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13 February 2024
In Brief
On 12 February 2024, Treasury released updated draft legislation that seeks to give effect to the Australian Government’s proposal to require large multinationals to publicly disclose certain tax information on a CBC basis and a statement on their approach to taxation.
This latest draft legislation responds to domestic and international stakeholder feedback and reflects the Government’s previous announcement to refine the measure to more closely align with the EU's public CBC regime, including policy changes on the reporting threshold and approach to disaggregated reporting, and to also defer the start date by 12 months (to income years commencing on or after 1 July 2024). Under the current draft, for a December balancing group, the year ending 31 December 2025 would be the first year subject to Australian public CBC reporting, with reporting due by 31 December 2026. This timeline is now broadly in line with the EU public CBC reporting directive (EU Directive 2021/2101).
Submissions on the draft legislation and explanatory materials can be made until 5 March 2024.
Consistent with the previous draft law, unless exempt, the new measures will apply to CBC reporting parent entities who are members of a CBC reporting group. A CBC reporting parent is an entity that:
A group of entities will broadly comprise a CBC reporting group where they:
The measures apply to entities that are ‘constitutional corporations’, which broadly refers to domestic corporations of a trading or financial character but is also defined to include all corporations formed outside Australia. The draft legislation expressly includes CBC reporting parent entities that are trusts or partnerships, provided the relevant trustee or all partners are constitutional corporations.
Furthermore, at any time during the reporting period, the entity or another member of the country by country reporting group must be either an Australian resident or a foreign resident who operates an Australian permanent establishment.
There is a new requirement that ensures that multinational groups with a small Australian presence are excluded. Specifically, for the reporting obligation to apply, the CBC reporting parent must have AUD 10 million or more of Australian-sourced aggregated turnover for the reporting period. Aggregated turnover is broadly the sum of the ordinary income derived in the ordinary course of carrying on a business by an entity, by the entities it is connected with and by its affiliates.
The draft legislation retains the ability for the Commissioner to exempt specific entities, or a class of entities, from the public CBC reporting requirements. The draft explanatory memorandum states that this exemption power is necessary to ensure the Commissioner can respond to unforeseen circumstances where disclosure of information by a particular entity would be inappropriate, and notes that the Commissioner may exempt government-related entities from this requirement.
Most notably, the proposed amendments require certain large multinationals to publicly disclose selected tax information on a CBC basis for Australia and specified jurisdictions and on aggregated basis for the rest of the world. The CBC reporting parent can alternatively voluntarily disclose on a CBC basis for all jurisdictions. In this case, the CBC reporting parent would not need to publish the same information on an aggregated basis for that income year.
The proposed list of specified jurisdictions is set out in an accompanying draft determination. The explanatory statement for the draft determination describes the jurisdictions specified as those that are typically associated with tax incentives, tax secrecy and other matters likely to facilitate profit shifting activities and broadly aligns with the list adopted in the Australian Taxation Office’s (ATO) International Dealings Schedule, excluding jurisdictions in the EU which may be subject to the EU’s public CBC reporting regime. A total of 41 jurisdictions are currently listed, including Singapore, Switzerland and Hong Kong. Jurisdictions may be added or removed by legislative instrument.
The CBC reporting parent is required to provide the Commissioner (for publication on a government website) the following information:
| Public CBC reporting disclosures | |
|---|---|
The public CBC report must include:
|
|
| Australia and specified jurisdictions | Rest of world |
The following information must be disclosed on a CBC basis:
|
The following must be reported on an aggregated basis, unless a choice is made to provide this information on a CBC basis:
The above information is broadly aligned with the confidential OECD reporting requirements. |
*This information is not required to be reported (on an aggregated basis) for jurisdictions that are not Australia or specified jurisdictions.
^ These disclosures are not currently required under the OECD CBC reporting regime or the EU Directive.
As noted above, the latest draft no longer requires disclosures of the related party expenses, effective tax rates, lists of tangible assets, and lists of intangible assets and their book values.
Where a CBC reporting group has prepared a report under the EU Directive, it is expected to publish a link to, or copy of, this report when publishing the tax information required by these amendments.
