Edited version of private advice

Authorisation Number: 1051759593268

Date of advice: 24 September 2020

Ruling

Subject: Requirements for country-by-country reporting and lodgement of general purpose financial statements

Question 1

Is a nine-month transitional period an income year as defined under section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Will Entity A be subject to country-by-country (CbC) reporting obligations under section 815-355 of the ITAA 1997 in respect of the transitional period?

Answer

No

Question 3

Will Entity A be required to provide general purpose financial statements to the Commissioner under section 3CA of the Taxation Administration Act 1953 (TAA 1953) in respect of the transitional period?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 2019

Relevant facts and circumstances

Entity A is an Australian parent entity and head company of an income tax consolidated group.

For the income year ended 30 June 20XX and prior years, Entity A was not a member of a group that is consolidated for accounting purposes where a parent entity had an annual global income of AUD $XXX or more.

During the income year ended 30 June 20XX, all the shares in Entity A were acquired by Entity B. Entity A became a member of the group that is consolidated for accounting purposes headed by Entity B as a result of the acquisition.

Subsequent to the acquisition, Entity A was given leave of the Commissioner to adopt a substituted accounting period (SAP) being the twelve months period ending on 31 March in order to align its reporting period with Entity B.

The SAP will first take effect from 1 April 2020, which is preceded by a nine-month transitional period (the Transitional Period).

Entity B had an annual global income exceeding AUD $XXX in its most recent global financial statements.

It is expected that Entity B will continue to have an annual global income exceeding AUD $XXX in the future periods.

Reasons for decision

Question 1

Is the Transitional Period an income year as defined under section 995-1 of the ITAA 1997?

Summary

The Transitional Period is not an income year as defined under section 995-1 of the ITAA 1997.

Detailed reasoning

Section 995-1 of the ITAA 1997 defines an 'income year' to have the basic meaning given by subsections 4-10(2) and 9-5(2) of the ITAA 1997 and for an entity that adopts an accounting period in place of the particular income year, its income year is the adopted accounting period.

Under subsection 4-10(2) of the ITAA 1997 an 'income year' generally means the same as the financial year. However, for a company, the income year is the previous financial year and for an entity that has an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year.

Section 995-1 of the ITAA 1997 defines a 'financial year' as a period of 12 months beginning on 1 July.

An accounting period is defined in section 18 of the Income Tax Assessment Act 1936 (ITAA 1936) as being the 12 months period ending on some date other than 30 June.

The nine-month transitional period of 1 July 20XX to 31 March 20XX is not a twelve-month period. Therefore, it does not meet the definition of an 'income year' under subsection 4-10(2) and section 995-1 of the ITAA 1997.

Question 2

Will Entity A be subject to country-by-country (CbC) reporting obligations under section 815-355 of the ITAA 1997 in respect of the Transitional Period?

Summary

Entity A will not be subject to CbC reporting obligations under section 815-355 of the ITAA 1997 in respect of the Transitional Period.

Detailed reasoning

Section 815-355 of the ITAA 1997 imposes an obligation to provide CbC reports to theCommissioner in certain circumstances.

An entity will have CbC reporting obligations for an income year if:

·         the entity (including a trust or partnership) was a significant global entity (SGE) for the whole or a part of the previous income year

·         during the income year, the entity was an Australian resident entity for a foreign entity with a permanent establishment (PE) in Australia, and

·         the entity is not exempt from providing all of the CbC reporting statements.

Briefly, an entity will be an SGE for an income year if the entity is either:

·         a global parent entity with 'annual global income' of 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.

An 'income year' for CbC reporting purposes must be a 12-month period. If an entity has a transitional period due to a change in their income tax accounting period, (for example, because the ATO has approved a change from a year ending 30 June to a year ending 31 March) the transitional period is not an income year as it is not a 12-month period as discussed in Question 1.

Therefore, Entity A does not have an obligation to provide CbC reports to the Commissioner for the Transitional Period.

Question 3

Will Entity A be required to provide general purpose financial statements (GPFS) to the Commissioner under section 3CA of the TAA 1953 in respect of the Transitional Period?

Summary

Entity A will not be required to provide GPFS to the Commissioner under section 3CA of the TAA 1953 for the Transitional Period because the Transitional Period is not an income year.

Detailed reasoning

Section 3CA of the TAA 1953 specifies when a corporate tax entity (that is, a company, corporate limited partnership or public trading trust) must lodge GPFS with the ATO.

Under section 3CA of the TAA 1953, the GPFS reporting requirements only apply to income years.

As discussed in Question 1, the Transitional Period is not an income year. Therefore, Entity A is not required to lodge GPFS for the Transitional Period.