ATO toughens country-by-country reporting exemptions

The Australian Taxation Office (ATO) has released updated guidance in relation to exemptions from a taxpayer’s country-by-country (CbC) reporting obligations that are applicable to all exemption requests lodged from 1 January 2025.

The new guidance replaces the previous ‘fast-track’ exemption guidance which provided seven scenarios and replaces this with only three specific scenarios where an exemption from CbC reporting statements could be granted - as detailed below:

Exemption category	Exemption available
1. You are an Australian CbC reporting parent, or a member of a group consolidated for accounting purposes with an Australian CbC reporting parent, where the group has no foreign operations. No foreign operations means no constituent entity or permanent establishment outside Australia.	CbC report
2. The annual global income of your foreign CbC reporting parent is A$1 billion or more but falls below the CbC reporting foreign currency threshold in the jurisdiction of the foreign CbC reporting parent.	CbC report
3. You were a CbC reporting entity in the preceding year due to your membership of a group of entities but left that group during the CbC reporting year due to a demerger or sale to a third party and will not be a CbC reporting entity under your new structure for the foreseeable future.	CbC report and master file

In all other cases, the Commissioner may exercise their power to grant an exemption if the taxpayer’s conditions are considered exceptional and are supported by the OECD base erosion and profit shifting (BEPS) Action 13 report. Furthermore, the new guidance will not impact exemption requests lodged historically prior to 1 January 2025.

Taxpayers who previously relied upon an exemption and/or seeking an exemption, should consider the impact of the ATO’s updated guidance and take appropriate next steps to ensure they have clarity on how to meet its future CbC reporting obligations.

Key takeaways

In general, these changes will result in fewer exemptions being available in relation to CbC reporting obligations. They may also result in an obligation being placed on an Australian subsidiary that is not replicated in other jurisdictions in which a multinational enterprise is doing business. As a result of these changes, multinationals operating in Australia may face increased compliance obligations and a higher risk of substantial administrative penalties being levied by the ATO, particularly where multinational groups are unaware of the changes or unable to satisfy the CbC reporting obligations where an exemption is no longer available.

We note the following key takeaways in relation to the ATO’s new guidance on CbC reporting exemptions:

• Evidence based approach - The ATO has moved away from a ‘self-assessment’ basis and will grant exemptions under an evidence-based approach. Exemption applications will attract greater scrutiny and may result in delays in processing times
• Information to be procured - Taxpayers will need to procure the following information as part of the exemption request (potentially from head office where information is not readily available):
  • The exemption category for which an exemption is sought, outlining how the scenario applies to the taxpayer’s facts and circumstances
  • Supporting documentation for the exemption, including the global financial statements for the prior period and the reporting period. All source documents relied upon to determine eligibility for the exemption should also be provided
  • In circumstances where the taxpayer is not covered by the three listed scenarios, citations of the relevant sections of the OECD BEPS Action 13 report are also required to be included in the exemption request
• Removal of the ‘automatic exemption’ - Absence of international related party dealings or internal dealings will no longer be sufficient grounds for exemption. This change will impact taxpayers that relied upon an ‘automatic exemption’ from lodging the local file due to lack of international related party transactions
• Exemptions for master file - Exemptions for master files may no longer be available where the annual global income of the foreign CbC reporting parent entity falls under the AUD $1 billion threshold and Australia is the only jurisdiction with an obligation to lodge a master file. This scenario was previously covered under the fast-track exemptions and the removal of this exemption is likely to affect taxpayers that were previously granted an exemption.

How BDO can help

Taxpayers that have historically been covered by an exemption may be impacted by the new guidance. We encourage you to contact your local BDO transfer pricing advisers if this guidance impacts you or if you are unsure of the application of this guidance to your exemption eligibility.