Government releases revised Exposure Draft for Multinational Tax transparency – Country-by-Country Reporting

On 12 February 2024, the Australian Government released the revised Exposure Draft (ED): Multinational Tax transparency – Country-by-Country Reporting for consultation.

The rules, when implemented, will require Country-by-Country Reporting Entities (CbCRE) to publicly disclose information that is currently only shared between tax authorities on a confidential basis.  

This tax transparency measure was originally announced as part of the October 2022-23 Federal Budget. The initial ED was released in April 2023 and was subject to an extensive consultation process. Following stakeholder feedback, the revised ED scales back the reporting requirements CbCREs will need to provide in Australia to align more closely with the Global Reporting Initiative (GRI) 207 requirements.

What information needs to be disclosed?

The disclosure requirements and taxpayers impacted have both reduced following the consultation process. Contentious disclosure requirements relating to effective tax rate and intangibles have been removed. However, the following must still be published and continue to add to the compliance requirements for multinational groups:

• name of entities which are members of the country by country reporting group
• a description of the country by country reporting group’s approach to tax
• a description of main business activities
• the number of employees (on a full-time equivalent basis) at the end of the reporting period
• revenue from unrelated parties
• revenue from related parties that are not tax residents of the jurisdiction
• profit or loss before income tax
• book value at the end of the reporting period of tangible assets, other than cash and cash equivalents
• income tax paid (on a cash basis)
• income tax accrued (current year)
• the reasons for the difference between income tax accrued (current year) and the amount of income tax due if the income tax rate applicable to the jurisdiction were applied to profit and loss before income tax, and
• the currency used in calculating and presenting the above information.

How does this compare to other global reporting requirements?

CbCREs have been providing the ATO with confidential Country-by-Country Reports in accordance with OECD guidance since the rules were legislated in 2016. More recently, there has been a shift to enhance the tax transparency of multinational enterprises through the European Union’s public CBC reporting Directive (EU Directive 2021/2101) and GRI 207. The following table compares Australia’s proposed Public Country-by-Country Reporting disclosures with other global requirements.

Can information be aggregated by country?

Information is to be disclosed for Australia and can now be aggregated for rest of world. However, the 41 jurisdictions the Government has identified as facilitators of profit shifting activities cannot be included in the aggregated totals and must be disclosed separately at a jurisdictional level. The most common jurisdictions this exception would apply to are Hong Kong, Singapore, and Switzerland.

Are there any exemptions?

The revised ED introduces a ‘de minimis’ threshold for the rules to apply. Multinational groups with less than $10m of aggregated Australian source income will not be subject to these rules. As a result, small Australian operations are no longer subject to these reporting requirements.

When does the information need to be disclosed?

The rules are to apply for income years commencing on or after 1 July 2024. If you were classified as a CbCRE in your current income year, these rules will apply to you upon implementation (unless you qualify for an exemption).

The public CBC report needs to be provided to the ATO within 12 months after the end of the income year to which the report relates. The Commissioner must then, as soon as practicable, publish the report on an (as yet) unspecified Australian Government website.

Penalties

Entities who fail to comply with the transparency requirements on time will be subject to Failure to Lodge penalties. These penalties currently range from $156,500 up to 28 days late, to $782,500 for lodgements which are more than 112 days late.

What else has changed?

The requirement to disclose the following has been removed:

• Expenses arising from transactions with related parties
• List of tangible and intangible assets
• Book value of intangible assets, and
• Effective tax rate.

What needs to be done?

With the commencement date of 1 July 2024 fast approaching, taxpayers are advised to act promptly by considering the following:

• Evaluate the legislation’s applicability to your organisation and consider whether the ‘de minimis’ exemption would be applicable to you
• Ensure management, directors, stakeholders and global headquarters are aware of the revised requirements
• Review existing tax strategies and its application in the relevant jurisdictions are in line with the multinational groups’ ’Approach to Tax’ disclosure requirements, and ensure alignment with your broader Environmental, Social, and Governance strategy considering the eventual publication of such information
• Ensure internal systems and controls are established and roles and responsibilities are assigned for the data collation, data review and submission approval
• Conduct a simulation to ensure the availability and integrity of the tax information and identify any gaps or inconsistencies, and
• Consider a framework to respond to the inevitable questions that the public disclosure of this information is going to garner from the press and financial markets.

The revised ED is subject to public consultation with responses due by 5 March 2024.

If you would like to discuss any of the information contained in this Tax Alert, please get in touch.