‘Burdensome’ multinational reporting changes raise major concerns

The country by country (CBC) reporting requirements proposed by the government are overly burdensome for multinational enterprises and may even disadvantage multinational businesses trading in Australia, accounting firms and the BCA have cautioned.

Draft legislation for the changes released for consultation last month outlines that multinational entities will be required to publish selected tax information on a CBC basis.

Treasury said the measures are intended to improve information flows to help investors and the public compare entity tax disclosures, “to better assess whether an entity’s economic presence in a jurisdiction aligns with the amount of tax they pay in that jurisdiction”.

RSM said the draft legislation attempts to align the nature of the information with that required by European Union’s public CBC reporting Directive (EU Directive 2021/2101) and the voluntary Global Reporting Initiative’s Sustainability Reporting Standards GRI 207: Tax (2019) (GRI 207).

“However, there is additional information, such as the relevant group’s ‘approach to tax’, effective tax rate in each jurisdiction, expenses from related party transactions in each jurisdiction and a list of intangible assets and their book value in each jurisdiction,” RSM stated in an online update.

The Business Council of Australia noted the EU’s CBC standards adopt a practical approach where entities may not have access to the data of related offshore entities that are not under its control.

“By contrast, the Australian approach is to issue penalties irrespective of whether or not companies can comply with the proposed law,” it said.

The measures are also likely to result in significant compliance cost to the significant global entities impacted for limited benefit, according to BDO.

“BDO notes that much of the information requiring disclosure is already provided to the Commissioner by SGEs when lodging master files and local files for transfer pricing purposes and income tax returns. Additionally, Australia has mechanisms to share tax information with OECD member nations and some non-OECD jurisdictions,” it stated.

“Consequently, the ATO currently has access to a large pool of country-by-country tax information.”

Given the complexity of the information being published and the ATO’s existing access to much of this information, the accounting firm said the public availability of this information “appears to be of little benefit”.

“Effective comprehension of the data made publicly available under these measures will require expert financial and tax knowledge to interpret effectively. BDO submits that the disclosure requirements are too detailed for effective public use and this combined with the additional resources required to prepare the disclosures discounts their merit,” it said.

If tax transparency is to be achieved on a global scale, BDO said cooperation and cohesion is required between governments and global standard setters.

“BDO recommends that Treasury look to align any published country-by-country reporting requirements with those operating globally, to improve information exchange between the ATO and other tax authorities and to consult multinational businesses operating in Australia more extensively as to the impact of any changes to country-by-country reporting, whether published or not,” it stated in its submission.

The accounting firm has also called for a de minimus threshold for information that has not already been provided or available to the ATO.

“Without a de minimus threshold the relevant disclosures will create additional compliance burdens for CBC reporting parents, and in some cases for a very small marginal information gain,” the BDO submission said.

Concerns around exposure of sensitive information

RSM has warned that there could be significant public relations implications from the greater exposure of information required under these measures.

“Global groups need to appreciate the full scale of the consequence of the availability of such information in the public domain, which can be available to anyone with access to the Internet,” RSM stated.

“The public relation impact from greater exposure cannot be underestimated. Groups may consider initiatives such as a review of their existing tax strategy and governance framework, [in terms of the] extent to which the tax strategy is broadly acceptable, adhering to widely accepted practices such as the arm’s length principle.”

The potential implications of disclosing certain commercially sensitive information, such as intangible assets by jurisdiction, including their book value, is significant, said RSM.

“Disclosing entities could face substantial harm to their competitive position, particularly if their competitors are not subject to a similar regime,” it said.

BDO also has concerns that the publication of commercially sensitive data may disadvantage multinational business trading in Australia.

“[This could] result in a withdrawal of capital and business from the Australian economy by multinationals,” said BDO national tax technical leader Lance Cunningham.

The Tax Institute has warned that requirement to publish information related to operations in jurisdictions other than Australia could strain Australia’s relationships with other countries that have chosen to operate a CBC reporting regime consistent with the OECD approach.

“We therefore strongly caution against publicly reporting this data,” it said.

Inadequate time frame

The accounting industry and BCA said the 22-day consultation period was unreasonably short given the measure is due to commence in two months.

The Tax Institute said if this measure is to proceed, the start date for the measure should be delayed until 1 July 2024.

“This will ensure that taxpayers and tax practitioners have sufficient time to understand the implications of the changes on their circumstances,” it said.

“It will also allow time for the ATO to provide the guidance needed to allow taxpayers to practically comply with their new obligations.”