Australia: Country-by-country reporting guidelines

The Australian Taxation Office (ATO) on 17 December 2015 released guidelines that address country-by-country reporting.

The ATO release—Law Companion Guideline (LCG) 2015/3—discusses Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 that was enacted earlier this month and discusses, in particular, Schedule 4.

Background

Schedule 4 created Subdivision 815-E of the Income Tax Assessment Act 1997 and implements country-by-country reporting. That measure reflects the recommendations set out in the Organisation for Economic Co-operation and Development (OECD) project on base erosion and profit shifting (BEPS) and implements the BEPS Action 13 recommendations into Australian law.

Country-by-country (CbC) reporting in Australia

From an Australian perspective, CbC reporting will apply to “significant global entities” (entities that are part of a group whose annual income is AUD1 billion or more) for accounting periods beginning on or after 1 January 2016.

Much of the design and administration of CbC reporting has been left to the ATO, and in this regard, the tax authorities have been consulting with taxpayers and advisers. The initial result is LCG 2015/03 which is intended to provide guidance to taxpayers. Initial observations concerning LCG 2015/03 include the following:

Exemptions: While the ATO reiterated that exemptions will only be granted in limited circumstances, the ATO will exercise its discretion to provide exemptions in circumstances when:

• Information can be obtained through the “exchange of information” (EOI);
  The “significant global entity” does not engage in international transactions;
• The significant global entity is a sovereign wealth fund (particularly when the fund has received sovereign immunity status through a private binding ruling); or
• The parent entity (for inbounds) is not required to provide the CbC report and/or master file in its local jurisdiction.

Any exemption would likely be granted for the first year of CbC reporting with respect to the CbC report and master file.

Entities will need to apply in writing to the ATO for an exemption and explain the grounds on which an exemption is being requested. A general exemption is proposed for entities that are “exempt from income tax” (i.e., entities listed in Division 50 of the Income Tax Assessment Act 1997).When an exemption is not appropriate, entities may still be able to complete a simplified / short form “local file” depending on their circumstances.

Duplication: The ATO acknowledged that business would like to limit the duplication of efforts. Thus, the ATO is seeking to achieve this through the three differentiated approved forms for the local files (described below). However, the existence of an advance pricing agreement (APA) or an annual compliance agreement (ACA) and/or the completion of an “international dealings schedule” (IDS) will not alleviate the need for the entity to complete some form of a local file.

A specifically nominated member of the group may file the master file and/or CbC report for the group (this does not specifically include the local file).

Local file: There are three differentiated approved forms being developed for the local file—full, simplified and short form. Factors including an entity’s risk profile, income or turnover in Australia, and an “inclusions list” (of certain types of transactions) will be used to determine eligibility for the type of local file. For the short-form local file, only descriptive legal entity information is required. Further guidance on this is expected.

KPMG observation

Tax professionals in Australia expect future ATO guidance will address a number of the more challenging aspects of CbC implementation.