In October 2017, the Australian Taxation Office (“ATO”) published a document called “Tax and Corporate Australia” where it estimates a $2.5 billion tax gap amongst the top 1,400 large corporate groups in Australia in 2015. As part of this publication, measures to implement Country-by-Country (“CbC”) reporting, Reportable Tax Position schedules and automatic exchange of rulings were commended. These measures, among others, will increase transparency and are intended to assist the ATO in reducing this gap and should be approached with care by taxpayers.
Australia’s CbC reporting obligations implement the OECD’s global initiative to increase transparency, introduced as Action 13 of the BEPS Action Plan and applies to Significant Global Entities (“SGEs”).1 At the time of writing, there are just two months to go before the first deadline for SGEs to comply with the Australian CBC reporting obligations (i.e. 31 December 2017, for companies with a 31 December 2016 year-end).
Considerations for SGEs in Australia
We have detailed below a list of considerations for SGEs in Australia, especially for those who will be in the first wave to comply with CbC reporting obligations:
- CBC reporting documents are due 12 months after the year end – SGEs satisfying the relevant criteria with a December year end are required to lodge their CbC report (unless it will be exchanged automatically), Master File and ATO design Local File by 31 December 2017, for the 2016 year.
- Australia is unique in its requirement to lodge the Master File - Unlike other OECD countries, it is the responsibility of an Australian taxpayer to lodge the Master File with the ATO. A review of the Master File from an Australian perspective is recommended to ensure consistency with the ATO design Local File and the Australian Transfer Pricing Documentation (“TPD”). Local TPD is generally prepared by SGEs before lodgement of the tax return to ensure the company is not precluded from penalty mitigation as a result of a transfer pricing review and adjustment.
- Act now for exemption and extension requests, which are still applicable - Exemptions close to the statutory due date can still be requested. Further, for companies still in the midst of understanding their CbC reporting obligations, a request for an extension of time to lodge may also be required well before the statutory due date.2
- XML schema format – CbC reporting documents are required to be submitted to the ATO using XML Schema, and as such, only electronic lodgements using specialised software will be accepted. BDO has access to XML Schema in order to prepare and lodge the Australian local file on behalf of its clients.
- Penalties for non-compliance - To ensure compliance, failure to lodge CbC reporting statements on time (unless an extension has been agreed with the ATO in writing), will attract penalties ranging from A$105,000 to A$525,000 (depending on timing) per document.
- ATO’s action post review - It is expected that when received, the CbC reporting documents will be used by the ATO to select taxpayers for further risk reviews, and as such, preparation of all documents should be approached with care.
- Act now - If preparation of CbC reporting documents is not yet progressed, it is important that taxpayers act now and:
- inform the head office,
- collect the information,
- review the obligations; and
- where necessary, apply for an extension with the ATO.
Experience shows that it takes time and resources to produce the CbC reporting documents. The ATO design Local File requires significantly greater involvement from taxpayers as it is more detailed than the International Dealings Schedule and will therefore require more time to complete.
For more detailed information on the CbC reporting requirements for Australian taxpayers, or other numerous measures affecting SGEs, please refer to our previous Transfer Pricing Alerts, issued on 9 December 2015 and 6 May 2017.
If these measures are applicable to your facts and circumstances or if you would like further information in relation to any of the above, please contact your BDO advisor or one of the Transfer Pricing specialists listed in this Transfer Pricing Alert.
1 SGEs are Australian tax residents, who are members of a group where consolidated global revenue is equal to or greater than A$1 billion for the previous income tax year, even if the Australian operations are not significant.
2 Exemption and extension requests are granted by the ATO on their merits having regard to all relevant facts and circumstances and having regard to the purpose of CbC reporting.