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Significant global entities

An overview of the significant global entity (SGE) concept for income years commencing from 1 July 2019.

Last updated 21 December 2020

The significant global entity (SGE) concept determines whether an entity is subject to a number of tax integrity and reporting measures.

The SGE concept was introduced by the Tax Laws Amendment (Combating Multinational Avoidance) Act 2015 to define the population subject to the multinational anti-avoidance law (MAAL), country-by-country reporting (CBC reporting) and the entities required to give the Commissioner a general purpose financial statement (GPFS). Subsequently, the SGE concept was used to define entities that may be subject to the diverted profits tax (DPT) and increased administrative and other penalties.

More recently, the SGE concept was expanded by the Treasury Laws Amendment (2020 Measures No. 1) Act 2020External Link so that, for income years or periods commencing on or after 1 July 2019, the concept applies to groups of entities headed by an entity other than a listed company – mirroring how it applies to groups headed by a listed company. In both cases, exceptions to consolidation and rules on materiality that may permit an entity not to consolidate with other entities are to be disregarded.

As a consequence, the SGE concept can apply to entities such as high wealth individuals; partnerships; trusts; those considered to be non-material to a group as well as certain investment entities (and those that they control), including in circumstances where consolidated financial statements have not been prepared.

The amendments also introduce the concept of country-by-country reporting entity (CBC reporting entity) to define those entities within the expanded SGE population that have CBC reporting obligations and that may be required to give the Commissioner a GPFS. This means that:

  • for income years commencing from 1 July 2019, CBC reporting and GPFS lodgment obligations rely on an entity's CBC reporting entity status
  • for income years commencing before 1 July 2019, CBC reporting and GPFS lodgment obligations rely on an entity's SGE status.

If an entity is an SGE, it needs to determine whether it may also be a CBC reporting entity. This may turn on whether certain exceptions under the relevant accounting rules are applied or disregarded, in the context of the accounting rules that define control and that determine the consolidation of entities. These standards are represented by AASB 10 and any relevant equivalent rules in other applicable accounting standards.

Consequences of being an SGE

Entities that are SGEs may be subject to the following:

  • the multinational anti-avoidance law (MAAL)
  • the diverted profits tax (DPT)
  • increased administrative and other penalties.

Entities that are also CBC reporting entities may have:

  • CBC reporting obligations
  • a GPFS obligation if they are a corporate tax entity.

An entity is required to complete the relevant SGE label in their annual income tax return if it is an SGE. This applies to the company, trust, partnership and fund income tax returns.

Note: The examples provided in this content are illustrative only and should not be taken as representing a conclusive outcome with respect to a particular fact pattern as it is acknowledged that an entity's circumstances will be unique, including whether the taxpayer is part of a tax consolidate or MEC group.

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Significant global entity definition

An SGE is defined in Subdivision 960-U of the Income Tax Assessment Act 1997 (ITAA 1997). For income years commencing on or after 1 July 2019, an entity is an SGE for a period if it is any of the following:

  • a global parent entity (GPE) with an annual global income of A$1 billion or more
  • a member of a group of entities consolidated for accounting purposes as a single group and one of the other group members is a GPE with an annual global income of A$1 billion or more
  • a member of a notional listed company group and one of the other group members is a GPE with an annual global income of A$1 billion or more.

A notional listed company group is a group of entities that would be required to be consolidated as a single group for accounting purposes if a member of that group were a listed company. However, exceptions in accounting principles that may permit an entity not to consolidate with other entities will need to be disregarded.

An entity is also an SGE for a period if it, or any other member of the actual or notional accounting consolidated group of which the entity is a member, has been given a notice by the Commissioner determining that its GPE has an annual global income of A$1 billion or more for the period.

Such a determination may be made if global financial statements have not been prepared, and based on available information, it is reasonable for the Commissioner to conclude that the annual global income of the GPE would have been A$1 billion or more. The GPE, or another entity that becomes an SGE as a result of a determination, must be notified in writing. Any such determination by the Commissioner is reviewable under Part IVC of the Taxation Administration Act 1953.

