Enhancing Tax Transparency: Australia's New Requirements for Disclosure of Subsidiaries in Financial Reports

Australian public companies, both listed and unlisted, are now subject to stringent disclosure requirements regarding their subsidiaries following the enactment of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. This legislation, which received royal assent on 8 April 2024, aims to bolster transparency in multinational tax arrangements and enhance public scrutiny. Here's an overview of the key aspects of these new requirements:

Mandatory Disclosure of Consolidated Entities

Under the amended Corporations Act 2001 (Cth), companies are obligated to include a 'Consolidated Entity Disclosure Statement' in their annual financial reports starting from the financial year commencing on or after 1 July 2023. This statement must detail prescribed information about entities within the consolidated group.

Contents of the Consolidated Entity Disclosure Statement

The Consolidated Entity Disclosure Statement encompasses crucial details such as the names of each entity within the group, their entity type (e.g., body corporate, partnership, or trust), place of incorporation, if applicable, and their respective tax residencies during the financial year. Additionally, for body corporates, the statement must include the company's percentage ownership and jurisdiction of residency for tax purposes.

Expanded Director and CEO/CFO Declarations

The new law extends the scope of declarations within financial reports. Directors' declarations about the accuracy of financial statements now encompass the Consolidated Entity Disclosure Statement. For listed companies, the CEO and CFO must provide written declarations endorsing the truth and correctness of the financial statements, including the Consolidated Entity Disclosure Statement.

Impact and Objectives

These legislative changes are part of a broader effort to promote tax transparency and integrity in Australia's corporate landscape. By mandating detailed disclosures about subsidiaries and their tax domiciles, the government aims to foster greater accountability among companies regarding their tax governance practices. Increased public access to this information is expected to encourage companies to adopt more responsible tax strategies and potentially streamline their group structures.

Alignment with International Standards

Australia's approach to enhanced corporate tax transparency mirrors international standards, particularly those observed in the UK. The government's intent is not only to increase transparency but also to spur behavioural changes within companies, promoting ethical tax practices and informed decision-making regarding tax obligations.

SOURCES:

• Crackdown on multinational tax arrangements with new subsidiary disclosure requirements (holdingredlich.com)
• Australia: Australian public companies to disclose subsidiary information - Baker McKenzie InsightPlus