Australian companies and other resident taxpayers are generally assessed on their worldwide income.
Generally foreign income is assessed when derived (eg. received) by the Australian entity. However, under the Controlled Foreign Companies (CFC) and Foreign Investment Fund (FIF) rules, certain foreign income is taxed on an accruals basis, ie. when the income is earned by the offshore entity, not when it is remitted to Australia.
The foreign income, CFC and FIF rules are very complex and can be difficult to administer in practice. For example, application of the CFC rules requires the foreign company to provide sufficient financial records for the Australian company to perform a detailed Australian tax calculation based on this data. Obtaining such sensitive financial information in sufficient detail from a foreign jurisdiction can be a challenging exercise, despite the fact that the Australian company controls the foreign company.
Given the complexity of the foreign income rules and uniqueness of their application to particular corporates, typically groups create and maintain in-house spreadsheet systems to perform these calculations.
The ATO pays close attention to potential leaks of revenue from offshore operations. Accordingly, it is essential that the company has sound systems and processes in place to manage the compliance risks in relation to this area.