Due to the expansion of the SGE definition discussed above, the need for the Commissioner to issue a determination to deem an entity to be an SGE is expected to be limited. This is because entities for income years commencing from 1 July 2019, in the absence of having global financial statements, will need to self-assess their SGE status in conformance with the notional listed company group rules.

An SGE can be a public or private company, a trust, a partnership or an individual. Further, the SGE definition covers:

  • Australian-headquartered entities (with or without foreign operations)
  • foreign-headquartered multinationals (with or without local operations).

The SGE status of an entity may change for a subsequent period if the annual global income of the GPE of a group falls below A$1 billion, which may occur in some circumstances due to changes to a group's structure.

Global parent entity

A global parent entity (GPE) is an entity that is not controlled by another entity according to Australian accounting principles. If Australian accounting principles don't apply in relation to the entity, then whether an entity is controlled by another entity is determined according to commercially accepted principles related to accounting (also known as commercially accepted accounting principles or CAAP).

A GPE is usually a member of a group of entities. However, a GPE may be a single entity that does not control any other entities. For income years from 1 July 2019, an individual may meet the definition of a GPE.

If according to applicable accounting standards, an incorporated joint venture is not controlled by any single entity, it may be a GPE in its own right.

An entity such as a private company, an individual, a partnership or a trust can be a GPE of a group even if it's not required to apply Australian accounting principles or other CAAP.

Whether an entity controls other entities is a factual matter determined by the application of Australian accounting principles or other applicable CAAP, subject to any modifications required by the legislation. The outcome of this application of the rules determines the membership of a group consolidated for accounting purposes or a notional listed company group.

Determining control using accounting principles

If Australian accounting principles apply to an entity or need to be considered by a member of a notional listed company group, particular attention should be paid to Australian Accounting Standard AASB 10, Consolidated Financial Statements, as updated from time to time by the Australian Accounting Standards Board.

Paragraphs B2–B4 of AASB 10 were updated on 2 March 2020 and provide the framework for assessing control as follows:

B2 An investor controls an investee if and only if the investor has all the following characteristics:
(a) Power over the investee
(b) Exposure, or rights, to variable returns from its involvement with the investee
(c) the ability to use its power over the investee to affect the amount of the investors returns.
B3 Consideration of the following factors may assist in making that determination:
(a) the purpose and design of the investee (see paragraphs B5–B8)
(b) what the relevant activities are and how decisions about those activities are made (see paragraphs B11–B13)
(c) whether the rights of the investor give it the current ability to direct the relevant activities (see paragraphs B14–B54)
(d) whether the investor is exposed, or has rights, to variable returns from its involvement with the investee (see paragraphs B55–B57), and
(e) whether the investor has the ability to use its power over the investee to affect the amount of the investor’s returns (see paragraphs B58–B72).
B4 When assessing control of an investee, an investor shall consider the nature of its relationship with other parties (see paragraphs B73–B75).

In all cases, all the relevant facts and circumstances must be evaluated in accordance with the applicable edition of AASB 10 or the applicable standard in CAAP.

In most cases, assessing control should be straightforward, such as where control is clear by virtue of the ownership of the majority of the voting power in an investee. In other cases, assessing control can be more complex, such as when the control arises from one or more contractual arrangements. In such cases, the elements outlined in Appendix B of AASB 10 may be relevant to determining control.

The use of a suitably qualified practitioner may lower the risk of not correctly identifying a GPE, if the practitioner makes an adequately documented analysis and signs off on their assessment. Where relevant, the analysis would specifically include an assessment of the use of exceptions to consolidation under the relevant accounting standards.

An example of a suitably qualified practitioner would be a Chartered Accountant (CA) or Certified Practising Accountant (CPA) or a Company Auditor who is registered with the Australian Securities and Investments Commission. Any risk of a failing to correctly identify a GPE may be further mitigated where a qualified accountant provides an independent opinion on the issue. This could be done as part of an entity’s regular governance process.

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Global financial statements

The financial statements of a GPE for an income year are global financial statements if they are prepared and audited in accordance with either:

  • Australian accounting standards and auditing principles, or
  • if Australian accounting standards and auditing principles do not apply, with other commercially accepted principles relating to accounting and auditing.

Also, the financial statements must cover the most recent period (not necessarily the income year) ending within 24 months before the end of the income year.

