Proposed new tax transparency measures for public companies

20 March 2023 

In brief

The Australian government has released draft legislation to implement a proposed new measure requiring public companies to publicly disclose information about their subsidiaries. If the draft legislation becomes law, Australian public companies (listed and unlisted) would be required to publish a ‘consolidated entity statement’ that contains additional information about their subsidiaries including tax residency, ownership breakdown and entity type. The new measures will apply to financial years commencing on or after 1 July 2023.

Disclosures must be made available within the company’s annual financial report published on their website. This measure will place an onus on public companies to be more transparent about their corporate structures. 

In detail

Who is required to disclose information?

Australian public companies will be required to publish additional information in their financial reports under the new transparency measures. The term ‘public company’ is defined in section 9 of the Corporations Act, and is generally a company other than a proprietary company or a collective corporate investment vehicle. Private companies, disclosing entities, large proprietary companies and registered schemes are outside the scope of the proposed measures. 

What information is required to be disclosed?

Under the proposed amendments, if a public company is required to prepare financial statements in relation to a ‘consolidated entity’ (i.e. to prepare consolidated financial statements in accordance with Accounting Standard AASB 10), then a ‘consolidated entity statement’ must be prepared providing the following information in relation to each entity within the accounting consolidated group at the end of the financial year: 

• the name 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
  • a participant in a joint venture within the consolidated entity; 
• if the entity is a body corporate:
  • where the entity was incorporated or formed, and
  • the public company’s percentage ownership at the end of the financial year; and 
• the tax residency of each entity during the financial year.

If the accounting standards do not require a public company to prepare financial statements in relation to a consolidated entity, the public company’s financial report must include a statement to that effect.

Alongside the general reporting obligations, directors, chief executive officers and chief financial officers must also declare that the consolidated entity statement is, in their opinion, true and correct. 

As noted above, the draft legislation includes a requirement to disclose whether any entities in the consolidated entity are foreign residents as defined in the Income Tax Assessment Act 1997. However, there is still uncertainty regarding the Australia tax resident definition as proposed reforms announced by the former government in the 2020-21 Federal Budget remain unenacted. Following the Bywater Investments Ltd v Federal Commissioner of Taxation; Hua Wang Bank Berhad v Federal Commissioner of Taxation [2016] HCA 45 case and the release of TR 2018/5, the Australian Taxation Office has contended that a foreign incorporated company would be an Australian tax resident where its “central management and control” was in Australia, regardless of where it carried on its business. This reflects a “one-limbed” interpretation of the statutory central management and control test of residency and is a direct reversal of its former “two-limbed” interpretation of the test set out in the withdrawn TR 2004/15. Where you are uncertain about the tax residency of subsidiaries for reporting purposes, we recommend engaging your tax advisor. 

The Takeaway

Australian public companies should review their records and ensure they have the information required to be disclosed. 

Treasury has also indicated that they will consult separately on the broader tax transparency measures that were announced in the October 2022 Federal Budget, including:

• enhanced reporting for Significant Global Entities (SGEs), which may require SGEs (i.e. groups with more than $1 billion in global annual revenue) to publicly report tax information on a country-by-country basis and a statement on their approach to taxation, and
• requirements for tenderers for Australian government contracts worth more than $200,000 to disclose their country of tax domicile by reporting their ultimate head entity’s country of tax residence.