Client Alert

Tax residence of subsidiaries – mandatory financial reporting disclosure for public companies

Joseph Phan
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On 8 April 2024 the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Act 2024 (Amendments) received Royal Assent, paving the way for a change in the Corporations Act 2001 requiring Australian public companies to disclose information about the tax residence of their subsidiaries in the annual financial report in the form of a ‘consolidated entity disclosure statement’.  

The new disclosure requirements will apply to financial reports prepared by Australian public companies (listed or unlisted) for each financial year commencing on or after 1 July 2023 (i.e. the annual financial report for 30 June 2024). 

Directors will have to state in their directors’ declaration, that, in their opinion, the consolidated

entity disclosure statement is ‘true and correct’, and the CEO and CFO of listed groups will have to include the same statement in their declaration to the directors. 

This new measure is designed to increase transparency amongst public groups in relation to their corporate structure and enhance public scrutiny of multinational tax arrangements.  The new disclosures may also encourage public groups to review their tax governance policies, tax planning strategies and/or simplify the corporate structure. 

What is required to be disclosed? 

Australian public companies that prepare consolidated financial statements must provide a ‘consolidated entity disclosure’ statement in relation to each entity that is part of the consolidated group including the parent and subsidiaries at the end of the financial year.  

‘Associates’ or ‘joint ventures’ that are equity accounted are not required to be disclosed as part of the consolidated entity disclosure. 

What information does the Consolidated Entity Disclosure Statement require?

The consolidated entity disclosure statement requires the following information to be set out in the financial report in relation to the parent entity and each of its subsidiaries:

1.     The entity’s name;

2.     Whether the entity is a body corporate, partnership or trust; 

3.     The place of incorporation / formation if the entity is a body corporate;

4.     The percentage of share capital held directly or indirectly by the public company;

5.     Whether the entity was an Australian or foreign tax resident; and

6.     If the entity is a foreign tax resident, the jurisdiction in which the entity is a tax resident. 

Where is the consolidated entity disclosure statement to be disclosed?

The consolidated entity disclosure statement will form part of the financial report and can be included:

1.     As a separate statement not forming part of the notes of the financial statement; or

2.     Incorporated into the notes to the consolidated financial statement e.g. as part of the note to AASB 12, labelled as the ‘consolidated entity disclosure statement’. 

Who is required to disclose?

All public companies that are required to prepare consolidated financial statements under the accounting standard, including listed and unlisted public companies, are required to include a consolidated entity disclosure statement in its financial report.  

Proprietary limited companies, trusts, registered schemes, registrable superannuation entities, or public companies that report under the Australian Charities and Not-for-profits Commissions Act 2012 are not subject to the disclosure requirement. 

When does it apply?

The new disclosure requirement will apply in relation to any financial report for a financial year commencing on or after 1 July 2023. These measures will apply for the first time for public companies with 30 June 2024 annual financial reporting obligations. 

Who is responsible for the consolidated entity disclosure statement?

The directors of the public company will have to confirm in their director’s declaration that the information disclosed in the consolidated entity disclosure statement is ‘true and correct’.  CEOs and CFO’s of listed entities must include the same statement in their declaration to the directors.

As the consolidated entity disclosure forms part of the annual financial report and will need to be audited, the auditor will also need to provide reasonable assurance of the information contained in the statement. 

How is tax residency to be determined?

Tax residency is to be determined in accordance with the tax laws, either in Australia or the foreign country in which the entity operates. 

The meaning of an Australian tax resident is defined in the Income Tax Assessment Act 1997.  In determining whether an entity is an Australian tax resident regard must also be given to public advice and guidance from the Australian Taxation Office and case law, having regard to the facts and circumstances of the entity. 

Foreign incorporated companies may still be deemed an Australian tax resident if the central management and control (CMAC) of the company is located in Australia subject to the relevant Double Tax Agreements.  It may be necessary to seek tax advice from your tax advisor to determine the tax residency of the relevant entity. 

How we can help

If you would like to discuss or understand further the impacts of this measure on your business, please reach out to the contact below or your local Grant Thornton advisor. 

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