Australia: Tax Regulations for Significant Global Entities
In Australia, businesses classed as significant global entities face increased penalties for noncompliance with tax regulations…
Under Australian law, certain businesses are classified as significant global entities (SGE) and are subject to special reporting obligations and tax measures. SGEs are defined as entities (or groups of consolidated entities) that generate an annual global income of AU$1 billion or more.
The Australian government has been introducing new tax laws targeting SGEs since 2015. The laws include requirements to submit Country-by-Country (CbC) reports, to lodge statements with the Australian Tax Office (ATO), and to comply with a range of integrity measures. In 2018, the government also expanded the definition of SGE to include entities within large groups that are controlled by private companies, trusts, or partnerships.
The tax laws imposed on SGEs entail increased penalties for noncompliance. In order to avoid the financial and reputational consequences of a breach, employers should understand the offences and their associated penalties.
Administrative Statement Penalties
Since 1 July 2017, SGEs have faced doubled penalties for noncompliance with administrative statement rules. Administrative statement penalties are imposed if an SGE:
- Does not take reasonable care with its statement, or makes false or misleading statements.
- Takes a position on its tax liability that cannot be reasonably argued - for example, if the SGE enters into a tax avoidance or profit shifting scheme.
- Fails to provide documents when requested and its tax liability must be determined by the Commissioner without those documents.
The doubled penalty amounts are in comparison to the base penalties imposed on all other Australian taxpayers.
Penalty Amounts: The financial penalties applicable to administrative statement compliance breaches are as follows:
| Nature of Offence |
Base Penalty |
|---|---|
| Submitting careless, false, or misleading statements |
50%, 100%, or 150% of tax shortfall |
| Taking a tax position that is not reasonably arguable |
50% of shortfall |
| Failing to provide requested documents |
150% of tax liability |
A second category of penalties is imposed for misleading statements that do not result in a tax shortfall:
| Type of Statement Offence |
Penalty Units |
|---|---|
| Intentional disregard |
120 penalty units - AU$25,200 |
| Recklessness |
80 penalty units - AU$16,800 |
| Lack of reasonable care |
40 penalty units - AU$8,400 |
Tax Avoidance and Profit Shifting
Since 1 July 2015, the penalties for SGEs that enter into tax avoidance or profit shifting schemes have been doubled in comparison to those imposed on other taxpayers. If an SGE that is charged with tax avoidance or profit shifting can demonstrate that its tax position is reasonable, the doubled penalty is not applicable.
Failure to Lodge on Time
All Australian taxpayers face a penalty when they fail to lodge (FTL) their tax returns by the due date. For SGEs however, the base FTL penalty is increased by 500%.
When SGEs fail to lodge their tax returns, the penalty depends on the number of days by which they miss their deadline:
| Number of Days Late |
Penalty for SGE |
|---|---|
| Up to 28 days |
AU$105,000 |
| 29 - 56 days |
AU$210,000 |
| 57 - 84 days |
AU$315,000 |
| 85 - 112 days |
AU$420,000 |
| Over 112 days |
$AU$525,000 |
Avoiding Increased Penalties
The ATO issues guidance to help SGEs achieve tax compliance and avoid increased penalties. Broadly, the ATO advises SGEs to:
- Take reasonable care when completing their tax returns in order to avoid making false or misleading statements.
- Review ATO reporting reqreuiments against their tax return process to ensure they can fulfil their obligations.
- Ensure they have enough time to meet lodgement deadlines or, if they are unable to meet lodgement deadlines due to exceptional and unforeseen circumstances, request an extension.
When a penalty is imposed, SGEs have the option of seeking a remission.
Further to the advice it issues, the ATO also hosts a number of practice statements online that SGEs can use to inform their tax return compliance process.
Explore activpayroll’s Australia Global Insight Guide to learn more about Australian tax, payroll, and social security. The guide also includes background information on Australia’s economic profile and its business practices...