Treasury releases draft legislation for proposed public Country-by-Country reporting measures
On Monday, 12 February 2024, the Australian Treasury released draft legislation and explanatory materials for the proposed Public Country-by-Country (CbC) reporting measures, first announced in the October 2023 budget. These measures are policy decisions to enhance corporate tax-related transparency for large Australian-based multinational enterprises (MNEs).
The proposed legislation will apply to reporting periods commencing on or after 1 July 2024 (e.g. where an entity has a reporting period ending 31 December, the first reporting period for that entity commences on 1 January 2025), with the required information to be submitted 12 months after the end of the reporting period. The new requirements will apply to Australian MNEs and foreign-owned MNEs with operations in Australia.
Revised draft legislation aims to align public CbC reporting closer with EU standards
Following the highly criticised earlier version of the exposure draft (issued in April 2023), the new exposure draft seeks to make the CbC reporting obligations slightly less onerous for taxpayers and more closely aligned with the European Union’s public CbC reporting measures. The exposure draft legislation amends three key areas from an earlier April 2023 draft, in particular:
- Removal of Australian-specific data requirements that were in addition to those required under the EU’s public CbC reporting regime (EU Directive 2021/2101) (e.g. details of intangibles, lists of intangible assets and effective tax rates). The updated draft is more consistent with the OECD’s CbC reporting requirements and other global directives, including Global Reporting Initiative GRI 2017-1 and GRI 207-4.
- Potential to aggregate the required information for specific jurisdictions in which the group operates, provided that the jurisdictions are not on the ‘specified’ list. This list broadly aligns with the International Dealings Schedule ‘specified’ jurisdictions list.
- Application of the minimum thresholds for Australian-sourced income as part of the global group’s income. Where the Group’s Australian sourced revenues are less than AUD 10 million, the CbC reporting parent will not have an obligation to provide a CbC report.
While these are positive developments, the proposed Australian measures continue to be more comprehensive than anywhere else globally, at least currently.
The detail
The CbC reporting parent must provide detailed information for Group entities in Australia and group entities in specific jurisdictions listed in a determination published by the Treasurer. For other group entities the report can, at the option of the CbC reporting parent, either supply these same details for each entity on a CbC basis or a less detailed report on an aggregated basis.
Treasury Laws Amendment Bill 2024: Multinational tax transparency – Country-by-Country reporting
A draft Determination has been issued, which lists the jurisdictions in which group entities are located, for which specific CbC reporting parents must publish selected tax information on a CbC basis for these specified jurisdictions and Australia, for all other jurisdictions, publish the specified information on either a CbC basis or an aggregated basis.
Impacted entities
The additional disclosure requirements apply to CbC reporting parents that are constitutional corporations, trusts, or partnerships. The CbC reporting parent, must belong to a CbC reporting group with an annual global income of AUD 1 billion or more and is consolidated for accounting purposes, or would be required to consolidate for accounting purposes on the assumption the parent entity was a listed company. The Commissioner can formally exempt certain entities from publishing the mandated information, through a written notice.
The revised law is based on Australia’s CbC reporting threshold of AUD1 billion and, therefore, can be considerably lower than the relevant threshold in other jurisdictions. In practice, some MNEs may not have to report obligations anywhere but in Australia due to our lower threshold. For example, based on current FX rates, the Australian threshold equates to the following:
- EUR605 million instead of EUR750 million
- USD650 million instead of USD 850million
- GBP520 million instead of GBP640 million.
In the interests of international consistency, aligning the threshold with the OECD guidelines would be appropriate.
The exposure draft confirms that the CbC reporting parent is only required to publish information relating to the reporting period (income year) if the following circumstances are satisfied:
- They were a CbC reporting parent for a period that includes the whole or a part of the preceding reporting period
- They are a member of a CbC reporting group at any time during the reporting period
- At any point during the reporting period, they, or a member of their CbC reporting group, is an Australian resident or foreign resident with an Australian permanent establishment
- $10 million or more of the group’s aggregated turnover for the income year is Australian-sourced
- They are not an exempt entity or included in a class of exempt entities as prescribed in the Determination.
What should be reported?
Where possible, the selected tax information published by the CbC reporting parent for Australian entities and entities listed in the determination must be sourced from audited consolidated financial statements. This is consistent with the EU Directive 2021/2101.
