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Australia: Extension of transition relief, central management and control test

Australia: Extension of transition relief

The Australian Taxation Office (ATO) announced an extension of the period for applying a transitional compliance approach to the standard for determining where a company’s central management and control is located.

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The extension under ATO guidance—Practical Compliance Guideline – Central management and control test of residency: identifying where a company’s central management and control is located (PCG 2018/9)—acknowledges the effort of companies that are taking active and timely steps to change their governance arrangements in accordance with the approach under the practical compliance guideline (PCG).

  • The update extends the transitional period for an “early balancer” taxpayer with a 31 December year-end to until 31 December 2020.
  • Taxpayers with a 30 June year-end will have an extension of their transitional period until 30 June 2021.

Penalties will not be pursued for a failure to file (lodge) tax documents in the approved form as a result of residency status for companies that adhere to the transitional arrangement or a failure to file a return as a result of an honest but mistaken belief that the company was a non-resident.

In addition, it has been clarified that:

  • Australian directors flying overseas to attend board meetings at a location where the company has a substantive commercial presence will not be considered an “artificial or contrived arrangement.”
  • Decisions undertaken by circular resolution are a factor in considering whether a substantial majority of a company’s central management and control is exercised in a foreign jurisdiction.
  • Australian resident companies that operate wholly offshore will often be regarded as “low risk” due to the application of the permanent establishment / branch exemption rules.         

 

KPMG observation

The extension of the transitional period is great news for companies that have been experiencing difficulty in complying with the changes under PCG 2018/9. The law and practical application of this corporate residency test, however, is viewed by some as being unsatisfactory. The current provisions have not kept up with the way business is conducted in the 21st century and tax professionals believe that reforms are required.


For more information, contact a KPMG tax professional in Australia

Peter Madden | + +61 2 9335 7500 | petermadden@kpmg.com.au

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