ATO Tax Collection: Public Beneficial Ownership Register Treasury paper released

4 minute read 09.11.2022 Hamish Wallace, Adrian Varrasso, Robert Yunan, Tim Lynch, Elissa Romanin

With 3 million unlisted entities impacted in phase 1, the proposed beneficial ownership disclosure requirements will require close stakeholder engagement, strict ongoing compliance and reporting obligations under high public scrutiny.

Key takeouts

The new measures will be implemented in phases, with proprietary companies, unlisted companies, unlisted registered Managed Investment Schemes and unlisted Corporate Collective Investment Vehicles (collectively the Regulated Entities) the first entities to be subject to the rules.

Both the Regulated Entities and also the natural person owners and certain interposed entities will be subject to disclosure requirements, culminating in a register which will be publicly available.

There will be significant issues with how Regulated Entities will comply with these rules and privacy concerns with the type of information required to be disclosed.

Treasury has released a consultation paper describing the proposed beneficial ownership register regime for Australian entities, as foreshadowed within the Commonwealth Government's election promises.

The measures are intended to be another tool to improve Australia's tax collection capabilities, and align beneficial ownership disclosure in Australia more closely with international peers.

The Government sees these new measures as an important transparency measure to assist collection of tax from tax evaders, to attack money laundering and to identify non-arm's length transfer pricing arrangements.

The measures will be introduced over time, initially limited to certain private entities and then expanded (both in terms of who will be subject to the rules and also what gets reported and how).

The measures may add significant compliance costs on Regulated Entities. Importantly, the disclosure of information about Regulated Entity's ultimate owners will require close stakeholder engagement and management.

The consultation period is open until 16 December 2022.

Global peers highlight the way

Treasury has looked to global peers for best practice and, once again, has borrowed heavily from the UK model (albeit with lower thresholds applying).

The rules will disclose details of those natural persons who:

directly or indirectly own 20% of the shares or units in the Regulated Entity;
directly or indirectly own 20% of the voting rights in the Regulated Entity;
who have rights to appoint or remove the majority of the board of directors (companies) / the responsible entity or corporate directors for managed investment schemes (MIS') and corporate collective investment vehicles (CCIVs) respectively;
or have the right to exercise control significant influence or control over the Regulated Entity.

The details of all companies, registered MIS, CCIVs or trusts that would satisfy one of the tests if they were a natural person will also be disclosed.

While trusts (other than unlisted MIS') are not yet Regulated Entities, all Regulated Entities will need to identify each trust which satisfies one of the above thresholds (e.g. where a trust has 20% or more of the shares in the Regulated Entity). In these circumstances, the Regulated Entity is obligated to take "reasonable steps" to identify all of the trust's beneficiaries and to record these on its beneficial ownership register.

Interestingly, partnerships are not mentioned at all in the Consultation Paper and we will need further guidance around the status of these entities under the proposed measures, and the requirements (and ability) to trace through these entities.

Regulated entity and beneficial owner obligations and penalties for non-compliance

In recognition of the fact that Regulated Entities will not necessarily have the required information about the ultimate beneficial owners, the Government proposes to introduce an obligation on the beneficial owners to identify themselves as such. Penalties will be imposed on the Regulated Entities and the ultimate beneficial owners for non-compliance.

A sample of the details of what will be disclosed includes, for natural persons:

names,
country of residence,
month and year of birth,
nationality and for companies MIS / CCIVs, the name, registered office, electronic address, country of registration, ACN, ABN or equivalent identification.

There is an obligation to ensure ongoing compliance and accuracy. Treasury is looking to leverage existing measures and the use of identity verification service providers. Treasury estimates that over three million additional, unlisted entities would be subject to transparency measures with respect to the disclosure of their beneficial ownership information.

The register will initially be maintained by the Regulated Entity (and either available to the public on request or published publicly). Later, there is proposed to be a central register.

The public disclosure of the information will be another tool that is available to the Australian Taxation Office to monitor compliance with the Australian tax laws (e.g. ability carry forward tax losses, application of the thin capitalisation provisions, identifying capital gains tax events and transfer pricing to name just a few).

Be ready – steps to take now

The proposed measures will require early engagement with stakeholders – to both manage expectations but also to ensure the data is collected and disclosed in a timely manner. There will need to be systems changes and a governance regime implemented around the proposed changes.

If the collection of this information uncovers additional information about related party dealings, this should be identified and assessed immediately, to best manage early ATO engagement.

Please contact us if you require assistance with making a submission.