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Significant Global Entity – Extending the scope

Significant Global Entity – Extending the scope

Jenny Wong looks at an expanded definition of Significant Global Entity and what it may mean for tax compliance.

Jenny Wong

Director, Australian Tax Centre

KPMG Australia


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Just when you thought you have crawled all over the definition of ‘significant global entity’ (SGE), it is about to change. Expanded actually.

We know that when you hear the term SGE the tax law gets intense, with additional compliance obligations arising.

These include complying with integrity measures such as Multinational Anti-Avoidance Law (MAAL) and Diverted Profits Tax (DPT); reporting obligations under country-by-country (CbC) reporting; providing general purpose financial statements (GPFS) to the Australian Taxation Office (ATO) that have not already been lodged with the Australian Securities and Investment Commission (ASIC) and of course, the one that taxpayers seem to be most concerned with, significantly increased administrative penalties for failure to meet their tax obligations.

Why has the definition of SGE expanded?

The current definition does not go far enough and broadly only covers a member of a group of entities that are consolidated for accounting purposes and the global parent entity of that group has an annual global income of $1 billion or more. If they are not consolidated for accounting purposes, they can’t be SGEs under the current definition.

New draft legislation was released on 20 July 2018 that proposes to extend the definition of SGE to include certain members of large business groups headed by proprietary companies, trusts, partnerships and investment entities. We have identified a few issues with the proposed law which we have raised in our submission lodged with Treasury last week.

The basics of how the new law does this is by testing an entity on the assumption that if the entity was a ‘pretend’ listed company, would the group (called a notional listed company group) in which the entity is in be required to consolidate for accounting purposes? There seem to be a few iterations required in interpreting proposed new section 960-575 (in a simple scenario of an ultimate unlisted parent company and subsidiary which are not consolidated for accounting purposes). We have sought clarity on this in our submission.

Further potential change

The other issue that we identified is there is a policy issue of whether the provisions in the law governing providing general purpose financial statements to the ATO should also be amended so that if an entity is a member of a notional listed company group, whether GPFS can relate to that entity and some or all of the other members of the notional listed company group. This would allow for one set of GPFS to cover the GPFS obligations of multiple notional listed company group members.

Finally, given the impact is high for entities that were not previously SGEs that now fall within the extended definition, such as being exposed to significant high administrative penalties and the legislation has not been finalised at 1 July 2018, we suggest the legislation only apply prospectively from say a quarter or an income year beginning on or after Royal Assent of enabling legislation, instead of income years beginning on or after 1 July 2018. Alternatively, some consideration should be given to having failure to lodge penalties not apply for the period between 1 July 2018 and the date of Royal Assent of the proposed legislation.

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