Key updates
The key updates included:
- Primary legislation received royal assent on 10 December 2024 and the subordinate legislation was registered on 23 December 2024.
- Written feedback was sought from members on subordinate legislation, with 2 key topics identified
- interactions with Australia's tax consolidation regime
- application of the transitional country by country reporting (CbCR) safe harbour
- ATO's advice under guidance page has been updated to highlight 3 guidance products being developing
- Pillar two lodgment obligations and the ATO's transitional approach
- updates to Taxation Ruling TR 2006/11
- updates to ATO website content.
Joint Ventures, MNE Groups and Compliance
The primary focus of this session is to present key concepts to better understand the issues facing in-scope multinational enterprise (MNE) groups so the project team can prioritise support and development of guidance for taxpayers. A summary of the discussion is outlined below.
Accounting standards
The use of accounting standards is an important consideration for clarifying the types of entities a Joint Arrangement gives rise to for the purpose of Australia's Pillar Two legislation. Whilst we are not responsible for accounting standards or their application, we discussed how accounting concepts are used to identify a joint venture and joint operation for the purpose of the application of Australian Pillar Two legislation.
Definitions
The session discussed the definition of entity and how this is built upon for the purpose of defining whether a group will have constituent entities and joint ventures. Discussion was centred on who is part of a MNE group for consolidated accounts, entity and Global Anti-Base Erosion (GloBE) joint venture definitions. The questions put to members are:
- If there were any issues recognising an entity consolidated on a line-by-line basis
- Challenges in identifying entities in their MNE group
- Structures outside scope of AASB 11 where there is some uncertainty whether these are entities for GloBE purposes
- Arrangements/structures for which classification as GloBE joint ventures is uncertain?
Members raised issues where there is a 50-50 joint arrangement and how that arrangement should be viewed if one party believes the arrangement is a constituent entity of the MNE group whilst the other party believes they cannot by taking the position that it is a GloBE joint venture. The GloBE model rules and commentary specify a joint operation could be part of an MNE group where it is included in the consolidated financial statements on a line-by-line basis.
Members flagged the issue of whether a joint operation which does not disclose revenue separately meets the requirement to prepare financial accounts, and as such whether it is a constituent entity or not.
One question posed during the session was whether it was significant that the Australian legislation and GloBE rules use slightly different words to define an entity. That is, the GloBE rules state 'prepare separate financial accounts' whereas the Australian rules state 'required to prepare separate financial accounts'. Some members flagged uncertainty in this area as it is possible to read the definition quite widely or narrowly depending on the approach. As such, industry would like to see the ATO produce some guidance on this area.
Lodgment obligations
The ATO raised some questions for members to consider including:
- Are there any practical issues about how the Designated Local Entity (DLE) provisions under the law operate for joint venture groups?
- Outcome of lodgment obligations on joint operations vs joint ventures considering
- GloBE information return (GIR) disclosure (MNE group structure), disclosure of allocation of income
- GloBE model rules commentary guidance on joint operations
- system, data collection issues.
Members noted that some problems with recognising joint ventures are:
- joint ventures may not have an existing identification number for lodgment purposes and therefore currently do not have the ability to lodge
- an MNE group holding an interest in the joint venture often may not have access to all the accounting records required to comply with their Pillar Two lodgment obligations.
Members queried instances when utilising the DLE for the wider group and whether the joint venture could have 2 DLEs due to being held in a 50-50 split between 2 in-scope MNE groups. It was noted there are provisions in place for this situation and only one DLE can be appointed for the purpose of the Domestic Minimum Tax Return to allow lodgment on behalf of the joint venture entities.
There are provisions in our tax administration amendments specifying in the case of an unincorporated joint venture which persons will be required to meet the obligations. Broadly, under the new amendments it is likely to be one of the joint venture partners that can discharge the filing obligation.
The other question is around payment of top-up tax and information flow. There may need to be some sharing of information to enable one of the partners to lodge.
The feedback from the group will help us to determine if there is a need for website guidance or other guidance to explain what is required in terms of lodgment for each scenario.
The members were asked if there was a form or tax return election required to be filed for the appointment of a DLE. There is no ATO form. Instead, each member of the MNE group must nominate or formally appoint the same entity as the group's DLE. Record of this appointment would be kept by the lodging entity.
Key issues raised
Overall, some key issues identified from this session are:
- Meaning of ‘required to prepare separate financial accounts’, including whether a contractual as opposed to a statutory requirement, for example, Australian Securities and Investments Commission to prepare financial statements constitutes ‘required to prepare’.
- What constitutes financial accounts for joint arrangements. For example, does a list of expenses constitute financial accounts?
- Materiality of differences in language between the GloBE rules and Australian legislation (‘prepare’ vs required to prepare’).
- Limited ability for joint arrangements to apply the transitional CbCR safe harbour if they do not prepare accounts nor make any lodgments.
- Inability to identify joint arrangements in a group’s MNE structure for the GIR without identifiers, for example, no TFN, ABN, ACN.
- Whether the joint venture group's revenue is included in the MNE group's revenue threshold test and whether a joint operation's revenue is proportionately included in the revenue threshold test.
- How do the joint venture deeming rules interact with scope rules. Does the joint venture group itself need to meet the turnover threshold in order for the Pillar Two rules to apply in relation to its income?.
- Different accounting treatments applied for different joint operators resulting in conflicting application of the GloBE Rules (should outcomes from application of accounting standards be strictly followed).
- Consider how other jurisdictions are approaching joint arrangements and taking a less rigid approach.
- Consider providing additional clarification on appointing a DLE in the context of joint ventures and joint operations and recording the nomination.