Australia’s new era of transparency: Public CbC reporting unveiled

To meet the Australian Government’s commitment to greater transparency and open scrutiny, the government introduced a bill on Thursday, 6 June 2024 that would implement public country-by-country (CbC) reporting. The bill is expected to pass both houses of Parliament shortly.

Public CbC reporting legislation would require large Australian multinational companies, as well as some large Australian businesses without overseas related-party dealings, to submit certain CbC reporting information with the knowledge that the Australian Government will make this information public.

What you need to know

Who does it apply to?

CbC reporting parent entities with an Australian presence, with AUD $10 million or more of Australia-source aggregated turnover in the current year. 

See the full definition of CbC reporting entities here.

When does it apply?

For tax years commencing on or after 1 July 2024, so for tax years commencing 1 January, the first disclosures will be for the year ending 31 December 2025, due by 31 December 2026.

What do I need to do?

Broadly, impacted entities are required to lodge Australian business and tax-related information, this same information related to specified countries, and aggregated or disaggregated business and tax-related information regarding the broader group. Required information is outlined below.

Will my status as a CbC reporting entity change?

In short, no. This new legislation will run in parallel with the existing CbC reporting obligations. Australian companies will still be required to annually self-assess their status as a significant global entity (SGE) and a CbC reporting entity (CbCRE), on the same basis as previously.

Are there any exemptions or do penalties apply for noncompliance?

Small Australian business - specifically with AUD $10 million or less of aggregated Australian-sourced income - will be exempt from these public CbC requirements. Additionally, companies will be able to request exemptions from the Commissioner if the information to be provided is commercially sensitive, relates to national security, or national or international law would be breached by making the information public.

If a business that is required to lodge public CbC reporting information or publish information to correct a material error fails to do so on time, penalties of up to AUD $782,500 per late lodgement may be levied. Penalties are likely to increase by the time the ATO receives the first draft of public CbC reporting information.

Notably, if there is a material error in the information published which is not corrected within 28 days of taxpayer becoming aware of that error, the same increased penalties (i.e. up to AUD $782,500) will also theoretically apply.

How will the ATO administer these penalties?

As the reporting requirements are for CbC reporting parents, it remains to be seen how the ATO will administer penalties for late lodgement or noncompliance when the reporting parent is an entity domiciled outside of Australia. There is no guidance on this yet, but there is a strong possibility that penalties will be applied to the Australian entity when the CbC reporting parent is not located in Australia. 

I’m not part of a multinational group – I don’t need to worry about this, right?

There is a slightly strange, but apparently intentional, outcome resulting from the legislation. Australian entities with no overseas related parties can be CbC reporting parents, if they have more than AUD $1 billion in aggregate turnover for the relevant year and at least AUD $10 million of that income is Australia-source. Therefore, large Australian domestic businesses will likely be subject to these disclosure requirements.

What information will be available to the public?

The information that will be published requires companies to include a statement as to their approach to taxation. Several additional pieces of financial and other information will be required to be disclosed publicly for each entity listed, including:

• Business activities
• Number of full-time employees
• Revenue from overseas related entities
• Revenue from unrelated parties
• Profit/loss before tax for the period
• Income tax paid and accrued.

The Australian approach goes over and above the approach adopted by the European Union’s public CbC reporting directive by requiring an ‘approach to tax’ statement from the group parent, as well as additional disclosures on the book value of tangible assets and the split of revenue from overseas related parties and unrelated parties. These differences mean Australia’s regime is more onerous and detailed than other jurisdictions.

Information for group entities in Australia and for entities in certain specified countries will be disclosed separately. The list of specified countries is significantly more expansive than the EU’s list of non-cooperative jurisdictions for tax purposes in relation to the EU public CbC reporting directive (twelve as of 2 February 2024).

Australia’s list broadly includes countries that are likely to draw the ATO’s attention for providing favourable conditions for multinationals. For example, Singapore, Bermuda, Hong Kong, and a further 38 countries are currently on the draft list. The final list of these countries has yet to be confirmed. All other countries’ data will be aggregated as one disclosure.

Overall, the greater level of disaggregation under the proposed Australian law is highly likely to create tension and an additional level of challenge from an Australian reporting perspective.

What does this public CbC reporting mean for my business?

Reputational damage may result from the public CbC reports being made public as skilled experts will be required to accurately interpret the information made public. To mitigate the risk of misinterpretation or misunderstanding, consideration should be given to self-publishing public CbC report information but with additional detail and explanations to contextualise the disclosures.

We recommend taxpayers spend some time on the preparation of this information well before the due date so that these matters and the appropriate approach can be considered prior to public disclosure.

Further, given Australia’s significant ‘failure to lodge’ penalties, if the information is not published by the due date, taxpayers should be preparing early by assessing whether the new measures are likely to apply to them, whether the information required to be published is already within the scope of the group’s current CbC reporting, and ensuring there is an agreed group approach to tax that is ready to be shared publicly. Given the significance of the information required to be published, key stakeholders locally and internationally may need to be involved from an early stage.

Summary

The introduction of public CbC reporting marks a significant step towards fostering a culture of transparency and ethical tax practices. This pivotal legislation aligns with international norms and sets a precedent for open financial disclosure, reinforcing Australia’s commitment to fair and responsible business conduct.

Ensure your business is ahead of the curve by familiarising yourself with the new reporting requirements and engaging with our specialists for tailored guidance. Proactive preparation and strategic planning are crucial to navigate this change seamlessly. Contact your local BDO adviser today.

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Australia's expansive draft list of multinationals

Draft list as published in February 2024 (currently under review).

Andorra	Gibraltar	Republic of the Marshall Islands
Anguilla	Grenada	Saint Kitts and Nevis
Antigua and Barbuda	Guernsey	Saint Lucia
Aruba	Hong Kong SAR	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
Curaçao	Niue	Vanuatu
Dominica	Panama