Things SGEs should know ahead of new CbC reporting season
24/03/2025
Significant global entities (SGEs) face stricter Country-by-Country (CbC) reporting in 2025 with new formats, tighter exemptions, public disclosures, and harsher penalties.
2025 marks an important year for SGEs in respect of their CbC reporting obligations. The compliance standards have significantly heightened due to several developments in the Australian CbC reporting regime, including:
- new format for short form local file
- tightened (non-public) CbC reporting exemptions
- enaction of public CbC reporting
- further increased failure-to-lodge on time penalties.
Here’s what you need to know ahead of the busy CbC reporting compliance season.
1. New format for short form local file
On 14 November 2024, the Australian Taxation Office (ATO) issued a new CbC reporting template incorporating the new short form local file format. The new template applies to reporting periods beginning on or after 1 January 2024.
Background
As a mandatory disclosure component in the local file, short form previously has provided general information of the Australian taxpayer in a highly descriptive manner. However, this has fallen short of delivering detailed data anticipated by the ATO due to inconsistent and/or incomplete content being submitted.
The new format aims to address these inconsistencies by increasing the granularity and comparability of the information required, particularly for significant restructures and new intangible arrangements.
Key changes
Departing from the old format as a narration-based attachment, the new format incorporates short form directly into the Message Structure Table embedded in LCMSF Schema Version 4.0 template, in conjunction with local file Part A and Part B.
Specifically, some of the new disclosures required include:
- business strategy – required for all the main business lines / functions rather than on a whole-of-entity basis, including information on how each business line strategy overlaps
- organisational structure – must disclose Australia to overseas reporting lines for the most senior Australian-based individual by function/activity, not necessarily for the entire Australian business. Changes of reporting relationships throughout the year also need to be disclosed.
- significant restructures and new intangible arrangements – these types of arrangements will result in additional disclosures in greater level of details (over 50 questions expected), some of which are highly prescriptive such as:
- type of restructure (including any change in related party financing) or new arrangement involving transfer, licence or creation of intangibles
- total capital value of the restructure or intangible arrangement
- description of anticipated Australian and global tax impact
- commercial context and anticipated commercial impact
- step plan outlining steps of the restructure or intangible arrangement (as an attachment)
- each step involved in the restructure or intangible arrangement (including all connected steps involving overseas related parties). A series of disclosures will need to be disclosed for each step.
While only “significant” restructures are reportable, the definition of significant restructures is very broad. Certain restructures are deemed as significant regardless of its materiality, for example:
- changes in ownership by controlling entities
- changes in residence, entity classification or tax status of controlling entities or related counterparties
- related overseas counterparty acquires or licenses significant intellectual property from another overseas related party
- related overseas counterparty commences or expands an offshore arrangement treated as impacting the functional profile or level of remuneration of Australian operations
- new arrangements involving transfer, licence, or creation of intangibles involving the Australian control group.
There are non-reportable exclusions for restructures and intangible arrangements, however the eligibility criteria are strict and may require an extensive process of information gathering and evaluation at both Australian and overseas counterparty levels.
When the changes apply
| Entity type | When do the changes apply | Lodgement due date |
| December balancers | year ended 31 December 2024 | 31 December 2025 |
| June balancers | year ended 30 June 2025 | 30 June 2026 |
SW has upgraded our in-house CbC reporting software that complies with the LCMSF Schema Version 4.0 template, to support smooth transition of local file reporting under the new format.
2. Tightened (non-public) CbC reporting exemptions
On 29 November 2024, the ATO released its updated guidance on exemptions from lodging one or more of the CbC reporting statements. This new approach is significantly more stringent than in the past and will apply to all CbC reporting exemption requests received on or after 1 January 2025.
Available exemption categories
There will generally be only three circumstances where an exemption may be granted upon receiving a formal request.
| Exemption category | Exemption available |
| You are an Australian CbC reporting parent, or a member of a group consolidated for accounting purposes with an Australian CbC reporting parent, where the group has no foreign operations. | CbC report |
| The annual global income of your foreign CbC reporting parent is AUD $1bn or more but falls below the CbC reporting foreign currency threshold in the jurisdiction of the foreign CbC reporting parent. | CbC report |
| You were a CbC reporting entity in the preceding year due to your membership of a group of entities but left that group during the CbC reporting year due to a demerger or sale to a third party and will not be a CbC reporting entity under your new structure for the foreseeable future. | CbC report and master file |
Exemptions will be granted for a period of one year predominantly, and the exemption request should be made after the tax return has been lodged for the associated income year and financial statements are available.
