By Jonathon Larosa and Shane Crockett

  1. Does your business have an annual global income of AUD$1 billion (or approx. EUR€670 million, USD$700 million, etc) or more; OR
  2. Is your business a member of an international (accounting) consolidated group with annual consolidated worldwide income of AUD$1 billion (or approx. EUR€670 million, USD$700 million, etc) or more?

If you answered yes to either of the above questions, you may be a Significant Global Entity (SGE). 

SGEs are required to provide additional Country-by-Country reporting (CbC reporting) reports to the Australian Taxation Office (ATO) for your worldwide business arrangements.

If you are an SGE, CbC reporting will commence for the income years ending:

  • 31 December 2016 – for taxpayers lodging income tax returns on a 31 December year-end basis;
  • 30 June 2017 – for taxpayers who lodge income tax returns on a 30 June year-end basis.

CbC reports are due for lodgement with the ATO 12 months after your tax year end, for example, 31 December 2017 for the tax year ended 31 December 2016.

Exemptions from CbC reporting may be available in limited circumstances.  Applications for exemption must be lodged with the ATO for its assessment and to make a decision.

More information regarding the new taxation regimes applying to SGEs is included below.

 

Country-by-Country Reporting

CbC reporting is an OECD initiative to combat the base erosion and profit shifting (BEPS) undertaken by some large global corporate groups with the aim of minimising their tax obligations in higher tax jurisdictions (e.g. Australia).

The Australian Government, including the ATO, has implemented CbC reporting to better understand the worldwide business results and taxation positions of large businesses.  The Government’s aim is, among other things, to detect possible transfer pricing risks and tax underpayments in Australia.

44 governments around the world, including most EU countries, are expected to implement CbC reporting.  Notably, a number of major international governments are not expecting to implement CbC any time soon, including the United States.

Requirements

Compliance with CbC reporting, in addition to the current International Dealings Schedule (IDS) included in the income tax return, includes providing the ATO with all of the following statements:

  1. A CbC report identifying where economic activities are undertaken, where profits are earned and where tax is paid within a multinational group. For example, in conjunction with other detailed information, the report requires disclosure of revenue statements, taxes paid, tangible assets statements, employee numbers and main business activities undertaken from each country in which your related parties operate in;
  2. A Master File provides a statement relating to the global operations and activities, and the pricing policies relevant to transfer pricing, including use of intangibles and intercompany financial activities; and
  3. A Local File provides a statement relating to a local entity’s structure, business strategy and cross-border related party transactional data including how transfer pricing decisions have been made.

If you are an SGE by virtue of your membership of a group of entities, you must provide a CbC Report and a Master File that includes information from other members of that group (unless your parent entity (if applicable) reports the above in their own jurisdiction).

Penalties for non-compliance

An Australian taxpayer that fails to submit a statement on time will be liable for penalties under the Tax Administration Act 1953 (Australia). Proposed ‘non-lodgement’ penalties for SGEs may range up to $450,000.

The CbC penalty regime is in addition to any penalties that may arise should the Commissioner of Taxation determine that a taxpayer has underpaid Australian taxes (via a transfer pricing adjustment) and the taxpayer does not hold compliant transfer pricing documentation.

 

Financial Reporting to the ATO

In addition to CbC reporting, and also commencing on 1 July 2016, all SGEs are required to make general purpose financial statements available to the ATO by the time of submitting their tax return.

The first general purpose financial reports are to be lodged by:

  • 15 January 2018 – for taxpayers who lodge income tax returns on a 30 June year-end basis;
  • 15 July 2018 – for taxpayers lodging income tax returns on a 31 December year-end basis.

If you have any questions about your status as an SGE or CbC reporting, please contact your local tax advisor.