• Tax integrity package – increasing administrative penalties for significant global entities

    On 3 May 2016, the government announced the 'Tax integrity package - increasing administrative penalties for significant global entities' measure. This measure applies to conduct occurring from 1 July 2017.

    Penalties will also be impacted by the 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO)External Link announcement increasing the Commonwealth penalty unit from $180 to $210.

    Significant global entity

    An entity is a significant global entity (SGE) if it is:

    • a global parent entity with an annual global income of A$1 billion or more, or
    • a member of a group of consolidated entities for accounting purposes and one of the other group members is a global parent entity with an annual global income of A$1 billion or more.

    We can also make a determination that an entity is an SGE if, in the period where it has not prepared global financial statements, we believe its annual global income is A$1 billion or more.

    Administrative penalties for statements

    For SGEs, administrative statement penalties will be doubled. This increases the penalties imposed on SGEs that do not take reasonable care, take a tax position that is not reasonably arguable, or fail to provide documents when required and the Commissioner determines the liability without the document.

    The following table sets out the new penalty amounts:

    Culpable behaviour

    Current base penalty amount calculated as % of shortfall

    Base penalty amount applicable after 1 July 2017

    Making a false or misleading statement

    25% , 50%, 75%,

    50%, 100%, 150%

    Making a statement which treats a law as applying in a way that was not reasonably arguable

    25%

    50%

    Failing to provide a document as required

    75%

    150%

    The following increases are for false or misleading statements which don't result in a shortfall amount:

    Penalty Units

    Current

    Increase after 1 July 2017

    Intentional Disregard

    60 penalty units ($10,800)

    120 penalty units ($25,200)

    Recklessness

    40 penalty units ($7,200)

    80 penalty units ($16,800)

    No reasonable care

    20 penalty units ($3,600)

    40 penalty units ($8,400)

    Failure to lodge penalty

    Failure to lodge on time (FTL) penalties for SGEs will be increased. The increased penalties will help to ensure that these entities do not opt out of their reporting obligations.

    It is important for SGEs to be aware that failing to lodge on time after 1 July 2017 will result in significantly higher (FTL) penalties, especially where an entity has a history of late lodgments.

    The base penalty amount will be multiplied by 500 if the entity concerned is an SGE. The minimum FTL penalty for an SGE, where a document is up to 4 weeks late, will become $105,000. The maximum penalty, where a document is late by more than 16 weeks, will be $525,000. For an SGE with assessable income of $20 million or more, this means that FTL penalties will increase by a factor of 100 compared to the maximum penalty of $5,250 that would otherwise apply.

    Note that the penalty amounts also change due to the 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO) announcement that the value of the Commonwealth penalty unit will be increased from $180 to $210, with effect from 1 July 2017. The FTL penalty changes combined with the MYEFO increases after 1 July 2017 are shown in the table below:

    Days late

    28 or less

    29 to 56

    57 to 84

    85 to 112

    More than 112

    Current large entity penalties

    $900

    $1,800

    $2,700

    $3,600

    $4,500

    Large entity penalties with MYEFO increase

    $1,050

    $2,100

    $3,150

    $4,200

    $5,250

    SGE penalties with MYEFO increase

    $105,000

    $210,000

    $315,000

    $420,000

    $525,000

    The increased penalties will apply in respect of all documents required to be lodged by SGEs in the approved form, including:

    • Income tax and fringe benefits tax returns
    • Business activity statements
    • Country-by-country reports
    • General purpose financial statements

    We give a reminder to entities who lodge late before imposing penalties for any subsequent late lodgments. We will not impose a penalty unless a reminder has been given on a previous occasion.

    If SGEs have received a previous penalty or reminder, they should review their lodgment processes appropriately to ensure they will be able to lodge documents on time and avoid FTL penalties.

    If there are entities experiencing unexpected difficulties with lodgment they can:

    Proposed administrative approach

    • The law relating to imposition of penalties, beyond the change to the level of penalty or the multipliers, will not change. For example, an SGE that takes reasonable care will not be liable to a false or misleading statement penalty.
    • In broad terms the current approach for the imposition and remission of statement penalties and FTL penalties will be maintained for the increased penalties applying to significant global entities. That is, the increased amount of penalties will not by itself be a relevant factor in considering whether or not a penalty should be remitted.
    • The practice statements that provide guidance on the ATO’s current administrative practice for the imposition and remission of statement penalties and failure to lodge penalties to which this measure applies are listed below at More information.
    • Consistent with current administrative practice, SGEs will generally have already received a specific reminder about their lodgment obligations for an earlier breach before they incur an FTL penalty. This will prevent one-off minor delays or oversights automatically attracting a penalty without a prior warning about the need to comply with lodgment obligations.
    • An entity’s status as an SGE for the purposes of the increased penalties will be determined based upon the most recent income year for which an income tax assessment has been made for the entity (either following lodgment of the entity’s income tax return or, if the entity has not lodged a tax return, a default assessment). However, if at the time of calculating a penalty amount the ATO is satisfied that an entity will not be an SGE for the current income year (for example because the entity is no longer a member of the global group) the ATO would be able to remit the higher penalty amount to the amount that would otherwise have applied.
    • In most circumstances, the question of whether an entity is actually an SGE for the income year in which a penalty is imposed would be determined after the year has ended. If a penalty was imposed at the increased rate applicable to SGEs and the ATO subsequently becomes aware that the entity was in fact not an SGE for the relevant income year, the penalty amount will be reduced to the amount that would otherwise have applied.

    Legislation and supporting material

    An exposure draft and explanatory materialExternal Link were released for consultation on the Treasury website on 20 December 2016, seeking submissions by 13 January 2017.

    Amendments to implement the measure were included in Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017External Link, introduced into Parliament on 16 February 2017.

    More information

    • 2016-17 Budget Paper No 2External Link - Revenue Measures page 34.
    • Paragraphs 6 to 13 of Law Companion Guide LCG 2015/3External Link (Subdivision 815-E of the Income Tax Assessment Act 1997: Country-by-Country reporting) contain guidance on what is a significant global entity.
    • The following practice statements provide guidance on the ATO's current administrative practice for the imposition and remission of statement penalties and failure to lodge penalties to which this measure applies:
      • Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard - MT 2008/1
      • Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable - MT 2008/2
      • Administration of penalties for failing to lodge documents on time - PS LA 2011/19
      • Administration of penalties for making false or misleading statements that result in shortfall amounts - PS LA 2012/5
      • Administration of penalties for making false or misleading statements that do not result in shortfall amounts - PS LA 2012/4
       
    • Administration of the penalty imposed under subsection 284 75(3) of Schedule 1 to the Taxation Administration Act 1953 PS LA 2014/4
      Last modified: 23 Mar 2017QC 49960