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 23 March 2022, the State Revenue and Fines Legislation Amendment (Miscellaneous) Bill 2022 (NSW) was introduced into the New South Wales Legislative Assembly. The Bill operates to broaden the existing duty base and anti-avoidance and penalty regime in NSW.

Whilst there is some good news with respect to refunds of foreign purchaser duty and land tax in certain circumstances and broadening duty relief for primary production land transfers between family members, other amendments will increase both the scope and administration of NSW state taxes. These include:

• imposition of duty on transactions which result in a change of beneficial ownership of dutiable property
• imposition of duty on acknowledgment of trusts whereby the statement of acknowledgment of a trust over dutiable property is deemed a declaration of trust over dutiable property
• insertion of a new anti-avoidance regime within the Taxation Administration Act (TAA) applying broadly to all NSW state taxes, including the introduction of promoter penalties
• doubling of the penalty tax payable from 25% to 50% for a tax default by a significant global entity (SGE) as that term is defined by the Income Tax Assessment Act 1997 of the Commonwealth.

Change of Beneficial Ownership

The proposed amendments, which have been modelled on provisions contained within the Duties Act 2000 (Vic), broaden the tax base from transactions that are currently dutiable (i.e. a declaration of trust, transfer or sale) to capture transactions involving a change in beneficial ownership and include:

• the creation of dutiable property
• the extinguishment of dutiable property
• a change in equitable interest in dutiable property
• dutiable property becoming the subject of a trust
• dutiable property ceasing to be the subject of a trust.

The provisions have broad application and may apply to impose duty on:

• transactions involving bare trusts
• changes in beneficial interest in dutiable property held by a nominee
• change of entitlements of beneficiaries of a fixed trust

The person who obtains beneficial ownership, or whose beneficial ownership is increased, will be liable for duty on the dutiable value of the property held.

Certain transactions which are not intended to be captured under these provisions comprise of:

• the purchase, gift, allotment or issue of a unit in a unit trust scheme
• the cancellation, redemption or surrender of a unit in a unit trust scheme
• the grant, renewal or variation of a lease for no consideration
• the grant of an easement or profit a prendre for no consideration
• a change in a trustee’s right of indemnity.

The amended provisions will only apply to transactions that occur after the proposed provisions commence. Furthermore, the provisions will not extend to transactions arising after the commencement date if the transaction occurs in accordance with an agreement or arrangement entered into before the commencement date.  

Acknowledgement of Trust

The Bill also proposes charging duty on any statement that:

• purports to be a declaration of trust, but
• merely acknowledges that identified property is already held, or to be held, in trust.

Effectively, this amendment will overcome the decision in Chief Commissioner of State Revenue v Benidorm Pty Ltd[1].The Court held that a declaration of a trust over dutiable property must have a causal effect on the transaction for duty to arise. Merely acknowledging the existing state of affairs in place was not sufficient.

The provision refers to a statement that purports to be a declaration of trust. Presumably an amendment and / or restatement of trust that declares that it does not amount to a new declaration of trust is not captured. However, trustees should be careful executing documents that contain wording capable of being considered as a declaration of trust.

Foreign surcharge purchaser and land tax surcharge refund

The Bill proposes to introduce a refund for an Australian corporation, where the land acquired is used by the transferee, after the completion of the transfer, wholly or predominantly for commercial or industrial purposes.

Currently the Duties Act and Land Tax Act provide for refunds of surcharge purchaser duty and land tax for an Australian corporation where the land is applied to the construction of new homes or the subdivision of land into lots for new residential homes.

Duty and land tax may be refunded only if an application for the refund is made:

• within 12 months after the start of the use of the land wholly or predominantly for commercial or industrial purposes, and
• no later than 10 years after competition of the transfer of the residential-related property to the Australian corporation.

Intergenerational transfers of primary production land

At present, an exemption from duty on primary production land transfers between family members applies if the transferee is an individual. The amendments extend the exemption to apply to certain transfers to entities including a superannuation fund, a family discretionary trust, a private unit trust scheme or a proprietary limited company. 

For the exemption to apply, the family member must be the individual directing the transferee. In addition, if the transferee is a proprietary limited company or a trustee of a discretionary trust or of a private unit trust scheme, the family member must maintain a minimum 25% interest in the transferee for 3 years after the transfer. 

Introduction of a new anti-avoidance regime and promoter penalties

The current anti-avoidance provisions, focusing on tax avoidance schemes of an “artificial, blatant or contrived nature” under Chapter 11 of the Duties Act are to be removed. In its place, a new regime will be inserted into the TAA.

The proposed amendment will have broader application as the statement of object of the Chapter no longer refers to ‘artificial, blatant or contrived schemes’. The object is now merely to ‘deter schemes to avoid tax liability’. “Avoid” is broadly defined and can include the postponement of tax.

Additionally, provisions to prohibit the promotion of tax avoidance schemes will also be introduced. This aims to capture persons promoting a tax avoidance scheme if that person “markets the scheme or otherwise encourages the growth of the scheme or interest in it”.  A person will not be considered a promoter under the provisions if they are merely:

• providing advice about the scheme; or
• distributing information or material about the scheme prepared by another person

In contravening the provision, a person may be issued with an order by the Supreme Court, upon application by the Chief Commissioner, to pay the State a civil penalty up to:

• 10,090 penalty units or $1,109,900 for individuals
• 50,450 penalty units or $5,549,500 for corporations

Penalty Tax

The penalty tax rate for significant global entities (SGEs) within the meaning of the Income Tax Assessment Act 1997 is set to double from 25% to 50% for tax defaults.

How can SW help?

SW provides a range of expert services to private individuals and businesses for specialist taxes such as stamp duty. Reach out to our team to explore how we can help your individual circumstances such as:

• advice on the NSW duty implications of proposed transactions
• assist with seeking refunds for foreign purchaser duty or land tax if the land is predominantly used for commercial or industrial purposes
• assist with transfers of primary production land between family structures.

Contributors

Robert Parker

Carmelin De Francesco

Mitchell Kenny

[1]Chief Commissioner of State Revenue v Benidorm Pty Ltd (2020) 101 NSWLR 729.

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