Annemarie Wilmore and Fabian Fedele discuss the implications of the new broadened definition of a Significant Global Entity (SGE).
Whilst it was a quiet 2018 Budget on the international tax front relative to the flurry of recent activity, the Government announced the Significant Global Entity (SGE) definition will be broadened. This will directly impact a number of large multinationals who, under the current SGE definition are outside the SGE net.
The concept of an SGE was introduced as part of the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 in the 2015 Budget.
Being an SGE was the prerequisite to an entity being within scope of recent legislative measures targeting multinationals, including the Multinational Anti-Avoidance Law (MAAL), Diverted Profits Tax (DPT), Country by Country Reporting (CbCR) and the requirement to prepare General Purpose Financial Statements (GPFS). SGEs are also subject to increased administrative penalties.
The current definition applies only to an entity which is a global parent entity or member of a group headed by a public company or a private company required to prepare consolidated financial statements, and with annual global turnover exceeding A$1 billion. The Government announced the definition will be broadened to include members of large multinational groups headed by private companies, trusts, partnerships and ‘investment entities’. The definition was restrictive in its application and did not bring as many large multinationals within scope of the new measures as intended, especially large multinational groups acquired by private equity.
The new definition will apply to income years commencing on or after 1 July 2018. Large multinational groups with global income exceeding A$1 billion but not an SGE under the current definition should be aware of the changes, the potential impacts, and likely Australian Taxation Office (ATO) investigation. If you think you may fall within the expanded definition of SGE, you should take steps to review relevant arrangements and consider actions required to the manage the potential risk.