The ATO release—Law Companion Guideline (LCG) 2015/3—discusses Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 that was enacted earlier this month and discusses, in particular, Schedule 4.
Schedule 4 created Subdivision 815-E of the Income Tax Assessment Act 1997 and implements country-by-country reporting. That measure reflects the recommendations set out in the Organisation for Economic Co-operation and Development (OECD) project on base erosion and profit shifting (BEPS) and implements the BEPS Action 13 recommendations into Australian law.
From an Australian perspective, CbC reporting will apply to “significant global entities” (entities that are part of a group whose annual income is AUD1 billion or more) for accounting periods beginning on or after 1 January 2016.
Much of the design and administration of CbC reporting has been left to the ATO, and in this regard, the tax authorities have been consulting with taxpayers and advisers. The initial result is LCG 2015/03 which is intended to provide guidance to taxpayers. Initial observations concerning LCG 2015/03 include the following:
Exemptions: While the ATO reiterated that exemptions will only be granted in limited circumstances, the ATO will exercise its discretion to provide exemptions in circumstances when:
Any exemption would likely be granted for the first year of CbC reporting with respect to the CbC report and master file.
Entities will need to apply in writing to the ATO for an exemption and explain the grounds on which an exemption is being requested. A general exemption is proposed for entities that are “exempt from income tax” (i.e., entities listed in Division 50 of the Income Tax Assessment Act 1997).When an exemption is not appropriate, entities may still be able to complete a simplified / short form “local file” depending on their circumstances.
Duplication: The ATO acknowledged that business would like to limit the duplication of efforts. Thus, the ATO is seeking to achieve this through the three differentiated approved forms for the local files (described below). However, the existence of an advance pricing agreement (APA) or an annual compliance agreement (ACA) and/or the completion of an “international dealings schedule” (IDS) will not alleviate the need for the entity to complete some form of a local file.
A specifically nominated member of the group may file the master file and/or CbC report for the group (this does not specifically include the local file).
Local file: There are three differentiated approved forms being developed for the local file—full, simplified and short form. Factors including an entity’s risk profile, income or turnover in Australia, and an “inclusions list” (of certain types of transactions) will be used to determine eligibility for the type of local file. For the short-form local file, only descriptive legal entity information is required. Further guidance on this is expected.
Tax professionals in Australia expect future ATO guidance will address a number of the more challenging aspects of CbC implementation.
For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group in Australia:
Jane Rolfe | +61 3 9288 6341 | email@example.com
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.