Australian Public Country-by-Country Reporting Rules: How are US Headquartered Groups Impacted?

Introduction

Consistent with a number of countries across the globe, the Australian government has introduced Public Country-by-Country (pCBC) reporting rules. These rules are similar to the confidential OECD CbC reporting framework, but add an additional layer of reporting for multinational enterprises (MNEs). 

These new tax transparency rules mark a notable expansion from the confidential OECD CbC reporting framework, with a strong focus on enhancing transparency of MNEs. The most significant difference in this new regime is that the ATO will publish this sensitive financial and tax information, making it readily accessible to the public. 

The pCBC rules are effective for income years commencing on or after 1 July 2024. For MNEs with a December year-end, the first reporting period will be the year ending 31 December 2025, with reports due by 31 December 2026. 

Key Differences

The new Australian pCBC reporting rules require MNEs to publicly disclose certain detailed financial and tax information. These are generally designed to closely align to the confidential CbC reporting framework, though there are some notable differences: 

1. Filing obligation – The pCBC filing obligation rests with the CbC reporting parent, whereas the confidential CbC reporting filing obligation sits with the Australian taxpayer. Affected groups should ensure they have registered their CbC reporting parent with the ATO when the forms and instructions become available.
2. Public Disclosure: Unlike the OECD rules, which are confidential, the Australian rules mandate public disclosure of the CBC report. The ATO have indicated that they will allow for some partial exemptions on specific information, though detailed exemption information is expected to be released by the ATO later in 2025.
3. Consolidated financials - The data source for pCBC must be the consolidated financial statements of the CbC reporting parent entity, whereas other regimes provide more flexibility to use other data. This is particularly important for US Groups, which may not have local requirements for the preparation of consolidated accounts.
4. Specified Countries Reporting: Financial, tax, and headcount data must be reported separately for Australia and certain specified countries. The specified countries list currently covers 40 countries, including some countries that Australia has a comprehensive international tax agreement with Australia i.e. Singapore and Switzerland. For other jurisdictions, data can be aggregated.
5. Tax Approach Statement: MNEs must include a statement about their approach to tax, including explanations for discrepancies between the tax expense and the headline tax rate in each jurisdiction. 

Key Similarities 

1. Applicable entities – The pCBC regime aligns its definitions to the confidential CbC reporting threshold, applying the A$1 billion threshold for the annual global income of the CbC reporting parent and its constituent entities.   
2. Data points - The pCBC regime has relatively consistent data points to the confidential CbC reporting regime, except for some noted differences.
3. Deadline – A 12 month filing deadline is applicable to both the confidential and the new pCBC regime.  
4. Exemptions – To align with OECD guidance, confidential CbC report exemptions can be approved by the Commissioner upon request. These commonly exist where the annual global income of the foreign CBC reporting parent is A$1 billion or more, but falls below the CBC reporting foreign currency threshold in the jurisdiction of the foreign CBC reporting parent. It is expected that the ATO will allow similar exemptions for pCBC reporting, though more detailed guidance on exemptions is still pending.

Key Impact for US Headquartered Groups

US headquartered groups with operations in Australia will need to adapt to these new requirements, with some of the key impacts outlined below: 

1. Increased Transparency: The public disclosure requirement means that sensitive financial and tax information will be available to the public, including competitors and tax authorities in other jurisdictions. This could lead to increased scrutiny and reputational risks, so groups should ensure they have performed a pCBC Market Sensitivity Analysis.
2. Compliance Costs: Preparing the pCBC report will likely involve additional compliance costs. US headquartered groups will need to ensure that their reporting systems can capture and report the required data accurately and in a timely manner.
3. Penalties for Non-Compliance: It is important to ensure taxpayers have properly considered the applicable start date and reporting deadline given the large penalties applicable for late filings in Australia.  These penalties can reach A$825,000 for filings which are over 6 months late.  
4. Global Coordination: US headquartered groups will need to ensure consistency in their global tax reporting to avoid unknown discrepancies arising from the confidential CbC reporting, Pillar 2 reporting and the new pCBC reporting. 

Key takeaways

Although there is still time before the first reports fall due, groups should begin to prepare for

1. In-scope assessment - Analysing whether you fall within the scope of the new pCBC reporting rules and considering any ATO exemption applications.
2. Data collation - Reviewing the readiness of your data collation strategy and how this aligns with the data already obtained for other reporting obligations like the confidential CbC reporting and Pillar Two reporting.
3. pCBC Market Sensitivity Analysis - Evaluating your current tax transparency strategy, including whether a pCBC Market Sensitivity Analysis has been conducted and whether it may be appropriate to voluntarily publish more detailed information to provide useful context for the CBC data that the ATO will publish.

Conclusion

The new Australian pCBC reporting rules represent a significant change in the tax reporting landscape for MNEs. US headquartered groups with operations in Australia will need to navigate these changes carefully, balancing the need for compliance with the potential risks of increased transparency. By proactively addressing these challenges, US headquartered groups can mitigate risks and ensure they remain compliant with the new requirements.

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