comprehensive exchanges of information between participating jurisdictions.
CBC reporting entity is required to lodge a Master File and Australian specific XML format Local File with the Australian Taxation Office (ATO) each year. SGEs with an Australian global parent entity must also lodge an annual CBC report.
There is a narrower scope of entities subject to CBC reporting requirements than under the expanded definition of SGEs. The key difference is that in determining which entities would be consolidated for accounting purposes, a CBC reporting entity can take into account exceptions to consolidation provided by the relevant accounting principles (other than materiality).
- Company tax rate
The full company tax rate of 30% generally applies to SGEs as they are not eligible for the lower company tax rate.
- Failure to lodge on time penalties
Significant failure to lodge on time (FTL) penalties may apply to SGEs that fail to lodge on time a tax document including Business Activity Statement, Instalment Activity Statement, Fringe Benefits Tax Return or Income Tax Return.
The FTL penalties per document start at $111,000 for 28 or less days late and can increase to $555,000 for more than 112 days late.
Financial reporting implications
An SGE that is also a CBC reporting entity is required to lodge general purpose financial statements (GPFS) with the ATO by the lodgement due date of its annual income tax return (unless the SGE is already lodging GPFS with the Australian Securities and Investments Commission (ASIC)). The ATO will give a copy of the GPFS to ASIC which will appear on ASIC’s register and therefore will be available to the public.
An SGE preparing GPFS may elect to apply reduced disclosures or early adopt simplified disclosures. Nevertheless, this reporting is likely to be a lot more detailed than is currently prepared.
It is important for a foreign controlled Australian entity to assess whether it meets the definition of an SGE and is also a CBC reporting entity.
If applicable, an SGE should carefully review their tax and financial reporting requirements to ensure that they can meet their tax obligations on time and avoid any significant penalties and comply with the enhanced financial reporting requirements.