New tax transparency measures legislated

By Toby Eggleston, Priscilla Bryans, Carolyn Pugsley, Ryan Leslie

The new disclosure requirements for Australian public companies introduced by Schedule 1 of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share - Integrity and Transparency) Bill 2023 finally passed both Houses of Parliament on the last sitting night before Easter.

While the Bill needs royal assent to become law, once enacted it will be effective for financial years commencing on or after 1 July 2023, Australian public companies (both listed and unlisted) will be required to include a 'consolidated entity disclosure statement' as part of their annual financial reporting obligations under Chapter 2M of the Corporations Act.

The consolidated entity disclosure statement must provide the following information about entities within the consolidated entity at the end of the financial year:

1. Names of each entity
2. Type of entity (body corporate, partnership, or trust)
3. Role of the entity (trustee of a trust, partner in a partnership, or participant in a joint venture within the consolidated entity)
4. Place of incorporation or formation (for body corporates)
5. The public company's percentage ownership (direct or indirect) of each body corporate entity
6. Tax residency of each entity during the financial year
7. If the entity was a non-resident then a list of each foreign jurisdiction in which the entity was, at that time, a resident for the purposes of the law of the foreign jurisdiction relating to foreign income tax

If the accounting standards do not require the public company to prepare financial statements in relation to a consolidated entity, the consolidated entity disclosure statement should state this fact.

Directors, chief executive officers and chief financial officers must declare that the consolidated entity disclosure statement is 'true and correct' at the end of the financial year. The standard of ‘true and correct’ is distinct from the generally used standard of ‘true and fair’ with respect to an entity’s financial statements and notes to financial statement. As ‘true and correct’ is not defined in the legislation, the words take on their ordinary meaning in the context of the amendments. For the purposes of the consolidated entity disclosure statement, the policy intention is to ensure complete and accurate disclosures under subsection 295(3A).

As the consolidated entity disclosure statement forms part of an entity’s annual financial report, it is also subject to the existing audit framework under the Corporations Act.