Minor amendments have been made to the requirements for Consolidated Entity Disclosure Statements (CEDS) to clarify the intended application. For years ended 30 June 2024, public companies prepared consolidated entity disclosure statements for the first time. The initial application of the requirements identified inconsistencies and areas where the requirements lacked clarity. Amending legislation was passed in December 2024 to rectify these issues. These new amendments apply to financial years beginning on or after 1 July 2024 (Typically 30 June 2025 year-ends), however given they are clarifications, of existing requirements, public companies are encouraged to early adopt them.
A CEDS is required by all public companies (both listed and unlisted) who are required to prepare annual financial reports under the Corporations Act 2001. It applies to those companies whether or not they prepare consolidated financial statements.
The key additional information which this statement provides beyond that which is included in the financial statements is the tax residency of all entities within the Group. The rationale behind requiring this statement is part of a worldwide drive to increase tax transparency.
Publicly disclosing the tax residency of each member of the group gives users of the financial report a clearer indication of the jurisdictions where the group is subject to tax. It may also increase the public scrutiny of actions that large multinational organisations are taking to minimise their taxable positions and provide greater clarity to users of how they manage their tax affairs. There is, however, no requirement to disclose the amount of tax that is payable in each jurisdiction. This is part of a suite of regulations that the government is currently undertaking to minimise tax avoidance and increase tax transparency.
Required disclosures
CEDs need to provide the following details for each entity in the group, specifically:
-
The name and structure (company, partnership, trust etc)
-
Country of incorporation
-
Percentage owned by the group if has share capital
-
Whether the entity is an Australian tax resident
-
What foreign jurisdiction(s) is the entity a tax resident of.
-
Whether the entity was a trustee or a trust within the consolidated entity, partner in a partnership or a participant in a joint venture.
The main amendment to the initial requirements being the need to disclose both if the entity is an Australian tax resident and all foreign jurisdictions that it is also a tax resident of. Further clarity was also given in relation to how you determine tax residency status in Australia.
When determining if an entity is an Australian resident at the end of the financial year for the purpose of CEDS, if at that time:
-
It is an Australian resident for income tax purposes
-
For partnerships, at least one member of the partnership is a resident for Australian tax purposes
-
It is a resident trust estate in relation to the year of income that corresponds to the financial year.
The CEDS is similar to the existing note in the financial statement that outlines the subsidiaries in the group. However, there will be some differences as all subsidiaries are required to be included in the consolidated entity disclosure statement. It must include all dormant entities and entities that might otherwise be considered immaterial and therefore be excluded from the notes to the financial statements. The CEDS also requires information regarding the tax residency of an entity which is not typically included in the financial statements. If your public company does not prepare consolidated financial statements, then the consolidated entity statement can be merely a statement to that effect.
There will be a replication of this information between the CEDS and the notes to the financial statements and it is not be possible to cross reference between the two to mitigate this. The information required in the notes to the financial statements is required to be included within the financial statements and the notes, in order to comply with the Australian Accounting Standards (AASBs) and the International Financial Reporting Standards (IFRS). It is not possible to locate that information elsewhere and cross reference to it. Similarly, the Corporations Act (2001) is explicit as to what must be included in the CEDS, and therefore it would not be appropriate to merely cross reference that back to the notes to the financial statements.
Directors’ responsibilities
The Director’s declaration has also been expanded to include a statement that in the directors’ opinion the CEDS is ‘true and correct’. This is a stronger statement than that required for the financial statements where directors are only required to declare that the financial statements are ‘true and fair’. Accordingly, Directors will need to ensure that they are comfortable with the information included in the statement, in particular the tax residency of each entity in the Group. For listed companies, the declaration made by the CEO and CFO will also be similarly expanded.
As the CEDS is part of the annual financial report, it is also subject to audit requirements and the audit opinion will now also cover the CEDS.
Further Assistance
If you have further questions on the CEDS, please reach out to your local Moore Australia contact. Our Tax and business advisors are well placed to assist you in collating this information and confirming the tax residency of your subsidiaries, whilst your auditor can have discussions with you regarding what information they are going to require.