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Knowing the Main Compliance Risks for Large Corporate Groups

When companies grow to become large corporate groups, they must be aware of the increased compliance risks associated with their size. Compliance risks refer to the potential legal, financial or regulatory risks that can arise when a company fails to comply with applicable laws, regulations and industry standards. Large corporate groups have unique compliance risks, and it is crucial to understand these risks to prevent any trouble in the foreseeable future.


The Advent of Profit Shifting


The greater globalisation of economies has resulted in numerous benefits, one of which is the acceleration of economic growth. Yet, it has also brought forth new issues as a result of the growing proportion of the world's gross domestic product and trade that can be attributed to multinational corporations.


Businesses are no longer required to put their activities close to their consumers or have their operations fully integrated with a single site. On the other hand, there is a trend towards centralising functions on a regional or worldwide scale despite supply chains being spread out across countries.


The advent of information and service economies, along with advancements in technology, have made it possible for multinational corporations to locate their employees and their operations in geographically remote regions. It's possible that some countries will try to get multinational corporations to invest in their countries by providing competitive tax rates and other enticements.


The Risk of Related Party Debt


The disproportionate allocation of debt into Australian corporations is a fundamental corporate tax avoidance method that is now being used. This practice is sometimes referred to as "dumping" debt. These schemes might be subject to transfer pricing laws, thin capitalisation rules, and general anti-avoidance rules.


You may elect to concentrate on the more common types of risks associated with debt owed by related parties. You may also:

  • Inform taxpayers and their advisors about potentially dangerous transactions.

  • Provide taxpayers with some direction to help them self-evaluate the tax risk associated with their related party financing arrangement and the likely compliance strategy we will take in light of that risk profile.

  • Consider filing a lawsuit in the most serious of circumstances.


Inbound Supply Chains


Several international corporations structure their activities in Australia as subsidiaries of their parent companies. They might utilise these subsidiaries to buy goods or services made or originating offshore from their offshore parent or affiliated corporations and then resell them to people in Australia.


The most important concern about taxes is whether the price paid for those goods or services is, according to the law, an appropriate price. This might be a particularly challenging question to answer when the products or services in question have distinguishing characteristics. This can be challenging even for taxpayers trying their best to do the right thing.


It is easier to establish whether the price is producing reasonable outcomes or skewed results if one looks at the entire supply chain from a number of different perspectives. It is possible that this will shed light on whether or not the necessary profit is being recognised in Australia.


Non-Arm's Length Arrangements and Intangible Assets


Intangible assets, such as intellectual property, but not restricted to it, are characterised by a high degree of portability.


It is possible to improperly get Australian tax advantages in connection with agreements that involve the relocation of intangible assets. The risk comprises financial benefits acquired in conjunction with arrangements that were not conducted on an equal footing or were contrived and which include arrangements that:


  • Transfer or artificially assign intangible assets generated in Australia (or the rights to exploit intangible assets generated in Australia) to offshore connected parties.

  • Include non-tangible assets that derive a major portion of their value from the operations of Australian firms or those operations that sustain that value.

  • Afterwards, provide rights to these intangible assets back to Australian firms in exchange for deductible payments, or relocate income related to the intangible assets from Australia.

  • Mischaracterise payments related to intangible assets in order to lower or avoid Australian royalty withholding tax.

  • Intangible assets, particularly those that are "hard to value," may have unusual or unique qualities. The search for comparable transactions becomes more difficult as a result of this, and it becomes more difficult to estimate market pricing at the time of the transaction.

Conclusion


It is essential for large corporate groups to be aware of the main compliance risks they face. From the risk of fraud to the risk of unethical practices to the risk of non-compliance with laws and regulations, large corporate groups need to stay informed about their obligations.


Doing so will help to ensure that the group is following all applicable laws and regulations and that it is able to continue operating in a safe and secure manner.


If you are looking for accountants for eCommerce businesses, look no further than our experts here at The ECommerce Accountant. We are the top business advisors for online stores and influencers. Call us today, and let us tend to your tax commitments and processes in no time.


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