17RU-005 Provision of GPFS to the ATO | KPMG | AU

17RU-005 Provision of general purpose financial statements to ATO

17RU-005 Provision of GPFS to the ATO

For income years beginning from 1 July 2016, significant global entities must lodge GPFS at the time they lodge a tax return, if they do not already lodge GPFS with ASIC within required deadlines. We have developed a guide to assist you in understanding the impact of the recently issued ATO guidance. The KPMG guide provides information on the issues identified in complying with the tax law amendments and includes some illustrative examples of the options available to entities.

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ATO release long awaited guidance

In December 2015, tax law amendments were enacted requiring significant global entities (SGEs) to provide the ATO general purpose financial statements (GPFS) at the time they lodge a tax return, if the entity does not already lodge GPFS with ASIC within required deadlines. The amendment applied for income years beginning 1 July 2016 – so impacts 30 June 2017 reporting dates.

 

So what’s new?

We now have the long awaited updated ATO guidance, but we also have a further consultation period for an additional month.

On 28 September 2017 the ATO released guidance on the GPFS measure for certain SGEs. This includes:

  • a transitional administrative approach for certain SGEs required to lodge GPFS for income years that commenced between 1 July 2016 and 30 June 2017
  • an ATO GPFS lodgement deferral until 31 March 2018 for the 30 June 2017 income tax year
  • guidance on the ongoing legislative regime governing the provision of GPFS by SGEs to the ATO, including commentary on the SGE definition plus possible best practice approaches to tax transparency. 

The ATO has also announced a further consultation period up to 27 October 2017 to allow for the identification of any additional issues that may arise for SGEs in seeking to satisfy this GPFS regime.

Impact of guidance on SGEs corporate tax entities

The entities most impacted by the tax law amendments will be the following types of SGEs (i.e. income of A$1 billion or more) corporate taxpayers:

  • foreign owned companies that are currently preparing and lodging special purpose financial statements (SPFS) with ASIC
  • foreign owned companies that are small proprietary companies which are not currently preparing financial reports under the Corporations Act (as they are not part of a large group)
  • locally-owned companies that are currently preparing and lodging SPFS with ASIC
  • companies which curently receive ASIC relief from preparation and/or lodgement of financial statements – for example, grandfathered (exempt) proprietary companies or groups with deeds of cross guarantee in place.

In 2016, the ATO issued a GPFS Consultation Paper (CP) to clarify some of the issues that arose from the enacted amendments. The guidance released in September 2017 seeks to address the issues and questions arising from the CP. One of the key issues was whether an Australian subsidiary of an overseas parent company could satisfy the GPFS requirements by lodging the global GPFS of its overseas parent, prepared using accounting standards other than Australian Accounting Standards (AASBs). The ATO has concluded the law does not accommodate this outcome, albeit the ATO’s transitional guidance provides first year relief.

Our Reporting Update (PDF 309KB) provides further details and discussion of the tax laws requirements and our guide (PDF 804KB) further expands on this information as well as providing illustrative examples of the options available to entities.

 

“While we support the need for transparency in relation to a company’s taxation matters we question how the lodgment of GPFS will assist in furthering this objective.

Financial statements contain limited and summarised information when it comes to disclosure of income tax matters. Information reported through the Tax Transparency Code (albeit voluntary at present) has the potential to provide information more useful to users external to a taxpayer.

Further we note the general powers of the Commissioner of Taxation to obtain information in relation to taxpayers and their affairs.

We would question whether any change in law surrounding general purpose financial statements would have been better dealt with through the Corporations Act rather than taxation legislation.

In order to avoid uncertainty (options) in the current drafting of the law an approach of revisiting legislative requirements to reflect parliament wishes would be a preferred approach that would assist reducing uncertainty in the business community.”

Michael Voogt
Director, Department of Professional Practice

Transitional administrative approach

The ATO has also issued transitional administrative relief for income years that commenced between 1 July 2016 and 30 June 2017.

The relief applies for the first year only and will only be applicable for limited circumstances – where the entity both:

  • falls within the scenario below
  • chooses to lodge an overseas parent’s consolidated financial statements, which consolidates the entity (you).

Scenario

If the entity is an Australian resident for tax purposes and:

  • the entity is required to prepare financial statements under Corporations Act
  • has not already lodged GPFS with ASIC by the required deadline.

In addition, it includes companies:

  • required to prepare, but not lodge financial reports with ASIC (for example, grandfathered large proprietary companies)
  • otherwise relieved from preparing financial reports for ASIC purposes because your parent lodges consolidated financial statements prepared in accordance with AASBs (for example, some deeds of cross guarantee arrangements).

The relief allows the lodgement of an overseas parent’s consolidated financial statements prepared under CAAP (for example US GAAP) rather than AASBs as required by the ATO guidance.

The ATO has provided the above relief as an acknowledgement of the difficulties, additional costs and risk of substantial penalties taxpayers may face in complying with the ATO’s interpretation of the tax law amendments.

Next steps

We have developed a guide (PDF 804KB) to assist you in understanding the impact of the guidance issued by the ATO. It reflects our current view of the ATO guidance released in September 2017. The KPMG guide provides information on the issues identified in complying with the tax law amendments and includes some illustrative examples of the options available to entities.

The ATO guidance does not clarify all of the issues that KPMG and others have raised. We will be seeking to further clarify these issues as part of the continuing consultation process.

Companies that are impacted by the tax law amendments should consider how to best satisfy the GPFS requirements under the options available in the first (including the transitional year concession) and subsequent years. The requirements may require additional information to be collected and presented in financial statements. This will likely involve significant additional time and cost.

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