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  • Significant global entities

    The significant global entity (SGE) concept determines whether an entity is within the scope of several measures that apply to such entities.

    The concept of SGE was introduced as part of the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 that contained measures announced as part of the 2015-16 BudgetThis link opens in a new window.

    An SGE is defined in Subdivision 960-U of the Income Tax Assessment Act 1997 (ITAA 1997).

    An entity is an SGE for a period if it is one of the following:

    • a 'global parent entity' whose 'annual global income' is A$1 billion or more
    • a member of a group of entities consolidated (for accounting purposes) where the global parent entity has an annual global income of A$1 billion or more.

    This definition includes both:

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

    An entity is also an SGE for a period when the Commissioner makes a determination in relation to the relevant global parent entity. 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 global parent entity would have been A$1 billion or more.

    The global parent entity, 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 (TAA 1953).

    Example:

    From its consolidated financial statements, Australian resident entity, Ausco, has annual global income of A$ 20 billion for the income year from 1 January 2015 to 31 December 2015. 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. Ausco and its subsidiaries are not consolidated for tax purposes.

    Ausco is an SGE for the period 1 January 2015 to 31 December 2015.

    The Australian resident subsidiaries and the foreign resident with the Australian PE have annual income of A$400 million each for the same period.

    Despite each subsidiary having an annual income under A$1 billion, each subsidiary is an SGE for the period 1 January 2015 to 31 December 2015. This is because each is a member of a group of entities consolidated for accounting purposes with a global parent entity having annual global income of A$1 billion or more.

    End of example

    The SGE status may change for a subsequent period. This may be caused by the annual global income of the global parent entity falling below A$1 billion, or changes to the group structure.

    An entity is required to complete the relevant SGE label on the 2017 income tax return if it is an SGE. This applies to company, trust, partnership and superannuation fund income tax returns.

    Global parent entity

    A global parent entity is one not controlled by another entity according to Australian accounting principles, or, where they do not apply in relation to the entity, commercially accepted principles related to accounting.

    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 the global parent entity's financial position. Examples of recognised principles include International Financial Reporting Standards (IFRS). Also, accounting standards that are IFRS compliant such as Australian Accounting Standards and US generally accepted accounting principles, are recognised as commercially accepted accounting principles.

    Where, as determined in accordance with recognised accounting standards, an incorporated joint venture is not controlled by any single entity it will be a global parent entity.

    A global parent entity is usually a member of a group of entities. However, it is possible for a global parent entity to be a single entity that does not control any other entities.

    An entity directly owned and controlled by an individual can also be a global parent entity.

    Member of a group of entities consolidated for accounting purposes

    An entity that is not a global parent entity will be an SGE 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 global parent entity with annual global income of AUD $1 billion or more.

    A subsidiary excluded from the consolidated financial statements of its global parent entity, (for example on the grounds of materiality or because its global parent entity is an investment entity), is not an SGE.

    Joining or leaving an accounting consolidated group

    If you join or leave a group that is consolidated for accounting purposes as a single group, you are an SGE for a particular 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 part 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 global parent entity of the group you have joined, is A$1 billion or more.

    Your membership of a group you left during the period is not relevant in determining whether you are an SGE for the period. The relevant law simply requires you to be a current member of a group of entities consolidated for accounting purposes as a single group.

    Annual global income

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

    For a global parent entity that is not consolidated for accounting purposes with any other entities, 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 (referred to as stand-alone financial statements).

    The latest global financial statements for a global parent entity for an income year are financial statements (whether stand-alone or consolidated) that:

    • are prepared and audited in accordance with Australian Accounting Standards and auditing principles
    • cover the most recent period (not necessarily the income year) ending within 24 months before the end of the income year.

    If Australian Accounting Standards and auditing principles do not apply in relation to a global parent entity, its global financial statements (whether stand-alone or consolidated) must be prepared and audited in accordance with commercially accepted principles relating to accounting and auditing. They must ensure the financial statements give a true and fair view of the financial position and performance of the global parent entity.

    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 from sources other than the entity itself or any of its associates.

    If the accounts of an entity are not included in the consolidated financial statements of its global parent entity, (for example on the grounds of materiality or because the global parent entity is an investment entity) subject to any exception from consolidation under accounting standards, the income is not included in the amount of annual global income.

    The definition of income under Australian Accounting Standards includes:

    • revenue
    • extraordinary income
    • 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. 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 taken into account 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/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 formation), then the annual global income should be prorated if longer than 12 months, or extrapolated, if shorter, to an annual amount.

    Superannuation fund annual global income

    Accounting Standard AASB 1056 (PDF, 958KB)This link will download a file, applicable from 1 July 2016, excludes member contributions from the calculation of income for superannuation entities. Some superannuation funds could potentially exceed the annual global income threshold for the income year ended 30 June 2016, when they would not have met that threshold if AASB 1056 (PDF, 958KB)This link will download a file had applied to that income year.

    In working out whether a superannuation fund is an SGE, entities where AASB 1056 (PDF, 958KB)This link will download a file applies may calculate annual global income in a manner consistent with AASB 1056 (PDF, 958KB)This link will download a file (ie excluding member contributions) for the income year prior to the first income year commencing on or after 1 January 2016.

    Related measures

    Country-by-Country (CbC) reporting

    CbC reporting (BEPS Action 13This link opens in a new window) is part of a broader suite of international measures aimed at combating tax avoidance through more comprehensive exchanges of information between countries.

    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 started. Under the MAAL we can cancel any tax benefits an SGE and its related parties obtain from certain schemes.

    See also:

    Providing general purpose financial statements

    This measure requires SGEs that are corporate tax entities to give us a general purpose financial statement if they do not lodge one with the Australian Securities and Investment Commission (ASICExternal Link).

    See also:

    Increasing administrative penalties for SGEs

    Increased penalties apply to SGEs from 1 July 2017.

    Administrative statement penalties are now doubled for SGEs that:

    • do not take reasonable care
    • take a tax position that is not reasonably arguable
    • fail to provide documents when required and the Commissioner determines the liability without the document.

    Failure to lodge on time (FTL) penalties have also increased.

    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 prevent the diversion of profits offshore through contrived arrangements.

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

    See also:

    Related guidance

    Law Companion Ruling

    We have developed a Law Companion Ruling (LCR) that describes how we apply the law as amended by Schedule 4 to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015.

    More information on what is an SGE and the meaning of annual global income is in paragraphs 6 to 13 of Law Companion Ruling LCR 2015/3 – Subdivision 815-E of the Income Tax Assessment Act 1997: Country-by-Country reporting.

    Contact details

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

    Last modified: 19 Feb 2018QC 51607