Using multiple entry consolidated groups in Australia

MEC group rules enable foreign-owned groups with multiple entry points of investment into Australia to secure the benefits of being consolidated. Such benefits include the fact that, while remaining legally separate entities, the tax consolidated group is treated as a single entity for income tax purposes. Thus tax consolidation disregards intragroup transactions that are for income tax purposes, allows the pooling of losses and credits, and reduces impediments to group restructuring.

In Australia it is typical for Australian companies to separate their valuable assets (such as the business premises) from operating business by setting up a tax consolidated group. This structure creates asset protection for the group. However, interposing an Australian holding company between a foreign parent entity and its Australian businesses may not be tax effective for foreign parent companies. This is where electing to form a MEC group can be an effective strategy for multi-national businesses. 

When the business premises is already held within a subsidiary that also conducts the operating business (due to, for example, historical reasons), a MEC group can be established by setting up a new Australian company and electing to form a MEC group. The premises may be transferred to the new entity. As transactions between Australian members of the same MEC group are ignored, transferring the property to the new entity would not have any income tax consequences. 

Forming an MEC group is often an effective structure for multi-national businesses, but it requires expert consideration, especially with respect to preparing the complex entry calculations for subsidiary members and determining whether losses may continue to be utilised. Thus whilst a MEC group can streamline future compliance, the process of forming a MEC group has many complexities. 

These complexities are compounded by the fact that for any foreign-owned groups there will always be a menu of choices available: one MEC, one consolidated group, a MEC and a consolidated group, or a MEC with multiple entry points. The choices multiply exponentially with the number of legal entities, and as you would expect, these choices are often influenced by Australian and foreign tax considerations as well as accounting, legal and treasury issues. This feature, which is uniquely global as it is not available to Australian headquartered companies, continues to present both challenges and opportunities for taxpayers and their advisers.

Tony Nunes has over 25 years’ experience in providing tax advice to clients, especially on issues affecting cross-border transactions, acquisitions and restructures, and on all aspects of structuring the ownership and financing of corporations and their operations.

Matthew Broadhurst has over 4 years’ experience advising SME clients with an applied knowledge of managing tax disputes including audits, objections, and litigation. He has worked in both the public and private sectors providing a unique outlook that is beneficial to clients.