Exemptions outside of the three categories above may only be considered in exceptional circumstances.
Of an important note, there is generally no administrative relief available for the local file with respect to reporting periods on or after 1 January 2024, where such relief was available in the past where the Australian taxpayer did not involve in international related party dealings.
Tax exempt entities under Division 50 of the Income Tax Assessment Act 1997 (e.g. Australia headed university groups) remain to have access to CbC reporting relief, if no overseas presence exists.
3. Public CbC reporting is now law
The lodging of public CbC report by applicable SGE groups will be mandatory effective from income years beginning on or after 1 July 2024, withthe proposed legislation for public CbC reporting receiving royal assent on 10 December 2024.
The final law is broadly similar to the revised exposure draft (released in February 2024), which SW analysed.
Who are affected?
| Who does it apply to? | The reporting obligation applies to a CbC reporting parent of a CbC reporting group with an Australian presence |
| Conditions | Only triggered if the CbC reporting parent’s Australian-sourced aggregated turnover is AUD $10m or more for the income year. If a CbC reporting parent’s reporting period is not an income year, it must assume the reporting period is an income year for calculating aggregated turnover. |
| Publishing requirements | The CbC reporting parent is required to publish selected tax information in the approved form to the Commissioner of Taxation, with the Commissioner facilitating publication on an Australian government website. |
When will the law apply?
| Entity type | When do the changes apply | Lodgement due date |
| December balancers | year ended 31 December 2025 | 31 December 2026 |
| June balancers | year ended 30 June 2025 | 30 June 2026 |
What information will need to be submitted and made public?
While there is significant overlay between the disclosures required under the existing non-public CbC report and the new public CbC report (such as by-jurisdiction revenue, tax and headcount data), the bar under the public CbC reporting is higher.
For example, it requires disclosure of the group’s approach to tax for which the Global Reporting Initiative’s Sustainability Reporting Standards GRI 207: Tax (2019) should be treated as the primary source of guidance.
For Australia and specified jurisdictions determined by the Minister, information must be published on a CbC basis. For all other jurisdictions, the CbC reporting parent has a choice to publish the same information on either a CbC basis or an aggregated basis.
Information published must be sourced from audited consolidated financial statements. In circumstances where the CbC reporting parent has not prepared audited consolidated financial statements, the information published must be based on amounts that would be shown in such statements, had the entity been a listed company.
It is expected that information must be submitted in XML schema as the approved form, and the detailed format will be released by mid 2025. SW will have our in-house public CbC report software ready by that time.
What exemptions are available?
In addition to the CbC reporting groups with a small Australian presence (less than $10m AUD Australian-sourced income), it is unclear what other specific exemptions are available (for example, if tax exempt Australia headed university groups with no overseas presence are exempt).
Generally, it appears that any further exemptions will be at the Commissioner’s discretion.
The ATO is working on a practical guidance on exemptions, which is expected to be completed by mid 2025.
4. Increased penalty rates
SGEs may face further increased penalties in the event of late lodgements.
| Days late | Failure-to-lodge on time penalties | |
| For forms due from 7 Nov 2024 | For forms due before 7 Nov 2024 | |
| 28 or less | $165,000 | $156,500 |
| 29 to 56 | $330,000 | $313,000 |
| 57 to 84 | $495,000 | $469,500 |
| 85 to 112 | $660,000 | $626,000 |
| More than 112 | $825,000 | $782,500 |
What’s next
As Australia embraces greater tax transparency, the compliance costs for SGE groups are continuously increasing, and the compliance bar is heightening. It is crucial for affected taxpayers and associated CbC reporting groups to stay informed and respond to these changes in a timely and efficient fashion.
- For Australia based CbC reporting parents, it is time to commence planning from a process and resource perspective to ensure due satisfaction with the relevant reporting requirements.
- For overseas headquartered CbC reporting groups, the Australian group members should ensure ongoing and proactive dialogue put in place with the group parents so that the group’s readiness and awareness of the Australian reporting requirements are well established.
This document is not intended to be formal advice. As these CbC reporting developments are complex and evolving, we recommend affected taxpayers reach out to our Transfer Pricing specialists to learn how these changes may impact your business.
