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:

1. new format for short form local file
2. tightened (non-public) CbC reporting exemptions
3. enaction of public CbC reporting
4. 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

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.

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?

When will the law apply?

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.

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. 

Contributors

Ross Kelly

Swee Tan

The post Things SGEs should know ahead of new CbC reporting season appeared first on SW Accountants & Advisors.

On 12 February 2024, the Treasury released the revised exposure draft (ED) and explanatory materials (EM), collectively referred to as ‘Revised Draft Bill’, proposing to require certain large multinational enterprises (MNEs) to publicly report selected tax information on a country-by-country (CbC) basis. The amendments are proposed to be effective on or after 1 July 2024. 

The amendments builds on the original Draft Bill (April 2023 ED & EM) released as part of the 2022-23 Budget. Read more about our SW transfers pricing experts commentary on the initial announcement.

Key changes under the Revised Draft Bill include:

• a threshold has been established – the reporting obligation for CbC reporting parent is triggered only when the aggregated Australian sourced turnover reaches AUD $10 million for the income year
• disclosure requirements have been scaled back, removing specific items such as effective tax rate, list of intangible assets, and related party expenses
• information will be required on a CbC basis for Australia and specified jurisdictions (subject to ongoing update), and on either a CbC basis or an aggregated basis for the rest of the world.

Who is subject to reporting?

The reporting obligation applies to a CbC reporting parent of a CbC reporting group with an Australian presence (regardless whether it is Australian based or not). It is triggered only if the CbC reporting parent’s Australian-sourced aggregated turnover is AUD $10 million 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.

What should be disclosed?

Under the Revised Draft Bill, a CbC reporting parent is required to publish selected tax information on a strictly CbC basis for Australia and specified jurisdictions, such as Hong Kong and Singapore, while allowing information to be provided on either a CbC basis or an aggregated basis for the rest of the world.

Selected tax information must be sourced from audited consolidated financial statements to ensure the information is reconcilable and verifiable. If not available, the information should reflect what would be shown in such statements had the entity been a listed company.

The below table compares information required under different regimes and summarises relevant information to be disclosed on a CbC basis or an aggregated basis.

A – Aggregated basis
C – CbC basis
★ – Not required under the existing confidential CbC Reporting regime
✤ – New requirements under the Revised Draft Bill

¹ CbC reporting parent is required to disclose the general information.

² Under the EU Directive, only the aggregated revenue needs to be reported, without separating unrelated party and related party revenues.

³ The Commissioner will receive the information in the approved form from the CbC reporting parent, and then make available on an Australian government website.

When is it due?

The Revised Draft Bill, once legislated, is expected to apply to reporting periods commencing on or after 1 July 2024. Submission of the public CbC report will be due no later than 12 months after the end of the relevant income year.

For example, for an entity with a reporting period ending on 31 December, the first reporting period would be 31 December 2025, with the report submission due by 31 December 2026.

The existing confidential CbC reporting obligations and the new public CbC reporting obligations will operate in parallel, but they are distinct and separate reporting regimes.

Penalties for non-compliance

Australian resident entities will be penalised for refusing or failing to comply with their obligation to publish the selected tax information.

A CbC reporting parent is liable to an administrative penalty if the entity fails to publish the required information (including information to correct a material error) on time.

The penalty is 500 penalty units ($156,500 based on the current rate of $313 per penalty unit) for each period of 28 late days or part thereof, up to a maximum of 2,500 penalty units (currently $782,500). Penalty units may increase in future.

How SW can help 

As Australia moves towards greater transparency in tax matters, it is important for MNEs, both Australian-headquartered and foreign-owned with Australian operations, to stay ahead of these changes. SW is committed to providing you with proactive support to navigate these complexities.

Our tax experts can assist with: 

• Impact assessment: Assessing the impact of public CbC reporting on your group.
• Approach planning: Advising on the strategic implications of the additional disclosure requirements (e.g. CbC reporting group’s approach to tax, reasoning for income tax accrued vs income tax due) in your unique circumstances, and helping you prepare for these disclosures.
• Compliance management: Developing and implementing a robust process to ensure seamless compliance with the reporting obligations, minimising the risk of penalties.
• Stakeholder communication: Facilitating effective communication with your foreign CbC reporting parent and other relevant stakeholders to enhance understanding/coordination within your group.

Please reach out to our expert team or your SW representative, if you would like to know more or need assistance.

Contributor

Rowena Ye

The post Revised draft for Australian public country-by-country reporting appeared first on SW Accountants & Advisors.

During his career, Yang was a transfer pricing trainer to Chinese tax offices. Yang has acquired extensive experience on critical assignments including unilateral and multilateral advance pricing arrangements, transfer pricing audit defense and risk reviews, supply chain optimisation, and global documentation.

Yang Shi advises clients on all manners of inbound and outbound cross-border related party dealings, including financing arrangement, services, transfer of tangible and intangible properties and business restructuring. Yang’s transfer pricing knowledge in complex international tax issues has benefited clients across all industry sectors, supported by his dedication in delivering practical and professional services to meet clients’ commercial needs.

Yang has been a prominent presenter at SW’s Mandarin and English tax update seminars/webinars. Yang’s Mandarin transfer pricing WeChat series is unique and reputable among the Chinese community in the Australian market.

Yang Shi is a Partner of SW Audit and a Director of SW Accountants & Advisors Pty Ltd.

The post Yang Shi, Partner appeared first on SW Accountants & Advisors.

Whilst the important details of the framework have yet to be released (and remain the subject of an intended consultation process), the Albanese Government’s intention is to “to ensure multinationals pay their fair share of tax“.

