ATO Tightens CbC Reporting Rules, Raising Costs for Multinationals

Knowledge • ATO Tightens CbC Reporting Rules, Raising Costs for Multinationals

ATO Tightens CbC Reporting Rules, Raising Costs for Multinationals

The Australian Taxation Office (ATO) has revised its country-by-country (CbC) reporting requirements for multinational enterprises (MNEs), effective from January 1, 2025. These changes significantly reduce the availability of exemptions, thereby increasing compliance obligations for affected entities.

Previously, Australian resident companies classified as CbC reporting entities could self-assess exemptions under certain conditions, such as having no international related party transactions. Under the new guidelines, these self-assessed exemptions are largely eliminated. Entities must now submit formal exemption requests to the ATO, accompanied by adequate supporting evidence. The ATO has indicated that requests lacking sufficient documentation or not adhering to the new framework are likely to be declined.

The ATO estimates that Australia loses approximately $11 billion in tax revenue annually due to profit-shifting by large corporations. The tightening of CbC reporting rules aims to enhance oversight of such practices and ensure that multinationals pay their fair share of taxes.

Scope of Administrative Relief

Pre-2025

There is administrative relief. If you are an Australian resident company that was a CbC reporting entity for the whole or a part of the previous income year and you declare in your tax return that you have no transactions or dealings with international related parties for the reporting year, the ATO will not seek a full local file or a short form local file from you for that period.

Post-2025

There is generally no administrative relief available for the local file with respect to reporting periods starting on or after January 1, 2025. Exceptions apply to tax-exempt entities under Division 50 and the National Tax Equivalent Regime.

Tax-Exempt Entities under Division 50

If you are a CbC reporting entity and a tax-exempt entity under Division 50 of the ITAA 1997 (a 'Division 50 entity'), the ATO will not seek CbC reporting statements from you. This relief applies automatically; no separate exemption request is required.

This relief also applies if you are a taxable entity that is a wholly owned subsidiary of a Division 50 entity. You will need to identify the Division 50 entity in your tax return as your ultimate holding company (UHC) to access this relief.

There is one exception to this concession: If you are the CbC reporting parent and have a foreign constituent entity or foreign permanent establishment, you will need to lodge a CbC report. However, the ATO will not require you to lodge a master file or local file.

National Tax Equivalent Regime

: If you are a CbC reporting entity and a National Tax Equivalent Regime (NTER) entity, or a wholly owned subsidiary of such an NTER entity, you will generally not be required to lodge CbC reporting statements. This treatment is applied automatically.

There is one exception to this concession: If you are the CbC reporting parent entity and have a foreign constituent entity or foreign permanent establishment, you will need to lodge a CbC report. A master file or local file will not be required.

These changes underscore the ATO's commitment to enhancing tax transparency and combating base erosion and profit shifting by multinational corporations.

Country By Country Reporting

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