In December 2015, Australia introduced new Country-by-Country (CbyC) reporting requirements. Under these requirements, impacted entities are required to file some combination of a CbyC report, Master File and Local File with the Australian Taxation Office (ATO).
However, some entities (particularly Australian subsidiaries of overseas headquartered multinationals) may be unwilling or unable to gather and lodge the required information.
Australia’s tax laws contain a range of penalties for entities that do not comply with their reporting obligations, including penalties for false or misleading statements about tax-related matters, failing to lodge statements on tax-related matters in the correct format, or on time.
However, it has been reported that the administrative penalties are unlikely to be sufficiently large to deter non-compliance.
As a result, the Shadow Assistant Treasurer has introduced a Private Members Bill, entitled Tax Laws Amendment (Tougher Penalties for Country-by-Country Reporting) Bill 2016 into the House of Representatives. The Bill proposes to introduce a penalty regime that would increase the maximum penalty for failure to lodge a CbyC report to A$270,000 (from a current maximum of A$5,400), with the potential for tax office investigation.
The cash impact of non-compliance should the proposed Bill be passed will be significant.
Moreover, that cost is likely to be further compounded by the more aggressive approach adopted by the ATO in relation to non-compliant taxpayers. Indeed, the ATO has indicated during its consultation process that non-compliant taxpayers will be viewed adversely in risk assessment and audit scenarios.
Therefore, taxpayers should be well aware of the CbyC reporting requirements, and Australian subsidiaries in particular need to make their overseas parent entities aware of their obligations, as the true cost of non-compliance is likely to be unacceptably high.