ATO increases the disclosure requirements for the Short Form Local File
ATO increases the disclosure requirements for the Short Form Local File
The ATO has revised its guidance on the Short Form Local File (SFLF), effective for reporting periods starting on or after 1 January 2024.
As part of the consultation process, the ATO noted concerns that the SFLF in its current form was inadequate to identify high-risk Australian and international tax structures and profit-shifting arrangements due to inconsistent formats and in some circumstances, incomplete information. As a result, new detailed guidance was issued in December 2024.
The automatic exemption from the preparation of SFLF for taxpayers with no cross-border transactions has also been discontinued, expanding the reporting requirements and increasing the compliance burden on companies.
The SFLF is now combined with Local File Parts A and B, and introduces an exhaustive list of questions within the new LCMSF Schema Version 4.0. These revisions will evolve SFLF into a complex document to be completed annually with a stronger emphasis on identifying business restructures and intangible transfers.
We break down the key points of the ATO’s latest guidance on SFLF below.
Significant restructures
Significant restructures can encompass both 'deemed significant restructures' as defined in the legislation, and other restructures considered significant based on their materiality or potential tax risk.
The guidance on restructures include:
- Arrangements considered as ‘deemed significant restructures’
- Arrangements considered as ‘other significant restructures’ and determination of materiality and Australian tax risk, with intra-group financing arrangements considered material where the capital value is AUD $10 million or higher as the sole materiality limit
- Changes considered insignificant which do not require disclosure under the SFLF
- Connected steps involving overseas related parties related to a restructure
- New arrangements related to intangibles that require reporting in the SFLF, while also specifying ‘excluded intangible arrangements.’
The instructions regarding ‘business restructures’ are complex, necessitating a potentially substantial investment of resources for proper evaluation and reporting.
Implications for taxpayers
- SFLF is no longer an ‘abridged’ document: The SFLF was initially conceived as an administrative simplification for taxpayers with straightforward transfer pricing arrangements who met specific eligibility criteria. Now, with the inclusion of more detailed requirements, preparing the SFLF may require more effort than completing the traditional Local File Part A and B.
- Difficulty in accessing information: The updated requirements aim to provide a clearer and more consistent view of an entity's operations and transfer pricing practices. The guidance requires taxpayers to make reasonable documented inquiries from offshore group personnel such as the head of tax who may hold the requested information, meaning Australian taxpayers will require overseas support when completing the form, and therefore should start the process as early as possible.
- Enhanced documentation requirements: There is a greater emphasis on documenting business restructures and transfers of intangibles.
- New reporting format: The 2025 Local File must be prepared using the LCMSF Schema Version 4.0, which incorporates the SFLF section into the ‘Message Structure Table’. Software providers have updated their templates accordingly and the first year of using the new templates is anticipated to be time consuming. Taxpayers should understand and plan, allowing for additional time for their first lodgement under the new rules. It is crucial they stay diligent in collating information, particularly where overseas related parties need to be consulted.
Summary of key changes
We compare the current key SFLF requirements with the additional requirements under the new guidance that may affect the local file completion process.
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Current SFLF requirements |
Additional SFLF requirements |
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Organisational structure
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A description and copy of organisational structure, including a description of the individuals to whom local management reports to and the countries in which such individuals maintain their principal offices. |
A copy of organisational structure and details of the most senior Australian employee with effective overseas reporting for each business or function. Details of Australian personnel reporting overseas should include:
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Business and strategy
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A description of business and strategy, identifying main business lines and functions, each strategy deployed, and the extent to which each business line of function overlaps. |
The number of main business lines/functions should be identified and reported along with a description of business and strategy for each and the extent to which each business line of function overlaps. |
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Key competitors
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A list of key competitors of the reporting entity for all main business lines and functions identified. |
A list of the full names of key competitors for all main business lines and functions identified. |
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Business restructures
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A description of any business restructures affecting the business in the current or previous income year and an explanation of its significance. |
Significant business restructures or new arrangements involving transfer, license, or creation of intangibles:
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Transfer of intangibles
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A description of any transfers of intangibles in the current or previous income year and an explanation of its significance. |
How BDO can help
We encourage you to contact your local BDO transfer pricing advisers as early as possible to assess how these changes will impact your business or if you are unsure of the application of this guidance. It will also be critical to align the disclosures in SFLF to a number of other disclosure documents, such as the Reportable Tax Positions Schedule or Country-by-Country Report.