17RU-002 ASIC relief for foreign controlled entities | KPMG | AU

17RU-002 ASIC relief for foreign controlled entities

17RU-002 ASIC relief for foreign controlled entities

ASIC has remade two expiring Class Orders providing relief to foreign controlled entities that are small into one new legislative instrument: ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204. The remade instrument continues the parity of reporting requirements of small foreign controlled proprietary companies with small Australian proprietary companies afforded by the previous class orders. A specific condition to allow ASIC to give notice, at its discretion, that an entity cannot rely on the relief has been added, however, in most cases we do not expect this to change the operation of the relief.

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New instrument made

ASIC has remade two expiring Class Orders providing relief to foreign controlled entities that are small into one new legislative instrument: ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204. The two expiring class orders were:

  • CO 98/98 Small proprietary companies which are controlled by a foreign company but which are not part of a large group in Australia; and
  • CO 02/1432 Registered foreign companies: Financial reporting requirements.

The class orders were due to expire on 1 April 2017 but were repealed on 28 March 2017. The new instrument commenced on 28 March 2017.

ASIC confirmed through the Explanatory Statement accompanying the instrument there is no change to the way in which either of the repealed class orders operates by issue of the new instrument.

Condition added to previous relief

One change was made to the previous relief conditions. The change gives ASIC the power to give notice to an individual entity that it may not rely on the relief for a financial year and ASIC have not subsequently revoked or varied that notice. This change was made in response to the concerns raised in the ongoing tax transparency debate. This essentially replicates the power that ASIC has in s294 of the Corporations Act to direct a small proprietary company to prepare and lodge financial statements.

Continuing relief in a nutshell

Subject to not receiving a notice from ASIC referred to above, the relief in the repealed class orders continues under the new legislative instrument.

Foreign controlled small proprietary companies

Foreign controlled small proprietary companies are relieved from the requirement to prepare financial reports under Chapter 2M of the Corporations Act if they are not part of a ‘large group’, as defined. This provides eligible foreign controlled small proprietary companies with the same financial statements preparation, audit and lodgement relief afforded to Australian small proprietary companies.

Annual directors’ resolutions are required no earlier than three months before the commencement of the financial year. A notice (Form 384) of this resolution must be lodged for the first financial year that the relief will be applied. The notice must be lodged no earlier than three months before the beginning of the financial year and no later than four months after the end of the financial year.

If a company ceases to rely on the relief for a financial year, it must either lodge an annual financial report prepared under Chapter 2M for that financial year or lodge notice, using Form 394, with ASIC during the period commencing three months before the beginning of the first non-reliance financial year and no later than four months after the end of that year.

Refer to KPMG’s Australian Financial Reporting Manual or the legislative instrument for further details.

Small registered foreign companies

Registered foreign companies that are the equivalent of small proprietary companies are relieved from lodging a statement of financial position, statement of profit or loss and other comprehensive income and statement of cash flows at least once every calendar year under s601CK(1).

Again there are various conditions in being able to apply the relief, including that the foreign registered company is not part of a ‘large group’, as defined, or is included in consolidated financial statements, covering the whole year, lodged with ASIC. In addition, a registered foreign company:

  • must be subject to provisions no less strict than those imposed on Australian proprietary companies;
  • must not be required to prepare any one or more of a statement of financial position, statement of profit or loss and other comprehensive income and statement of cash flows under the law in its place of origin;
  • must not have been a disclosing entity, borrower in relation to debentures or guarantor of a borrower at any time during the calendar year; and
  • must not have been large in relation to its last financial year.

Refer to KPMG’s Australian Financial Reporting Manual or the legislative instrument for further details.

Transition

The instrument includes a transitional provision that allows companies that relied on CO 98/98 in the immediately preceding financial year to rely on the relief in the new instrument.

Relief for small registered foreign companies from compliance with s601CK(1) under the new instrument commences on or after 1 January 2017 in respect of a registered foreign company that satisfies the conditions. No transition relief is therefore required from CO 02/1432.

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