The period for which such statements would have been prepared is the latest annual accounting period the GPE has adopted. The annual accounting period may not necessarily align with a GPE’s income year (if any). However, if the GPE does not keep and prepare accounts periodically then the relevant period to consider would be the GPE’s income year. In the event a GPE does not have an income year, the period should be the income year of the Australian parent entity.

What is CAAP (where Australian accounting standards don't apply)?

Commercially accepted principles relating to accounting would usually be the standards in use in the country where the entity is resident or carries on its principal business activities. These standards are typically developed and enforced by the relevant country.

In addition, these principles must ensure that the relevant financial statements provide a true and fair view of a GPE's financial position. Where the SGE rules need to be applied by entities that belong to non-audited groups that are resident in jurisdictions other than Australia, this means that either IFRS 10 or ASC 810 may be more applicable, depending on the circumstances.

We accept the following accounting standards as being 'commercially accepted principles relating to accounting':

  • International Financial Reporting Standards (IFRS)
  • accounting standards that are IFRS compliant as published on IFRS.Org (such as Australian accounting standards or IFRS as adopted by the European Union)
  • US generally accepted accounting principles (GAAP)
  • accounting standards that are accepted by ASX Limited from time to time for the purposes of its Listing Rules.

Where the accounting standards listed above do not apply in your circumstances, the guidance provided in paragraphs A8, and paragraphs 3 and 4 in Appendix 2 of the Auditing Standard ASA 210 (PDF 1.1MB)This link will download a file will assist you in determining whether the accounting standards applied to prepare your financial statements are CAAP.

Annual global income

If a GPE is a member of a group of entities that are consolidated for accounting purposes, the GPE’s ‘annual global income’ for a period is the total annual income of the consolidated group disclosed in one or more items in its latest ‘global financial statements’.

For a 'stand-alone' GPE that is not consolidated for accounting purposes with any other entities, and there are no other entities that would fall within a notional listed company group of the GPE, the annual global income for a period is the total income of the entity disclosed in one or more items of that entity's latest global financial statements (stand-alone financial statements).

If a stand-alone GPE has not prepared global financial statements, its annual global income is the amount that would have been shown in such statements had they been prepared.

When determining annual global income, amounts shown in global financial statements in currencies other than Australian dollars must be converted into Australian currency, at the average exchange rate for the period for which the statements are prepared. The exchange rates or average exchange rate the entity uses to convert amounts into Australian currency must come either from:

  • sources specified by notice from the Commissioner, or
  • sources independent of that GPE or any of its associates.

If a GPE is a member of a notional listed company group of entities, that GPE’s annual global income for a period is the total annual income of the notional listed company group disclosed in one or more items in its latest global financial statements (if any).

In practice, a GPE that is a member of a notional listed company group of entities may not normally have global financial statements or not have global financial statements covering itself and all the members of the notional listed company group. In such instances, the annual global income of the GPE is the amount that would have been shown in consolidated global financial statements for the notional listed company group, if such statements had been prepared.

There is no requirement for a GPE of a notional listed company group to actually prepare global financial statements. However, adequate documentation must support any assessment of whether the members of the notional listed company group are SGEs or not.

Where a member of a notional listed company group has GPFS obligations, the group may wish to prepare global financial statements to satisfy their GPFS obligations and at the same time to work out their SGE status.

Income is defined in the Conceptual Framework for Financial Reporting, published by the AASB, as '… increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims' (para. 4.68).

Typically, this would include:

  • revenue
  • gains from investment activities
  • other inflows that go to the determination of the profit or loss.

The annual global income is the total of income that goes to the determination of profit or loss in accordance with Accounting Standard AASB 101External Link, as shown on the global financial statements or would have been shown had such statements been prepared. While the definition of income also encompasses other comprehensive income, annual global income does not include other comprehensive income, as it does not go to the determination of profit or loss.

Similar principles should be applied in determining which items in the financial statements are considered in working out the annual global income where commercially accepted principles relating to accounting are used.

Some transactions may be recorded as part of income on a net basis in accordance with the accounting standards. Items might be labelled as ‘net banking product’, 'net gains', 'net losses', or ‘net revenues’ in the financial statements. For example, an income or gain from a financial transaction, such as an interest rate swap, may be reported on a net basis under the accounting rules.

