In the October 2022-23 Federal Budget, the Australian Government announced its intention to implement public CbC reporting measures to enhance transparency, and improve comparability and accessibility of tax information.  

The Government has now released draft legislation that, if enacted, requires the relevant CbC reporting parent to provide selected tax information relating to its CbC reporting group for public release. The information to be published relates to presence and tax dealings of members of the CbC reporting group across jurisdictions and should enable investors, customers, and regulators to create a picture of how the entity structures its tax affairs in Australia and globally. 

The proposed measures would be the first unrestricted mandated public reporting of a broad coverage of worldwide tax related data by jurisdiction.   

While some European countries have started to require taxpayers to publish tax information, the level and amount of disclosures required in Australia is out of step.  In effect, the proposed measures will bypass Australia’s international obligations under OECD’s BEPS Action 13 which emphasise confidentiality.   

Entities covered by the amendments 

Entities required to report are those that are classified as a CbC reporting parent, where at least one member of the CbC reporting group is an Australian resident or a foreign resident with an Australian permanent establishment. The obligation will fall on the CbC reporting parent, which will often be a foreign entity. 

The Commissioner may in writing exclude specific entities from having to publish tax information of a particular kind. 

Information to be published 

Much of the required information is the same as that already provided under the existing confidential CbC reporting rules. The additional information that will need to be disclosed includes: 

• a description of the CbC reporting group’s approach to tax 
• in respect of each jurisdiction in which the CbC reporting group operates, the following information for the income year, at a group level: 
• expenses arising from transactions with related parties that are not tax residents of the jurisdiction 
• a list of tangible and intangible assets as at the end of the income year, and the book value of those assets  
• effective tax rate.  

Regulations may prescribe additional information to be disclosed. 

The information to be disclosed is generally required to be sourced from audited consolidated financial statements, to ensure that the material is reconcilable and verifiable. 

How information needs to be published 

Public CbC reporting information will need to be provided to the Commissioner, who will facilitate publication on an Australian Government website.  

Any errors identified should be reported to the Commissioner, who will be responsible for making the information available on an Australian Government website (presumably the same one on which the originally lodged data is to be displayed). 

Application date 

The new disclosure rules are expected to apply to the 2023-24 income year onwards.  

The application date for groups with substituted accounting periods (SAPs) is currently unclear. The present legislative wording indicates that the public reporting rules could potentially apply to year of income ending 31 December 2023, with filings required by 31 December 2024. Other parts of the draft materials, however,indicate the rules will apply only to income years commencing on or after 1 July 2023. The effective date for groups with SAPs will need to be clarified during the legislative process. 

The timing of annual submissions is the same as for the confidential CbC reporting which is within 12 months of year end. 

Penalties for non-compliance 

Failure to comply the Public CbC reporting measures will be subject to penalties, determined under the Significant Global Entity (SGE) penalty regime.  

Concerns that this reporting obligation brings 

Our initial thoughts on the main concerns that this additional reporting obligation brings are detailed below. 

• The tax risk management and governance processes in place should clearly outline the CbC reporting group’s approach to tax. 
• The reporting will require consideration of the level of confidence that an entity has in the validity and accuracy of data. 
• It will be necessary to ensure that tax disclosures for all members of the CbC reporting group are aligned. 

• Management and the Board will need to agree the process to be used to extract and collate information, and to review and approve materials prior to submission. 
• The public release of the information will allow for more external analysis and questions surrounding where profits are made and where taxes are paid. 
• Ultimately this could help to inspire public confidence and support from investors, customers, and regulators, but could also result in reputational risk, in the event that negative inferences are drawn from the materials released. 

Releasing the requested information publicly could result in data that would otherwise be considered ‘commercial in confidence’ becoming available to competitors, and cause commercial impacts that may outweigh the benefits of the additional tax transparency. This could result in financial losses, quite apart from the administrative burden anticipated in putting this additional reporting in place, and could potentially drive foreign investors away from Australia.   

In addition, the proposed timeframe is far from sufficient for taxpayers to fully understand the implications, communicate/educate foreign jurisdictional parents, and set up necessary reporting systems to meet the onerous compliance reporting requirements. 

How SW can help 

SW will be monitoring announcements and will keep you updated as more information becomes available. 

Our tax experts can assist with: 

• determining the impact of the measures on your group 
• analysing the additional information (e.g. approach to tax, effective tax rate) in your unique circumstances and advising on how best to prepare for the additional disclosure requirements 
• developing a process that can help you manage compliance with the onerous reporting requirement 
• communicating with your foreign CbC reporting parent and relevant stakeholders. 

Please reach out to the Key Contacts here, or your SW contact, if you would like to know further. 

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Complete Tax Solutions (CTS) is an intelligent and automated tax solution that improves accuracy and delivers increased efficiency to a diverse range of businesses and industries.

The CTS suite of products enable businesses to streamline and automate the entire tax reporting and compliance process. This includes accounts integration, tax management, accounting for income taxes, consolidated tax return preparation and generation of tax journals and disclosures for the financial statements.

Excel-based and fully compatible with all current accounting systems, CTS is a fast and user-friendly interface with desktop, network and cloud options available.

Are you ready for 30 June reporting deadlines?

Significant Global Entities (SGE) with a 30 June balance date will have their first reporting deadline on 30 June 2018, which means the time to prepare is now. Such groups may also look to their tax advisors to assist with the completion and lodgement of the Country-by-Country files.

We can do the hard work for you

Whether you are an SGE or advising your clients, we can assist you with your software or lodgement needs.

Designed by ShineWing Australia – the CTS Country-by-Country Reporting (CbCR) software enables the compilation, risk analysis and lodgement of your master file, local file and Country-by-Country report with the Australian Taxation Office (ATO).

CbCR has its genesis from Action 13 of the G20 and Organisation for Economic Co-operation and Development’s (OECD’s) Action Plan on Base Erosion and Profit Shifting (BEPS).

SGEs in Australia, regardless of their size, have an annual obligation, unless exempt by the Commissioner, to submit:

• A master transfer pricing file which provides a high level description of the global operations of the group
• A local file which describes the Australian operations of the group together with relevant intra-group agreements
• A CbC report which includes the following information by entity and by jurisdiction:

• • Revenue (split between related and unrelated parties)

• • Profit before tax

• • Income tax paid and accrued

• • Accumulated earnings

• • Number of employees

• • Tangible assets held

• • Activities undertaken by constituent entities in the tax jurisdiction

• • Any further information which may assist with understanding the CbC report submitted 

CTS CbCR allows you to:

• Prepare and lodge your Local File (Short form, Part A and Part B), Master File and attachments in XML format with the ATO
• Prepare and lodge your Country-by-Country (CbC) report per the OECD’s XML schema
• Robotic process automation (RPA) can be utilised for files with large volumes of data. This increases accuracy and saves time in the preparation process.

If you would like a FREE demonstration of CTS CbCR, or if you have any tax queries, please email our CTS team and we will be in touch with you within the next business day.

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