A question being considered in Australia—concerning country-by-country (CbyC) reporting—is whether an investment entity is to be excluded from the “group” for CbyC reporting purposes. A preliminary position being advanced is when an entity is not required to prepare consolidated financial statements for financial reporting purposes, then it would be excluded from the definition of “group.”
The OECD final report for BEPS Action 13 on transfer pricing documentation and country-by-country (CbyC) reporting provides for a change to the transfer pricing guidelines on documentation with respect to a CbyC report, a master file and a local file.
Under the CbyC requirements, there are certain reporting obligations that arise in relation to entities that are members of a “group.” The term “group” is defined to mean a collection of enterprises related through ownership or control, such that consolidated financial statements are required for financial reporting purposes under applicable accounting principles (or would be required if equity interests in any of the enterprises were traded on a public securities exchange).
Following recent discussions with various representatives from the OECD, the UK Treasury, and Australian Treasury, there is a preliminary view that when an entity is not required to prepare consolidated financial statements for financial reporting purposes, then it would be excluded from the definition of “group.” Specifically, pursuant to International Financial Reporting Standards (IFRS) 10, an “investment entity” (as defined in the accounting standard) does not accounting-consolidate its subsidiaries. Instead, pursuant to the accounting standard, an “investment entity” is to measure an investment in a subsidiary at “fair value.”
The Australian Taxation Office (ATO) is currently seeking expressions of interest to be involved in the consultation process to implement the Australian CbyC reporting measures. “Investment entities” may want to consider whether their subsidiaries ought to be included in the term “group.”
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