The term ‘income’ for the purposes of annual global income includes the net amount (whether positive or negative), as long as that net amount is in accordance with the applicable accounting standards. For example, the net amount may be included in working out the 'Total net investment income/loss' or 'Other income'.

If financial statements are prepared for a period other than 12 months (for example, because it is the first accounting period after an entity’s formation), then the annual global income should be prorated if longer than 12 months, or extrapolated, if shorter, to an annual amount.

Member of a group of entities consolidated for accounting purposes

One way an entity will be an SGE is if:

  • it is a member of a group of entities consolidated for accounting purposes as a single group, and
  • one of the other members of the group is a GPE with annual global income of $1 billion or more.

This is the case in relation to income years that commenced from 1 January 2016.

Start of example

Example 1: Simple company scenario

From its consolidated financial statements, Australian resident entity, Ausco, has annual global income of A$2 billion for both of its income years ended 30 June 2019 and 30 June 2020. It is not controlled by any other entity. It consolidates the accounts of its wholly owned Australian resident subsidiaries together with a foreign resident subsidiary operating a permanent establishment (PE) in Australia.

Each of the Australian resident subsidiaries and the foreign resident subsidiary with the Australian PE has an annual income of around A$400 million for each income year.

Ausco is a GPE and an SGE for the income years ended 30 June 2019 and 30 June 2020. In addition, despite each subsidiary having an annual income under A$1 billion, each subsidiary is an SGE for income years ended 30 June 2019 and 30 June 2020. This is because each is a member of a group of entities consolidated for accounting purposes with a GPE having annual global income of A$1 billion or more.

The entities that are corporate tax entities would have a GPFS obligation for the income year ended 30 June 2019 if they did not lodge a GPFS with ASIC for the financial year that is most closely corresponding to the income year. Whether the entities will also have a GPFS obligation for the income year ended 30 June 2020 will depend on, among other things, whether the entities are CBC reporting entities for that income year.

For an outline of whether Ausco and its subsidiaries are CBC reporting entities and whether they have CBC reporting obligations, see Example 1 (in CBC reporting entities).

End of example

Notional listed company groups and significant global entities

Another way in which an entity may be an SGE is if it is a member of a notional listed company group.

The Treasury Laws Amendment (2020 Measures No. 1) Act 2020 expanded the SGE definition so that, for income years commencing from 1 July 2019, it applies to a group of entities headed by an entity other than a listed company in the same way as it applies to a group headed by a listed company.

A notional listed company group is a group of entities that would be required to be consolidated as a single group for accounting purposes had an entity (the test entity) been a listed company. The test entity would generally be the GPE of the group of entities that are potentially in scope of the SGE definition.

For the purposes of the SGE definition, the test entity is treated as if any of its shares were listed for quotation in the official list of a stock exchange in Australia or elsewhere. The following principles should be used when determining the accounting standards that must be applied:

  • If the test entity is currently subject to Part 2M.3 of the Corporations Act 2001, the notional consolidation must follow Australian accounting standards, including AASB 10.
  • If the test entity is not subject to Part 2M.3 of the Corporations Act 2001, the notional consolidation must apply CAAP.

The test entity is assumed to be a company and is then treated as if it were listed in its jurisdiction of operation and had to apply the accounting standards that would apply to it under the relevant listing rules. The appropriate stock exchange is that on which the entity would be most likely to seek listing of its shares having regard to factors such as the entity's tax residence, place of formation, regulatory context and financial market access. These principles apply irrespective of whether there is a stock exchange in the jurisdiction in which a test entity is resident.

Where the listing of shares on the relevant stock exchange would require the use of a particular accounting standard (or standards) by the entity for financial reporting, this mandatory standard (or one of the mandatory standards) will be the CAAP to be applied in identifying the notional listed company group.

The test entity may be any kind of entity, including an individual, a partnership, a limited partnership, a trust or a private company. Irrespective of whether the test entity in its own capacity could be listed on a stock exchange under the relevant listing rules, the notional listed company group test is applied as if the test entity were a listed company.

