Sometimes in life it feels good to be a big shot. However, on other occasions life is much easier when you’re not.
A number of recently legislated and upcoming international tax laws (such as Country-by-Country Reporting, Multinational Anti-Avoidance Law and the Diverted Profits Tax) apply only to ‘significant global entities’. So, when considering the impact of the changing tax landscape on your business, a key question to ask is “am I significant?”.
The answer can be found in Income Tax Assessment Act 1997 (“ITAA 1997”), Sections 960-555 and 960-560. Broadly speaking, an entity is a significant global entity for a period if it is part of a global group whose annual global income for the period is A$1billion or more. Therefore, small Australian subsidiaries of large multinationals will almost certainly be captured under these criteria and subject to these various new rules – regardless of the size of their local operations.
However, under certain structures the definition might not apply. Specifically if the Australian entity is part of a group that is treated as an investment entity for accounting purposes under Australian Accounting Standards Board (AASB)/International Financial Reporting Standards (IFRS) 10, where consolidated financial statements are not prepared at the head entity level. This may well be the case if the ultimate owner of the Australian entity is a private equity fund or trust.
How do you know if the suite of new rules and compliance obligations apply to you? By considering and documenting whether the definition of significant global entity will actually apply in your company’s facts and circumstances. If they do not, you may not be required to address the new world of additional tax risk and transparency that’s mainly aimed at the big end of town.
So, the question you should ask yourself is: “Am I significant?”. And: “Do I really want to be?”.