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Australia's Revised Draft Legislation: Implementing Public Country-by-Country Reporting

public country-by-country
 

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The Australian government released an exposure draft of legislative amendments regarding public country-by-country tax transparency on February 12th, along with explanatory materials. This draft reflects feedback collected since 23rd April 2023 and government responses.


The latest amendments make crucial adjustments to public country-by-country reporting regulations to better meet stakeholders' needs and align with international standards. Key changes in the amendments include:


  • Effective Date: Postponed until 1 July 2024.

  • Disclosure Content: Specific data requirements for Australia have been cancelled, such as related party expenses, a list of tangible assets, book values, intangible assets, and disclosure of effective tax rates. Instead, disclosures adhere more closely to OECD country-by-country reporting standards.

  • Income Threshold: Introduced a minimum threshold exclusion clause, requiring businesses to disclose country-by-country reports only when their Australian-sourced annual income exceeds AUD 10 million.

  • Consolidated Reporting: The amendments restrict country-by-country reporting to Australia and 41 specific jurisdictions (including Singapore, Hong Kong, and Switzerland), allowing consolidated reporting for countries and regions not on this list, aligning with international trends and standards.


* The above changes are still in the exposure draft stage and have not been legislated.

 

Although the current proposal is still in the exposure draft stage, it is crucial for owners of multinational enterprises or their tax agencies to understand potential changes and their implications.


Summary of Country-by-Country Reporting

CBC reporting applies to income years commencing from 1 January 2016. It requires certain entities to lodge country-by-country reports (CbC reports), master files, and local files to the Australian Taxation Office (ATO) within 12 months of the end of the relevant reporting period.


CBC reporting applies to entities that were either a CBC reporting entity or a Significant global entity (SGE) for a period prior to their income year.


Whether your CBC reporting entity status or SGE status triggers CBC reporting obligations depends on the start date of your income year, as follows:

  • For income years starting on or after 1 July 2019, CBC reporting applies to entities that were a CBC reporting entity for the whole or a part of their previous income year.

  • For income years starting on or after 1 January 2016 but prior to 1 July 2019, CBC reporting applies to entities that were SGEs for the whole or a part of their previous income year.


Impact and Penalties

To ease compliance burdens for multinational enterprises conducting only minor operations in Australia, the amendments stipulate that country-by-country reporting is required only when the Australian-sourced income of the reporting parent company exceeds AUD 10 million. This amendment will take effect from 1 July 2024 and requires filing within 12 months of the reporting period's end. For companies with financial years ending in December, the system will be implemented from the financial year beginning 1 January 2025, requiring submission by 31 December 2026.


Penalties are established for two main violations: non-compliance and failure to publish information in a timely manner. Australian residents' country-by-country reporting entities (CbCREs) may be considered criminally liable if they fail to provide required information to the Commissioner in the prescribed manner, facing fines ranging from AUD 6,260 to AUD 15,650. Additionally, repeated violations may lead to public officials or company management being sentenced to a maximum of 12 months' imprisonment.


Another penalty is for delayed submissions. Calculated based on periods of 28 days or part thereof overdue, the penalty unit is 500, up to a maximum of 2,500. According to current penalty standards, penalties range from AUD 156,500 for overdue 28 days to a maximum of AUD 782,500 for files overdue more than 112 days. (As proposed changes in the 2023-24 Economic and Financial Outlook, the penalty unit is expected to increase from AUD 313 to AUD 330, thereby increasing the total penalty amount.)


 

The Australian government's latest release of legislative amendments on public country-by-country tax transparency brings about significant changes that profoundly affect the operations and tax compliance of multinational enterprises. While the amendments have not yet been formally legislated, we strongly recommend that management teams of multinational enterprises and their tax teams take this matter seriously. We will continue to provide interpretations and guidance on these changes to help you understand and address potential impacts in a timely manner.

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