Country by Country (CbC) Reporting
Country By Country (CbC) reporting is part of the OECD’s plan to combat multinational tax avoidance.
Many countries around the world have signed up to the initiative which involves taxpayers preparing various reports each year about their international related party dealings. Each country has slightly different rules, but broadly, each business entity in a country that meets the criteria is required to prepare a form of CbC report and submit that with the revenue authority (in Australia – the Australian Taxation Office (ATO)). The revenue authority will then share that report with other revenue authorities around the world who have signed up to Automatic Exchange Agreements, to help provide transparency about the revenues and related party dealings of global groups of companies.
CbC reporting applies to Significant Global Enterprises (SGE).
In Australia, these are broadly defined as a parent entity in Australia that is head of a global group with consolidated reported revenue in excess of $1 Billion (AUD). A subsidiary with income included in the consolidated revenue of a global parent entity where that global revenue exceeds $1 Billion AUD, will also be a SGE.
The CbC reports are required to be filed within one year of the end of the entity’s financial year. However, in some circumstances, if the subsidiary is relying on CbC reports of the parent where there are different financial year ends could result in a shorter filing period. The CbC reporting rules apply to financial years commencing on or after 1 January 2016, so for entities with a year end 31 December 2016, the first CbC reporting deadline will be 31 December 2017.
Parent companies are required to lodge a CbC report, a Master file and a Local file. Subsidiary members are required to produce a Local file, but also lodge a Master file which would generally be prepared by the parent company. However, if the parent company prepares the Master file in a language other than English, then the subsidiary will also be required (in Australia) to submit an English language Master file.
If a company doesn’t already lodge General Purpose Financial Statements (GPFS) with the Australian Securities and Investments Commission (ASIC), it is required to submit GPFS to the ATO by the time of lodgement of the tax return.
The CbC reports must be lodged electronically and are required to be lodged using specialised software using XML Schema language.
Unfortunately, even if the subsidiary has minor revenues and international dealings, they are required to lodge these reports and the compliance costs in some circumstances could exceed the yearly tax compliance costs. The ATO does provide exemptions in limited circumstances, but the exemption should be applied for well in advance of any lodgement deadline.
Significant penalties can now apply to late or non-lodgement of most compliance requirement imposed on SGEs. As part of the introduction of Australia’s Multinational Anti-Avoidance Legislation, penalties for SGEs have been significantly increased above that of non-SGEs. Some culpable behaviour penalties are doubled, while failure to lodge or late lodgement penalties have a 500% increase with late lodgement penalties starting at $105,000. These penalties apply to documents such as income tax and fringe benefits returns, Business Activity Statements, CbC reports and GPFS.
Hanrick Curran are assisting clients to evaluate if they are a SGE and advising on their reporting requirements. In addition, we can assist to apply for exemptions if required. Where Australian clients require assistance with CbC compliance internationally, we can facilitate this through our Alliott Group colleagues.
CbC Local File Preparation for Smaller Accounting Firms
As the knowledge required to accurately prepare Local Files and the XML Schema software licensing costs can be prohibitive for smaller accounting firms with only one or two clients that are SGEs, we can engage with the accounting firm to prepare and lodge the CbC Local File for their clients. Similarly, if required we can assist with a review of tax returns – International Dealings Schedule, or assist to prepare GPFS for those clients if required.
Should you require assistance with the compliance in this area, please contact Hanrick Curran’s tax partner, Jamie Towers or your usual Hanrick Curran advisor.