For example, while an individual or a partnership cannot be listed on a stock exchange, for the purposes of the SGE definition it should be hypothesised that had such an entity been listed, it would be required to prepare financial statements in accordance with the relevant accounting standards which may include a requirement to prepare consolidated financial statements.

The notional listed company group identified with the test entity covers the group of entities that would have been required to be consolidated by the test entity as a single group for accounting purposes had the test entity been a listed company. When determining an entity's SGE status, if one entity (such as the test entity) within the notional listed company group is an SGE, then all other entities of the notional listed company group will be SGE's.

Start of example

Example 2: Partnership scenario

Vanilla Private is a partnership that does not prepare audited consolidated financial statements for accounting purposes. As it is an Australian resident, the relevant stock exchange for applying the notional listed company group rules would usually be the Australian Securities Exchange (ASX). Under the ASX listing rules, if Vanilla Private were a listed company, it would be required to apply Australian accounting standards, including AASB 10.

In applying Australian accounting standards, Vanilla Private concludes that it is not controlled by any other entity and that it controls several resident subsidiaries together with a foreign resident subsidiary, which it would be required to consolidate had it been a listed company. Given this, Vanilla Private concludes that it has an annual global income of A$2 billion for the income year ended 30 June 2020.

Vanilla Private is a GPE and an SGE for the income year ending 30 June 2020. The Australian resident subsidiaries and the foreign resident are also SGEs for the same period. This is because each entity is a member of the notional listed company group and their GPE has an annual global income of A$1 billion or more.

For guidance on whether Vanilla Private and the entities it controls are also CBC reporting entities and have CBC reporting obligations, see Example 2 (in CBC reporting entities).

End of example

Modification to accounting standards

In determining whether an entity is an SGE by virtue of its membership of a notional listed company:

  • exceptions to consolidation, such as those that may apply to investment entities in AASB10, must be disregarded
  • entities that are considered immaterial under the relevant accounting rules must be included as members of the notional listed company group

Disregard exceptions to consolidation

When applying the notional listed company group rules, any exceptions in the relevant accounting principles that may permit an entity not to consolidate with other entities must be disregarded.

For example, AASB 10 and equivalent rules in other accounting standards, provide exceptions to consolidation that apply to investment entities. The definition of an investment entity is as provided for in the relevant accounting standard. Entities that may have the profile of an investment entity under the accounting standards include those that operate as private equity, superannuation and sovereign wealth funds.

Under the notional listed company group rules, this exception to consolidation is to be disregarded for the purposes of determining an entity's SGE status. This means that an investment entity that is a GPE must disregard this exception and consider what its consolidated annual global income would have been had it been a listed entity and likewise have applied the modified accounting rules. That is, an investment entity that controls other entities and is not required to consolidate those other entities under AASB 10 or an equivalent standard will be a member of a notional listed company group along with those entities.

Similarly, an entity whose GPE is an investment entity must consider what their GPE’s annual global income would have been, in accordance with the modified accounting rules.

Start of example

Example 3: Investment entity scenario

Fund LP is a private equity fund headquartered in the United Kingdom (UK) that takes the legal form of a limited partnership. It is a corporate limited partnership for Australian tax law purposes. It qualifies as an investment entity under the accounting rules that apply to entities listed in that country.

Fund LP has invested in multiple groups of companies around the world and operates a permanent establishment (PE) in Australia. It does not prepare consolidated financial statements. Instead, Fund LP measures each investee company at fair value through profit or loss in accordance with the UK accounting standards and has an income of A$900 million including the income attributable to the Australian PE for the income year ended 30 June 2020.

However, if the exception to consolidation that applies to investment entities is disregarded, Fund LP would have been required to prepare consolidated financial statements consolidating its investee companies and its annual global income would have been A$1.1 billion for the income year ended 30 June 2020.

Fund LP is therefore an SGE. Each investee company that is required to be included in Fund LP's notional listed company group is also an SGE. Consequently, the provisions that apply to SGEs will govern Fund LP for Australian Income tax purposes.

For guidance on whether Fund LP and the investee companies are CBC reporting entities and have CBC reporting obligations see Example 3 (in CBC reporting entities).

