It was a frantic, yet exciting day in the office on Tuesday, 15 August as we counted down the last lodgements of Part A of the Australian Local Files (ALF) for those Significant Global Entities (SGE) that opted to go early and lodge Part A of the ALF in lieu of the International Dealings Schedule.
Here are our observations from our first tranche of lodgements:
- It is important to start early. The level of disaggregation and detail required for the ALF in terms of the cross border transactional data means that more time is needed to extract, cleanse and categorise the data.
- The requirement for foreign exchange (FX) gains and losses by counterparty and transaction type proved challenging. We found many varied approaches to booking and accounting for FX in client systems. The Australian Taxation Office (ATO) guidance and rationale for the need for this data came very late in the piece and while the ATO provided some relief mechanisms in the first year, taxpayers will need to put in place processes to obtain this data more easily going forward. We continue to actively engage with the ATO to find a practical solution to providing sufficient information for risk assessment purposes, yet maintaining a practical and balanced approach.
- The determination of whether a relevant agreement series (RAS) existed or not and for how many transactions was easier said than done. This would generally apply to agreements covering derivatives and commodities, but certainly led to confusion especially given the prominence of questions relating to RAS on the XML Schema.
- Given the data intensity and granularity, it highlighted the opportunity for automation in the future, particularly through direct data extraction from enterprise resource planning (ERP) systems, use of additional field identifiers in journal entries, and the use of data analytics and benchmarking to identify areas of risk.
- Given taxpayers were required to set out the level of documentation in place by transaction type and counterparty, it highlighted potential gaps in documentation and the need for a documentation strategy around these transactions.
Throughout the process, the ATO has been very responsive to questions and feedback, and undoubtedly, as we get through the first transitional year, refinements and improvements will be made.