Well, it’s here. The Australian Taxation Office (ATO) has released a consultation paper seeking to provide more guidance on the new requirement that significant global entities ie entities with annual global income of $1 billion or more, provide the Commissioner a general purpose financial report (GPFR) if they do not already lodge one with the Australian Securities and Investments Commission (ASIC). Here are my initial thoughts.
The paper raises a number of questions for consultation with an overarching aim of keeping taxpayers obligations ‘as simple as possible’. The paper is also seeking input to highlight any areas that are unclear or are causing difficulties in understanding your obligations. Here are two frequent questions I’ve been asked and the ATO’s paper seeks to address:
Do the GPFR need to be audited?
There is a Q&A section in the paper. The short answer seems to be ‘practically yes’. The ATO appears to address the absence of an explicit requirement in the law with “in practice, having GPFR externally audited is the simplest and most reliable evidence (to provide GPFR has been prepared in accordance with Australian accounting standards and or commercially accepted principles). If you read the 3 December 2015 Senate Hansard (PDF 2.2MB) at 9897 between the Greens (from which this new requirement emanated) and the Independents, it clearly intended for GPFR to be audited.
If I have a foreign owned Australian group, which accounts will satisfy my obligations for my Australian entities? Can I just lodge my foreign parent’s consolidated accounts?
This leads me to paragraph 17 of the consultation paper (paragraph numbers are visible online but not in print version, by the way) that raises the issue for consultation rather than providing any definitive guidance.
The answer often seems to be ‘yes’ you can look to the foreign parent’s consolidated accounts but which accounting standards apply if you want to rely on that? In most cases the global parent’s country standards have probably been adopted at the global consolidated level but is this acceptable to meet the Australian GPFR obligation in the tax legislation?
The first view the consultation paper provides is that if you are an affected entity, you need to prepare your statement in accordance with Australian accounting standards if those standards apply to you in accordance with the corporations law requirements. It you intended to satisfy the obligation by lodging your global consolidated accounts then the report would need to be prepared in accordance Australian accounting standards.
The second view is that in most instances you can just choose to provide the global parent’s consolidated accounts prepared in the parent’s home country. The latter view being much easier option I would have thought.
If you previously prepared special purpose financial reports for an Australian entity in a foreign owned group or are a foreign resident with an Australian permanent establishment you should consider whether you have foreign parent consolidated accounts that satisfy the GPFR requirements or whether new GPFRs need be prepared for the entity. Consider whether the consultation paper addresses your scenarios and give us a call to discuss further. I’ll be working with our Accounting and Advisory colleagues on a submission to the ATO.