The Government plans to do this via 4 major areas of reform or expansion:

1. implementation of BEPS 2.0
2. modification of thin capitalisation rules
3. restricting Intellectual Property deductions, and
4. expanding Tax Transparency measures, including requiring:
   • public release of Country-by-Country (“CbC”) information
   • a public registry of ultimate beneficial ownership of entities
   • mandatory reporting of “tax haven exposure”, and
   • transparency requirements for Australian government tenderers.

Adoption of BEPS 2.0

The ALP has confirmed its commitment to the timely implementation of the Base Erosion and Profit Shifting framework (BEPS 2.0) to follow through on Australia’s agreement to the global arrangement reached in October 2021 and membership of the OECD’s Inclusive Framework.

This will include the domestic implementation of what is known as a 2-Pillar solution, which includes:

• a global minimum effective minimum corporate tax rate set at 15% for multi-nationals, and
• a fairer distribution of profits by multinationals.

The new Government is clearly hoping that the introduction of these measures will increase Australia’s proportion of the tax take on many multinationals.

Thin capitalisation reform

The ALP is proposing to further limit interest deductions to bring Australia in line with the OECD recommended approach. In particular, the Government is proposing to limit interest deductions to 30% of EBITDA from 1 July 2023, while retaining the arm’s length and worldwide gearing debt tests.

The proposed reform is simple in statement but difficult in execution, and will likely have significant impact on a range of sectors that are traditionally highly leveraged and increase the compliance burden for many multinationals.

Thankfully, the ALP has stated that these reforms will only proceed after industry consultation, and we hope that due consideration is given to the broader implications of such a change.

Intellectual Property restrictions

The Government has seemingly sought to ‘borrow’ certain integrity measures from other tax systems such as the UK and US in seeking to deny tax deductions for the use of intellectual property when those payments are paid to a tax haven jurisdiction.

These measures are intended to only apply to Significant Global Entities (SGEs) and are intended to stop “treaty shopping”. The Government intends to introduce provisions that would deny such a payment unless it could be substantiated that the royalty payment was not for the dominant purpose of avoiding Australian tax.

There are many complexities evident with this proposal, not the least the interaction of these proposed rules with existing tax provisions such as Part IVA and Diverted Profits Tax.

Tax Transparency expansion

The remainder of the ALP’s reform agenda is focused on expanding requirements for multinationals to be transparent in their dealings.

These expansions focus on 4 areas:

Public reporting of CbC information

It is currently only mandatory to provide CbC Reporting information to the ATO. The ATO then shares that information with certain other global revenue authorities.

The ALP intends to require “large multinational firms” (presumably SGEs) to publicly disclose the CbC information.

Ultimate beneficial ownership information

The Government intends to create and maintain a public registry of ultimate beneficial ownership. Ultimate beneficial ownership is essentially the identity of who ultimately owns, controls, or receives profits from a company or other type of entity.

Implementation of a public register of such information will bring Australia in line with other G20 nations such as Canada, UK, and the US.

We expect that such a register would be limited in scope to large multinationals given the broader context of the reform agenda. However, limited information has been provided at this stage.

Mandatory reporting of “tax haven exposure”

Presumably tied to the implementation of BEPS 2.0, these changes will require multinationals operating in jurisdictions below the proposed global minimum 15% tax rate to disclosure a “material tax risk” to shareholders.

Tax transparency requirements for Australian Government tenderers

Lastly the ALP plan to implement a “Fair Go Procurement Framework” requiring companies tendering for Government contracts worth more than $200,000 to disclose their country of domicile for tax purposes.

ALP plan needs broad consultation

The ALP’s proposals clearly represent a significant pivot from policies in previous elections and have generally focused on ways of addressing tax avoidance by multinational corporations. Whilst they may provide some headaches and uncertainties for taxpayers, they are unlikely to unsettle Australian voters or mums and dads.

Nonetheless, the potential application of the reforms are significant and may impact many small and medium sized enterprises – as well as the SGEs. We welcome the opportunity for broad consultation to ensure that the plan achieves its objectives in an appropriate and measured way.

Contributors

Jae Debrincat

The post How will multinationals “pay their fair share” under the new Government? appeared first on SW Accountants & Advisors.

Daren leads the development and implementation of SW’s proprietary CTS Pillar Two software solution, designed to help multinational groups navigate the complexities of OECD Pillar Two compliance. His team combines deep expertise in tax effect accounting with advanced analytics to automate GloBE calculations, streamline workflows, and enhance the integrity of tax provisioning processes. Daren regularly advises clients on Pillar Two strategy, including the preparation of GloBE Information Returns, transitional safe harbour calculations, and tailored implementation plans.

He leads the International Tax team and advises multinational groups on international structuring, profit repatriation strategies, sale and acquisition structuring, tax consolidation, application of the accruals taxation regime (e.g. CFC, FIF, foreign hybrid, and trust taxation) and other taxation issues.

Daren has a proven track record of delivering innovative tax solutions for his clients. He works collaboratively with them to break down complex tax legislation into simple, easy-to-understand compliance requirements and create tailored solutions that suit the needs of the organisation.

Daren’s experience includes:

• Assisting clients with their annual compliance requirements
• Advising on global transfer pricing strategy and policy
• Delivering international tax and structuring solutions
• Assisting clients with profit repatriation strategies
• Developing tax structures and solutions for M&A transactions
• Advising clients on tax consolidation

Daren is a Partner of SW Audit and a Director of SW Accountants & Advisors Pty Ltd.

The post Daren Yeoh, Partner appeared first on SW Accountants & Advisors.