Public country-by-country reporting – Updated draft legislation

The Australian Government has released revised draft legislation regarding the public disclosure of country-by-country (CbC) information.

The initial draft legislation was released in April 2023 and received around 56 submissions from stakeholders. It is encouraging to see Treasury taking into account submissions from the public consultation, as has been evidenced with this revised draft.

With the objective of aligning the Australian requirements with the European Union’s CbC reporting directive (EU Directive 2021/2101), the changes in the revised draft legislation can be summarised as follows:

• Materiality threshold –Taxpayers with Australian-sourced aggregated turnover less than A$10 million for the income year would not be required to disclose publicly the Group’s CbC Reporting.
• Consolidated jurisdictional reporting – unlike the confidential CbC Reporting, where taxpayers are required to provide information for all jurisdictions where the Group operates, the revised draft limits the disclosure to Australia and 41 ‘specified’ jurisdictions. In contrast, data for the rest of the world can be aggregated. The ‘specified’ jurisdictions are those the minister considers to be associated with tax incentives, tax secrecy and other matters likely to facilitate profit-shifting activities. It includes countries such as Singapore, Switzerland and others.
• New start date – the new regime applies to income years commencing on or after 1 July 2024. The initial draft had a commencement date 12 months earlier – 1 July 2023.
• No longer ‘additional’ disclosures – the initial draft required information such as related party expenses, effective tax rate and details of intangible assets. These are no longer needed. RSM notes that none of the other CbC reporting, including the OECD’s BEPS or the EU Directive, required these items.

To recap, the four key potential CbC reporting regimes are as follows:

• Australian proposed public CbC reporting – proposed legislation making its way through Parliament requiring certain Australian taxpayers that are CbC reporting parent entities or members of a CbC reporting group to disclose certain tax and related information publicly.
• “Global” BEPS CbC reporting – a mandatory and confidential CbC reporting that Australian CbC parent entities or members of a CbC reporting group (as applicable) have been providing to the ATO since the income year that commenced on 1 July 2016.
• EU Directive – a directive entered into force in December 2021, which is a mandatory public disclosure of income tax-related and specific indicators of economic activities.
• Global Reporting Initiative - GRI 207 – similar to the EU Directive that came into effect in 2021, it requires a voluntary disclosure of various information.

The table below provides a summary of these regimes, including the proposed new legislation (and the April 2023 predecessor which has now been scaled back).

Background to “Public” CbC reporting in Australia

The Australian Government first announced the public disclosure of CbC reporting in the October 2022-23 Budget. In essence, the amended exposure draft requires CbC reporting parents or members of a CbC reporting Group to make available selected tax information on a CbC basis for specified jurisdictions and on either a CbC basis or an aggregated basis for the rest of the world to be published on an Australian Government website.

The main objective of the amendments is to improve transparency by facilitating Australian taxpayers’ tax disclosures so that stakeholders would be able to assess whether an entity’s economic presence in a jurisdiction aligns with the amount of tax they pay in that jurisdiction.

Australia is not the only country requiring public disclosure of CbC Reporting; the EU’s directive came into force in 2021.

Who does it apply to?

The proposed rule applies to CBC reporting entities (CbCRE) as provided by section 815-375 of the Income Tax Assessment Act (ITAA) 1997 and includes entities that:

• are not an individual,   
• have an annual global income of AUD 1 billion or more,
• are not controlled by any other member of the CBC reporting group, and
• are part of a single consolidated group for accounting purposes or would be on the assumption that the notional CBC reporting parent were a listed company using accounting principles or commercially accepted principles related to accounting.

To publish the CbC reporting, the relevant Australian taxpayer must have been an Australian resident or foreign resident with an Australian permanent establishment for a period that includes the whole or a part of the preceding reporting period as well as any time during the reporting period.

CbCREs with Australian-sourced aggregated turnover of less than A$10 million are exempt. This exemption aligns with the EU Directive and is consistent with the small business entity threshold provided by Section 328-110 of the ITAA 1997.

In addition, the Commissioner is granted administrative power to exclude or exempt specific entities or a class of entities, including government-related entities. The exemption powers are granted so that the Commissioner can respond to unforeseen circumstances where disclosure of particular information by a particular entity would be inappropriate.

Information that must be published

The table above provides the list of information required to be published. However, the revised exposure draft grants the government the power to require additional information. The regulation-making power intends to ensure the Government can keep up with the likes of GRI 207.

The financial information must be sourced from audited consolidated financial statements, also required by the EU Directive, so that the data is of a high standard and can be reconcilable and verifiable without necessitating additional auditing.

For Australia and the ‘specified’ jurisdictions, information must be published on a CbC basis, while for the rest of the world, the data can be aggregated.

Given the significant overlap between the Australian requirement and the EU Directive 2021/2101, if a CbCRE has published the information under the EU Directive, the draft legislation allows publishing a link to minimise the compliance burden.

Penalties for non-compliance

There are two main penalties: failure to comply and failure to publish information on time. Australian resident CbCREs that fail to provide the Commissioner with the required information in the prescribed manner would be considered to have committed an offence that is punishable with a fine—the fine ranges from A$6,260 to A15,650. Further, failing to comply could result in a natural person being persecuted with a conviction and imprisonment of up to a maximum of 12 months. The natural person is not limited to the public officer but can include anyone responsible for the management of the corporation.

The second penalty applies to timely publication. The penalty is similar to the mandatory confidential BEPS CbC reporting regime, where the penalty is 500 penalty units for each 28 days or part thereof that a document is late, up to a maximum of 2,500 penalty units. Based on the current penalty unit, this penalty will range from AUD 156,500 for up to 28 days late to a maximum of AUD 782,500 for a document lodged more than 112 days late.

RSM’s views

RSM is pleased to see that the Treasury has duly considered stakeholders' feedback and lowered the compliance burden associated with the initial draft legislation, particularly given the extensive variation of requirements across the different regimes which would create a significant compliance burden. The materiality threshold is a relief to many of our clients whose compliance expenses have skyrocketed since the introduction of BEPS. Nonetheless, Australian residents need to consider various aspects of this regime, such as defining the global Group’s approach to tax.   
 

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact your local RSM office.