Crackdown on multinational tax arrangements with new subsidiary disclosure requirements

Australian public companies (listed and unlisted) will need to disclose prescribed information about subsidiaries by way of a new ‘Consolidated Entity Disclosure Statement’ in their annual financial reports from this year onwards. This comes under changes to the Corporations Act 2001 (Cth) by the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 (Bill), which received royal assent on 8 April 2024.

This measure will place an onus on companies to be more transparent about their corporate structures and is designed by the government as a means of enhancing public scrutiny of multinational tax arrangements.

The government expects that more information in the public domain will help encourage behavioural changes among companies in how they view their tax obligations, including their approach to tax governance practices, decision-making around aggressive tax planning strategies and potential simplification of group structures.

These amendments are intended to supplement existing tax reporting and disclosure obligations in sections 3C to 3H of the Taxation Administration Act 1953, the first of which was enacted in 2013. They also align with international approaches to enhance corporate tax transparency, similar to those in the UK.

The changes are effective for financial years commencing on or after 1 July 2023 and will apply to this year’s (FY24) annual reporting season.   

What does the Consolidated Entity Disclosure Statement require?

The Consolidated Entity Disclosure Statement will be either:

• where the company is required to prepare consolidated financial statements by the accounting standards, a statement that includes prescribed disclosures about entities within the consolidated entity at the end of the financial year (more details below); or
• if the above does not apply (that is, the company is not required to prepare consolidated financial statements by the accounting standards), a statement to that effect.

The prescribed disclosures mentioned above includes:

• the names of each entity at the end of the financial year
• whether the entity was a body corporate, partnership or trust at the end of the financial year
• whether at the end of the financial year, the entity was any of the following:
  • a trustee of a trust within the consolidated entity;
  • a partner in a partnership within the consolidated entity; or
  • a participant in a joint venture within the consolidated entity.
• if the entity is a body corporate, where the entity was incorporated or formed
• if the entity is a body corporate, the public company’s percentage ownership (whether directly or indirectly) of each of those entities that are body corporates at the end of the financial year
• the tax residency of each of those entities during the financial year.

The ‘Directors Declaration’ in the financial report about the ‘truth and correctness’ of the financial report will extend to cover the Consolidated Entity Disclosure Statement. 

Where the company is listed (or otherwise a disclosing entity), the requirement for a chief executive officer (CEO) and chief financial officer (CFO) declaration – a written declaration from the CEO and CFO that in their opinion the financial statements are true and correct, that must be provided to directors before they can make their declaration – will extend to the Consolidated Entity Disclosure Statement. 

How can we help?

If you would like assistance to ensure your annual report disclosure is compliant with the new laws, please contact our national Corporate & Commercial Law team.

Separately but relatedly, concurrent amendments to the Australian tax legislation will change the thin capitalisation rules to limit the amount of debt deductions that multinational entities can claim in an income year. These changes represent a significant shift from the existing thin capitalisation rules and will require many companies to review their debt/equity funding arrangements.

If you would like further advice about how the new thin capitalisation rules may impact your company, please get in touch with our national Taxation group.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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