End of example

Disregard exclusion of immaterial entities

The modification of the accounting rules under the notional listed company group rules requires exceptions to consolidation relating specifically to materiality to be disregarded when identifying the members of the notional listed company group.

This means that an entity that is not included in a group's consolidated financial statements, and whose non-inclusion in those statements is not material due to its size or another matter, is a member of the notional listed company group.

Start of example

Example 4: Immaterial entity scenario

Foreign Co is a privately-owned company resident in Japan. It owns and controls several subsidiaries around the world, including a fledgling Australian resident company, Small-time Private Co, which has an income year ending 30 June.

Foreign Co prepares consolidated financial statements for its shareholders based on Japanese GAAP, which can be used by listed companies in Japan, and its annual global income for its financial year ended 31 March 2020 was the equivalent of A$3 billion.

Foreign Co considers Small-time Private Co immaterial and does not include it in its consolidated financial statements as permitted under Japanese GAAP.

Small-time Private Co was not a member of the group consolidated for accounting purposes represented in Foreign Co's financial statements.

Foreign Co is an SGE because its annual global income is A$1 billion or more for the income year ended 30 June 2020. Small-time Private Co is also an SGE for the income year ended 30 June 2020 as it is a member of a notional listed company group headed by Foreign Co. It is a member of that group regardless of whether Foreign Co prepares consolidated financial statements and irrespective of how immaterial Small-time Private Co may be in relation to Foreign Co.

For guidance on whether Foreign Co and Small-time Private Co are CBC reporting entities and have CBC reporting obligations, see Example 4 (in CBC reporting entities).

End of example

See also:

Joining or leaving a group

If you join or leave a group that is consolidated for accounting purposes as a single group, or a notional listed company group, you are an SGE for a period (such as an income year) – where one of the following applies at the end of the period:

  • you remain outside of a group and your annual global income as shown in your global financial statements, relevant for the period, is A$1 billion or more
  • you are a member of a group consolidated for accounting purposes as a single group and the annual global income shown in the global financial statements, relevant for the period and prepared by the GPE of the group you have joined, is A$1 billion or more
  • you are a member of a notional listed company group whose GPE has annual global income of A$1 billion or more.

Generally, joining or leaving a group is brought about by changes in ownership or control as set out by the relevant applicable accounting standards regarding consolidation or otherwise in the rules that determine your membership of a notional listed company group.

Membership of a group you left during the period is not relevant in determining whether you are an SGE for the period. The law simply requires you to be a member of a group of entities consolidated for accounting purposes as a single group, or a member of a notional listed company group, as at the end of the period.

Related provisions

Country-by-country reporting entities

CBC reporting entities are a subset of the SGE population and have two distinct reporting obligations:

  • CBC reporting (BEPS Action 13This link opens in a new window), which is part of a broader suite of international measures aimed at combating tax avoidance, in particular through more transparent exchanges of information between countries
  • CBC reporting entities that are corporate tax entities may be required to give us a general purpose financial statement if they have not otherwise lodged a GPFS with the Australian Securities and Investments Commission (ASICExternal Link).

See also:

Multinational anti-avoidance law (MAAL)

The MAAL applies to SGEs that are involved in certain schemes on or after 1 January 2016, irrespective of when the scheme commenced. Under the MAAL, we can cancel any tax benefits an SGE and its related parties obtain from certain schemes.

See also:

Diverted profits tax (DPT)

The DPT aims to ensure that the tax paid by SGEs correctly reflects the economic substance of their activities in Australia and prevents the diversion of profits offshore through contrived arrangements.

It also encourages SGEs to provide sufficient information to us to allow for more timely resolution of tax disputes.

See also:

Increased administrative and other penalties for SGEs

Increased penalties apply to SGEs. Administrative statement penalties and scheme penalties are doubled, and the failure to lodge on time penalties are significantly higher.

For entities that are SGEs as a result of the expanded definition introduced by the Treasury Laws Amendment (2020 Measures No. 1) Act 2020, the increased administrative penalties do not apply until 1 July 2020.

See also:

Contact details

If you have any questions, email SGE@ato.gov.au.

How penalties apply to significant global entities (SGEs).

An overview of the SGE concept and associated legislative measures for income years commencing prior to 1 July 2019.

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