The selected financial information must be sourced from audited consolidated financial statements. This is stated in the draft explanatory memorandum to ensure that the data is “reconcilable and verifiable, and of a generally high standard for public release”. Where the CBC reporting parent has not prepared audited consolidated financial statements, the information published must be based on amounts that would have been included in such accounts had the entity been a listed company.
The amendments include a power to make regulations to prescribe further information to be set out in the public CBC report. This might include any future updates to the GRI 207 disclosures. The explanatory materials also note that interaction of these measures with future measures, such as Pillar Two reforms to implement the global minimum tax and domestic minimum tax in Australia, will be considered as part of the implementation which may result in additional information being published.
The CBC reporting parent that is subject to this new requirement will fulfil its obligation to ‘publish’ the required information (outlined above) by giving it to the Commissioner of Taxation, in the approved form, within 12 months after the end of the reporting period to which it relates. The Commissioner then facilitates publication of the information, without amendment or modification, on an Australian Government website as soon as practicable.
If a CBC reporting parent becomes aware of a material error contained in the information published, it must publish information that corrects the error within 28 days by giving a document containing the corrected information to the Commissioner of Taxation. If a CBC reporting parent becomes aware of a non-material error, it may correct the error in the same way but is not obliged to do so. The Commissioner is required to publish the corrected information on the public website as soon as practicable.
It is not clear what constitutes a ‘material error’. This matter may be addressed during the public consultation process or in future instructions or guidance issued by the Commissioner.
There are two main penalties that can apply for non-compliance with the proposed new rules:
The draft legislation proposes amendments to section 8C of the Taxation Administration Act 1953 under which it will be an offence to fail to publish the required information in the manner required (i.e. providing to the Commissioner in an approved form for publication on a government website). An offence committed under section 8C is punishable with a fine, which would require the Commissioner of Taxation to prosecute in Court. A first offence would attract a maximum fine of 20 penalty units (currently, AUD 6,260 but noting the Government proposes to increase a penalty unit to AUD 330). The maximum fine for a second offence is 40 penalty units (currently, AUD 12,520). A third offence is punishable by a maximum penalty of 50 penalty units (AUD 15,650).
It is also possible on the third offence to prosecute a natural person deemed responsible for the offence on behalf of the company with punishment on conviction being imprisonment of up to a maximum of 12 months. This person can be anyone (whether an officer of the company or not) who is concerned in, or takes part in, the management of the corporation.
The draft legislation contains a proposed new penalty provision that will apply where an entity fails to ‘publish’ information on time as required under this regime (that is, fails to give the required information to the Commissioner in the approved form by the due date). The amount of 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.
This penalty will also apply if the entity is required to publish information to correct a material error (discussed above) and fails to do so on time.
As mentioned above, the value of a penalty unit is proposed to increase to AUD 330 with effect from four weeks after passage of legislation (which has not yet been introduced) and will continue to be indexed every three years in line with the CPI.
The Takeaway
The updated proposed law reflects previous stakeholder feedback that addresses some of the immediate compliance issues, including the deferred start date, reduced number of disclosures and a materiality threshold now limiting the obligations to CBC reporting parents with Australian sourced aggregated turnover that is at least AUD 10million.
As this measure may progress quickly after this current consultation, and with a start date as early as 1 July 2024, it is important for management, Boards and other stakeholders to plan and prepare for public CBC reporting, including taking consideration of;
Importantly, while public CBC reporting requirements overlap with other CBC reporting regimes, disclosure requirements are not the same. The compliance burden may be compounded with future changes to CBC reporting requirements over time (e.g., additional specified jurisdictions) or the introduction of new CBC reporting regimes in other territories. Reporting systems and processes will therefore need to be designed to allow for flexibility and timely updates to be made and be supported with robust governance.
If you would like to further discuss the draft legislation, reach out to our team or your PwC adviser.
Georgie Hockings
Greg Weickhardt
Nick Houseman
Sarah Saville
Chris Vanderkley
Sam Lavender
