ATO tightens CbC reporting rules, raising costs for multinationals
New guidance scaling back exemptions to disclosure rules will make compliance “more onerous and complex”, Deloitte has said.
The Tax Office has tightened country-by-country (CbC) reporting rules for multinationals, significantly limiting exemptions from next year in a bid to strengthen oversight of profit-shifting risks.
Corporate tax advisers have immediately objected, warning the reduced exemptions could increase compliance costs and complexity as multinationals are forced to lodge extra statements that were not required previously.
The ATO estimates Australia loses out on $11 billion in tax from large corporations every year.
CBC reporting obligations were introduced as part of the OECD/G20 base erosion and profit shifting (BEPS) project to help authorities assess transfer pricing practices and identify tax avoidance risks.
Under the regime, multinationals must submit a CBC report detailing their income, profits, taxes paid and economic activities across jurisdictions in which they operate.
The ATO’s new rules, released last week, will apply to all exemption requests received from 1 January 2025.
According to the guidance, an exemption from filing a CBC report may be granted to Australian groups with no foreign operations or when the global income of an entity’s foreign CBC reporting parent is $1 billion or more but falls below the reporting thresholds.
Entities departing a group through demerger or sale may also be eligible to apply for an exemption from filing a CBC report and master file.
But self-assessed fast-track exemptions, which covered scenarios such as Australian groups with no foreign operations, groups below global income thresholds, entities departing groups, and entities with no international related party dealings, would no longer be available.
The ATO has also eliminated the automatic local file exemption for entities with no international related party transactions declared in their tax return.
It said multinationals would be required to request exemptions with it directly and “requests that are not supported by adequate evidence or that are not lodged in accordance with this exemptions framework are likely to be declined”.
Deloitte said the new guidance would create additional compliance obligations for many companies that were not required to lodge local or master files.
“Previously available exemptions for the local file, master file, and CbC report have been reined in with exemptions now only available for the CbC report,” it said on its website after the guidance was released.
The big four firm said the master file exemption was available only in limited circumstances and local file exemptions were “all but gone”.
It meant that in circumstances where Australia was the only country in a multinational group with foreign owners that required a master file, CBC obligations were bound to be “more onerous and complex”.
“The complexity arises where Australia is the only country in a foreign-owned multinational group requiring a master file to be prepared, a not uncommon scenario expected under the revised guidance where a foreign CbC reporting parent may be exempted from master file preparation under local thresholds and may not be required to prepare a master file in another jurisdiction.”
“This represents a significant increase to the current lodgment requirements with associated increased costs for entities in preparing and lodging additional CbC reporting statements they were previously not required to lodge.”
The new guidance comes in the same week Parliament passed laws to introduce public CBC reporting obligations. From July next year, multinationals will be required to submit data on their global financial and tax footprint to the ATO for public release.
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