Country By Country Reporting

What is Country-by-Country Reporting?

CbC Reporting incorporates revised standards for transfer pricing documentation and a common template for SGEs to report income and other measures of economic activity for each country in which they conduct their activities.

The statements require you to report details, by jurisdiction, regarding your global and local operations and activities, transfer pricing policies, international related party dealings, revenues, profits, and taxes paid.

CbC reporting adopts a three-tiered approach including:

a) Master File

The master file contains the following information:

Organisational structure
Description of group’s business activities
Group intangibles
Group intercompany financing activities
Group financial and tax positions

b) Local File

The Australian local file is different from the OECD local file. OECD local file is a transfer pricing documentation prepared in accordance with local TP regulations. The Australian local file collects information and relevant documentation for international related party dealings (IRPDs).

The local file is comprised of the following parts:

Short form local file:

Organisational structure
Reporting entity’s business and strategy
Any business restructures affecting the reporting entity in the current or previous income year
Any transfers of intangibles in the current or previous income year
Key competitors

The reporting entity is only required to prepare the short form local file if it has no IRPDs on the Short form exceptions list and meets at least one of the following criteria:

the aggregate value of its international related party dealings (IRPDs) is less than A$2 million
the Simplified transfer pricing record keeping (STPRK) criteria for small taxpayers
the STPRK criteria for materiality

Where the reporting entity doesn't meet the criteria for the short form local file, it will be required to complete the local file (i.e. short form local file along with Part A and Part B). [1]

Part A:

It includes the detailed controlled transactions. It is similar to the international dealings schedule (IDS).

Part B:

It includes the copies of agreements, TP method applied, any foreign Advance Pricing Arrangement (APA) for each transaction not covered by the Exclusions list (material controlled transactions).

[1] https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Transfer-pricing/Country-by-Country-reporting/Local-file/master-file-2019/

c) CbC Report

Table 1: provides an overview of income, taxes, employees and assets of the MNE group allocated to each of the different tax jurisdictions in which the MNE group operates. Each line of the table reports the aggregated numbers relating to a particular tax jurisdiction.

Table 2: provides an overview of each constituent entity (including permanent establishments) of the MNE group, grouped according to the tax jurisdictions in which the entities are tax resident. The main business activities of each entity also need to be stated.

Table 3: allows the MNE group to provide any additional information that it believes would be necessary or useful in interpreting and understanding the data provided in the CbC report.

Why Country-by-Country (CbC) was introduced.

Country-by-Country (CbC) reporting is part of a wide range of international measures aimed at combating tax avoidance through more comprehensive exchanges of information between countries. CbC reporting and transfer pricing (TP) documentation was introduced in Base erosion and profit shifting (BEPS) Action 13.

Is Country-by-Country (CbC) Reporting applicable to you?

In May 2020, the Significant Global Entity (SGE) concept was expanded by the Treasury Laws Amendment (2020 Measures No.1) Act 2020 so that, for income years or periods commencing on or after 1 July 2019, the concept applies to group of entities headed by an entity other than a listed company – mirroring how it applies to groups headed by a listed company. In both cases, exceptions to consolidation and rules on materiality that may permit an entity not to consolidate with other entities are to be disregarded.

Consequently, the SGE concept can apply to entities such as high wealth individuals; partnerships; trusts; those considered to be non-material to a group as well as certain investment entities (and those that they control), including in circumstances where consolidated financial statements have not been prepared.

INCOME YEAR	CBC REPORTING OBLIGATION
From 1 July 2019	CbC reporting entity status
Before 1 July 2019	SGE status

CbC reporting entity is defined as either:

A CBC reporting parent which can be a standalone entity whose annual global income is A$1 billion or more, or a member of a CBC reporting group who is not controlled by another entity in the group and has annual global income A$1 billion or more

A member of a CBC reporting group, and one of the other group members is a CBC reporting parent.

A CBC reporting group may be a group that is consolidated for accounting purposes as a single group or a notional listed company group.

A notional listed company group is a group of entities that would be required to be consolidated as a single group for accounting purposes if a member of that group were a listed company. An entity that is not consolidated for accounting purposes on the basis that the entity is immaterial is included as part of the notional listed company group.

Are CbC Reports automatically exchanged?

Australia is currently one of 77 jurisdictions that have signed the CbC Multilateral Competent Authority Agreement (MCAA) to facilitate the exchange of CbC reports between tax authorities in different jurisdictions.

However, the CbC report can only be exchanged between Australia and another signatory when each jurisdiction has activated exchange with the other. The MCAA does not facilitate the automatic exchange of local file and master file reports.

Master File is NOT automatically exchanged between jurisdictions and needs to be lodged to the ATO.

CbC Reporting Effective Date/s

The measure applies to income years commencing on, or after, 1 January 2016.

The CbC reports need to be lodged within 12 months after the end of the income year to which the statements relate.

How we can help.

We provide a cost effective and practical approach to streamline your CBC reporting obligations.

	Analyse CBC reporting/ SGE status: In complex situations, we help identify whether your company has CBC reporting obligations.
	Prepare CBC reporting statements: We have the expertise in preparing the CBC reporting statements.
	Lodge CBC reporting statements: We have the software to convert and lodge CBC reporting statements.
	Apply for extensions/ exemptions: We work closely with the ATO and hasten the process to apply for extension/ exemptions.