The table below summarises the information required to be published by the CbC reporting parent and compares it to other global directives.
|
Australian CbC Proposal |
GRI 207 |
OECD CbC |
EU public CbC |
|
|
Approach to tax |
Y |
Y |
- |
- |
|
Name of entities in the CbC reporting group |
Y |
Y |
Y |
Y |
|
Name of jurisdiction |
Y |
Y |
Y |
Y |
|
Description of main business activities |
Y |
Y |
Y |
Y |
|
Number of employees |
Y |
Y |
Y |
Y |
|
Revenue from unrelated parties |
Y |
Y |
Y |
Y* |
|
Revenue from related parties that are not tax residents of the jurisdiction |
Y |
Y |
- |
Y* |
|
Profit or loss before income tax |
Y |
Y |
Y |
Y |
|
Book value at the end of the reporting period of tangible assets, other than cash and cash equivalents |
Y |
Y |
Y |
- |
|
Income tax paid (on a cash basis) |
Y |
Y |
Y |
Y |
|
Income tax accrued (current year) |
Y |
Y |
Y |
Y |
|
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 |
Y |
Y |
- |
- |
|
Currency used in calculating and presenting the above information |
Y |
- |
Y |
Y |
* While revenues are required to be disclosed, they do not need to be split between related and unrelated party revenues
How will information be circulated?
The information must be collated by the CbC reporting parent and submitted to the Commissioner in a standardised format. Once provided in the ‘approved format’, the Commissioner will facilitate publishing this information on an Australian government website.
To further support these disclosures, CbC reporting groups are expected to publish a link to, or copy of, the report prepared under the EU directive 2021/2101 when posting the tax information required by these amendments.
Impact of non-compliance
Similar to non-compliance with existing CbC reporting obligations, a CbC reporting parent will be subject to administrative penalties if they fail to publish their CbC reports and a material error is not corrected on time.
The current penalties are provided in the table below, noting that the highest penalty may increase to AUD 825,000 under the proposed changes to increase the Commonwealth penalty unit from AUD 313,000 to AUD 330,000.
|
Days late |
Penalty units |
SGE penalties (AUD) |
|
28 or less |
500 |
156,500 |
|
29 to 56 |
1,000 |
313,000 |
|
57 to 84 |
1,500 |
469,500 |
|
85 to 112 |
2,000 |
626,000 |
|
More than 112 |
2,500 |
782,500 |
Taxation Administration (Country-by-Country Reporting Jurisdictions) Determination 2024
The Determination specifies the jurisdictions for which the CbC reporting parent must publish selected tax information on a CbC basis if the CbC reporting group operates in that jurisdiction.
The identified jurisdictions align with the Australian International Dealings Schedule’s specified countries or jurisdictions list, excluding jurisdictions in the EU, which are Cyprus, Ireland, Luxembourg, and the Netherlands. However, some other jurisdictions, such as Singapore and Switzerland (despite now fully compliant with the OECD transparency and exchange of information obligations), are on the specified jurisdiction list, probably due to their relatively low corporate tax rates or other incentives that may attract multinationals operating in those countries.
Specified jurisdictions per the Determination include the following:
|
Andorra |
Gibraltar |
Republic of the Marshall Islands |
|
Anguilla |
Grenada |
Saint Kitts and Nevis |
|
Antigua and Barbuda |
Guernsey |
Saint Lucia |
|
Aruba |
Hong Kong |
Saint Maarten (Dutch Part) |
|
Barbados |
Isle of Man |
Saint Vincent & the Grenadines |
|
Bahamas |
Jersey |
Samoa |
|
Bahrain |
Liberia |
San Marino |
|
Belize |
Liechtenstein |
Seychelles |
|
Bermuda |
Mauritius |
Singapore |
|
British Virgin Islands |
Monaco |
Switzerland |
|
Cayman Islands |
Montserrat |
Turks and Caicos Islands |
|
Cook Islands |
Nauru |
US Virgin Islands |
|
Curacao |
Niue |
Vanuatu |
|
Dominica |
Panama |
For jurisdictions not covered by the Determination, CbC reporting parents can report the necessary data either on a CbC, or an aggregated basis.
Next steps
Australian MNEs will need to begin managing internal stakeholders, both concerning gathering information and understanding the potential impact of the information that will be disclosed to the public when the legislation is passed. Depending on your financial year-end, there may be an opportunity to identify and address disclosures that may give rise to reputational or other concerns. A consultation period concerning the exposure draft is open, and submissions are due by 5 March 2024.
If you have any questions about the potential impacts of these proposed CbC reporting measures, please get in touch with a transfer pricing specialist.