All you need to know about BEPS and Country by Country Reporting in Australia
Country by Country (CbC) reporting requirements were introduced in Australia in the Multinational Anti-Avoidance Law (MAAL) on 11 December 2015. The MAAL applies on or after 1 January 2016, and therefore 2017 will be the first year of lodgement for taxpayers.
The CbC reporting introduced the three-tier documentation approach of the OECD. The CbC reporting requirements includes three types of reports as follows:
- CbC Report: this report provides information about the allocation between countries of income, activities, and taxes paid by multinational enterprises.
- Master File: provides a description of the global business operations e.g. organisational structure, pricing policies and intercompany financial activities.
- Local File: provides information about the local entity’s management structure, operations, and intercompany dealings.
Does CbC Reporting affect all Companies in Australia?
No. The CbC reporting affects Significant Global Entities (SGE). SGE are multinational groups with annual global income equivalent to AU$1 billion or more.
If your company is part of a multinational group with an annual global income of less than AU$ 1 billion, you are not required to complete CbC reporting requirements. However, your company still has to comply with the transfer pricing documentation requirements of Subdivision 815A, B, and C.
Who is the Reporting Entity?
The reporting obligation differs if you are an Australian Global Parent Entity (GPE) or an Australian subsidiary of a GPE.
Australia Global Parent Entity
If you are an Australian GPE with global revenue of AU$ 1 billion or more, you are obliged to submit all three documents i.e. CBC Report, Master File and Local File to the Commissioner.
Australian Subsidiary of a GPE
If you are a subsidiary of a GPE, you will be required to assess whether you meet the following criteria to be a Significant Global Entity (SGE):
- Your Company is Included in the Global Parent Entity’s consolidated financial statement; and
- A resident for Australian tax purposes or carrying business operation through a permanent establishment (“PE”) in Australia; and
- The Global Parent Entity has annual global income of AU$ 1 billion or more for one period.
If you are a SGE, you are obliged to submit the Master File and Local File to the Commissioner. The CbC Report should be exchanged by the Commissioner with the competent Authority of the country where the parent company is located. The diagram below gives an overview of the reporting requirements of the Australian Subsidiary of a GPE.
When is the due date?
The CbC reporting requirements will need to be submitted electronically within 12 months after the end of the income year.
How do I submit the reports?
The ATO requires a specific format i.e. XML schema to lodge CbC Report, Master File and Local File. Only electronic lodgement is accepted, and your business management software must be used to generate valid XML files. Get the final draft of the XML schema here.
Are there exemptions available?
Yes. The ATO published an Exemption Guidance to provide relief to entities who have an obligation to submit CbC Report, Master File or Local File. To apply for an exemption, the entity needs to submit an e-mail request to CbCReporting@ato.gov.au. The request can be applicable for one to three reporting periods.
The written request should outline why the exemption should be given along with the facts and circumstances relevant to the CbC reporting obligations and supporting documents.
The ATO recommends the SGEs to make the exemption request as early as possible to allow enough time for the assessment and notify the SGE for their decision before the statutory due date. The ATO aims to respond within 28 days after receiving all the relevant information.
The ATO has the discretion to provide exemptions to entities from lodging one or more statements for a specified period after considering the particular facts and circumstances and various factors including:
- The entity’s risk profile e.g. whether you have low risks international related party dealings
- Whether the entity is currently subject to a risk review or audit.
- Whether the Global Parent Entity is subject to submit CbC report or Master File in the country of residency.
- Whether the Global Parent Entity is granted an exemption for submitting CbC Report or Master File in the country of residence.
- Whether the Commissioner can get the relevant information by other means e.g. automatic exchange between jurisdictions that have signed the Multilateral Competent Authority Agreement or is obliged to automatically exchange the CbC Report
- Whether the entity is transacting with specified countries listed in IDS instruction.
What are the local file exemptions?
The ATO has set out two types of local files (1) complete local file (2) short form local file. The short form Local File is designed for SGE with no material related party dealings. To qualify, you need to meet at least one of the criteria below:
- Has an aggregate value of its international related party dealings (IRPD) is less than AU$2 million and no IRPDs on the Short Form Exceptions List;
- The Simplified Transfer Pricing Record Keeping criteria for Small Taxpayers and no IRPDs on the Short Form Exceptions List;
- The Simplified Transfer Pricing Record Keeping criteria for Materiality and no IRPDs on the Short Form Exceptions List.
Where is the latest guidance from the ATO?
The ATO’s latest guidance on CbC reporting requirements is set out in the following documents:
- Law Companion Guideline (“LCG”) 2015/3
- Local File High Level Design
- Country by Country Reporting: Exemption Guidance
Contact Transfer Pricing Solutions
+61 (3) 59117001