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Draft legislation on new reporting standards for transfer pricing documentation and Country-by-Country (CbC) reporting which will impact many Australian companies has been released by the Government. These new reporting standards are the first tangible measures flowing from the OECD’s Base Erosion and Profit Shifting (BEPS) project.
The proposed standards will apply to Australian operations with annual global revenues of over A$1 billion. These entities will be required to file an annual statement covering one or more of the following:
- a CbC report that includes the following information for each country in which the multinational operates: revenue, profit (loss) before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, tangible assets, number of employees and main business activity
- a master file that provides an overview of the multinational's global business, its organisational structure and its transfer pricing policies
- a local country file that contain detailed information about the local taxpayer's operations and intercompany transactions
The proposed new rules will apply for income years starting on or after 1 January 2016. This means that companies with June year ends will need to comply with the new rules for the year ending 30 June 2017, while December balancers will be impacted for the year ending 31 December 2016. The annual statements will need to be provided to the ATO within 12 months of the year end.
It is important to note that the threshold for these transparency measures will apply irrespective of the size of the Australian resident. Mid-sized businesses that are part of a larger global multinational will also need to prepare and submit CbC reports to the ATO.
This represents a significant change in approach by the ATO. For the first time, multinationals operating in Australia will be required to provide detailed information as part of their annual compliance. It provides the ATO with an unprecedented level of transparency into the financial and commercial operations of multinational groups operating in Australia and will allow more efficient targeting of transfer pricing risks.
Significantly, the new CbC reports should be prepared in addition to existing transfer pricing compliance. Australian companies should still maintain Australian transfer pricing documentation to obtain penalty relief. The proposed new rules are an additional burden with which companies will need to comply.
Are you ready?
If your multinational group has annual global revenue greater than A$1 billion, you may need to prepare and submit CbC reports. Can you answer these questions:
- are you familiar with the information that should be included in the CbC reports?
- who will be responsible for preparing the CbC reports?
- are your IT systems and processes able to provide the necessary information?
- do you understand your tax and transfer pricing risk profile?
- have you performed a transfer pricing stocktake - when was your organisation’s master file last prepared?
We recommend multinationals that may be exposed should:
- Assign responsibilities with the tax and financial teams
- Identify and address IT issues
- Identify which operations should be included (JVs? Branches? Dormant companies?)
- Reconcile numbers with tax returns and statutory accounts
If you have any questions or need help to prepare for this important change, our transfer pricing team can assist. Contact your usual Grant Thornton adviser or:
Navigating BEPS: What the tax function of today needs to know for tomorrow
The practical impact of the OECD's recommendations and the key issues that should be on your radar as a tax function and head of tax.