Australian Public Country-by-Country reporting legislation

This groundbreaking move aims to hold multinational corporations accountable by requiring them to publicly disclose their financial activities in countries they operate, shedding light on tax practices and profit allocation. 

With the law applying for income years commencing on or after 1 July 2024, it will be crucial to proactively review the applicability of the legislation and group tax policies, manage stakeholders, and ensure internal systems are capable of generating the required data for reporting. 

This tax transparency measure was originally announced as part of the October 2022-23 Federal Budget. The initial Exposure Draft (“ED”) was released in April 2023 and following stakeholder feedback was revised to dramatically scale back the reporting requirements that Country-by-Country Reporting Entities (“CBCRE”) will need to provide in Australia to align more closely with the Global Reporting Initiative (“GRI”) 207 requirements. Following an extensive parliamentary process, the legislation passed by Parliament retains the reduced disclosure requirements that were proposed in the revised ED. 

What needs to be done?

With the commencement date of 1 July 2024, 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 reporting requirements.
• Review existing tax strategies and ensure its application in the relevant jurisdictions are in line with the multinational groups’ “Approach to Tax” disclosure requirements, and if relevant, your tax governance and associated sustainability-related disclosures.
• 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.

What information needs to be disclosed?

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

• name of entities that 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 the 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 Public Country-by-Country Reporting disclosures with other global requirements. 

Can information be aggregated by country?

Information is to be disclosed for Australia and 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 to which this exception would apply to are Hong Kong, Singapore, and Switzerland.

Are there any exemptions?

The legislation contains a ‘de minimis’ threshold for the rules to apply. Multinational groups with less than $10 million of aggregated Australian source income will not be subject to these rules. As a result, small Australian operations are not 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 (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 $165,000 for up to 28 days late to $825,000 for lodgements which are more than 112 days late. 

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

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