Australia: Proposed country-by-country reporting, transfer pricing documentation requirements

Australia: Proposed transfer pricing documentation

The Australia government on 6 August 2015 released exposure drafts that: (1) introduce the new OECD country-by-country (CbC) reporting requirement; (2) adopt the new OECD standard on transfer pricing documentation (i.e., the Master File / Local File approach); and (3) double the administrative penalties for multinational entities that are found to have entered into tax avoidance or profit shifting schemes. These measures are proposed to apply to multinational groups with annual global revenue of AUS $1 billion or more—whether Australian headquartered or Australian subsidiaries of overseas headquartered groups of this size.

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New documentation requirements

The CbC exposure draft and explanatory materials will create new, more onerous obligations for affected taxpayers with respect to transfer pricing documentation.

From periods beginning on or after 1 January 2016, affected entities must provide a “statement” to the Commissioner of Taxation, on an annual basis before the end of the next income year. This statement must be in an “approved form” (to be determined by the Commissioner) and will include:

  • The CbC report
  • The Master File and Local File (for Australian headquartered groups), and
  • At least the Master File and Local File (for Australian subsidiaries, given the CbC report is expected to be obtained via automatic exchange of information)

The Commissioner can provide affected taxpayers with an exemption from filing the statement, and taxpayers can object if an exemption is not provided. However, penalties will apply if the statement is not filed by the due date. If an entity choose not to comply, the entity’s “public officer” may ultimately face criminal charges.

KPMG observation

While it was anticipated that large Australian headquartered multinationals would be required to file a CbC report on an annual basis, the proposed measure represents a significant change as a result of the additional requirement for all affected taxpayers to provide the Master File and Local File to the Commissioner unless an exemption is granted.

Furthermore, the doubling of penalties places additional pressure on the preparation of high quality documentation to support the transfer pricing positions adopted. Further, certain clarifications and changes to the exposure draft will be required so that the operation of the proposed rules can be properly implemented with clarity and consistency.

Comment period

Interested parties are invited to comment on the exposure drafts and explanatory statements by Wednesday, 2 September 2015. 

Read an August 2015 report prepared by the KPMG member firm in Australia: Proposed CbC reporting rules create mandatory documentation filing requirements

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