On 5 June 2024, the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (the Bill) was introduced to Parliament, which contains, among other things, proposed new country-by-country (CBC) reporting measures. At the time of writing, the Bill is being considered by the Senate Economics Legislation Committee. The Bill contains a number of key changes which have been made since the first round of exposure draft legislation was released in April 2023.

The new reporting obligations will exist in parallel to the existing confidential CBC reporting obligations under 815-E of the Income Tax Assessment Act 1997. The information which is reported by an entity under this new measure will be published and made publicly available by the Commissioner (unlike the 815-E CBC reporting obligations). The measure is intended to enhance transparency and inform public debate on the tax affairs of large multinationals.

New CBC reporting measures: Who must report?

The reporting obligations are imposed on a CBC Reporting Parent (broadly, the head entity of a group with annual global income of A$1 billion or more), where a member of the group is an Australian resident or operates via an Australian permanent establishment (PE). Therefore, where a foreign entity is the CBC Reporting Parent, the reporting obligation is imposed on that entity, and not its Australian subsidiary or PE. This imposes a significant burden on the foreign entity, which is likely to be left to the Australian business to manage.

To be subject to the reporting obligations, the CBC reporting parent entity must meet certain criteria based on its structure:

• if the CBC reporting parent is a company, it must qualify as a constitutional corporation; or
• if the CBC reporting parent is a trust, each of the trustees must be a constitutional corporation; or
• if the CBC reporting parent is a partnership, each of the partners within that partnership needs to be a constitutional corporation.

What must be reported?

The information that must be reported on a country-by-country basis is:

• the name of the jurisdiction;*
• a description of main business activities;
• the number of employees (on a full-time equivalent basis) as at the end of the reporting period;
• revenue from unrelated parties;
• revenue from related parties that are not tax residents of the jurisdiction;
• profit or loss before income tax;
• book value at the end of the reporting period of tangible assets, other than cash and cash equivalents;
• income tax paid (on a cash basis);
• income tax accrued (current year);
• the reasons for the difference between income tax accrued (current year) and the amount of income tax due if the income tax rate applicable to the jurisdiction were applied to profit or loss before income tax;* and
• the currency used in calculating and presenting the above information.

The reporting parent must report on a CBC basis in relation to Australia, as well as certain jurisdictions which have been specified in a determination made by the Minister (see further information below). For jurisdictions which have not been specified, the CBC Reporting Parent can report the above list of information (excluding those that are marked with an asterisk) only on an aggregated basis. While voluntary reporting on a CBC basis for all jurisdictions is permitted, the required information is the same as those for specified jurisdictions (i.e., those items marked with an asterisk must be included). The amendments provide a power to make regulations to prescribe the reporting of further tax information.

As well as the information reported on a CBC basis and information reported on an aggregated basis, the CBC Reporting Parent must also publish group information, such as the name of each member of the reporting group and a description of the reporting group's approach to tax.

Exemptions to the CBC reporting measures

The April 2023 exposure draft legislation attracted attention for imposing Australian reporting obligations on multinational groups which had only a minor presence in Australia. The Bill has addressed these concerns, with the introduction of a carveout where the group's Australian sourced income is less than A$10 million during the reporting period. Further, the Bill provides the Commissioner with the ability to exempt entities from CBC reporting obligations.

Groups looking to rely on the A$10 million exemption may need to undertake significant analysis to confirm that their Australian sourced income is less than this amount. That is, the rules require consideration of all Australian sourced amounts, and not just those Australian sourced amounts included in an Australian taxpayer's income. Technically, for those groups looking to rely on the $10 million exemption, this would appear to require the group to consider Australian source income derived by non-resident entities (irrespective of such income not being subject to Australian tax due to the possible application of a double tax agreement) and to bifurcate any Australian entity's income between Australian and foreign sources).

A class of entities may be exempt from having to publish the selected tax information (by way of legislative instrument or regulation). Further, the Commissioner may exempt individual entities for a single period from having to publish information of a particular kind for that period. Such exemptions are likely to be very rare, and include:

• where the disclosure impacts national security;
• where the disclosure would result in a breach of law; or
• where the disclosure would "result in substantial ramifications for an entity (by an objective standard) by revealing commercially sensitive information".

Key changes from April 2023 exposure draft

The types of information that must be reported are, for the most part, adopted from the GRI 207: Tax 2019 Standard (GRI 207). The April 2023 exposure draft legislation however, included three additional reporting requirements which went beyond both the GRI 207 and the OECD BEPS Action 13 guidelines. These were:

• expenses arising from related parties in other jurisdictions;
• a list of intangible assets (including disclosure of their list and book values); and
• effective tax rate calculation.

These three requirements have now been removed.

The Bill also narrows the scope of the reporting requirements when compared with the April 2023 exposure draft legislation. Previously, it was proposed that the CBC Reporting Parent would have to report on a CBC basis for every jurisdiction in which it operated. The Bill now proposes a '2 tier' approach. The reporting parent must report on a CBC basis in relation to Australia, as well as certain jurisdictions which have been specified in a determination made by the Minister.

At the time of writing, no list of specified jurisdictions has been released (although a draft list of 41 jurisdictions was published along with the February 2024 exposure draft legislation). It remains to be seen whether the final list of specified jurisdictions will align with that draft list. The Explanatory Memorandum EM includes a comment that jurisdictions which are determined by the Minister are expected to be informed by the International Dealings Schedule specified countries or jurisdictions list and 'taxpayer behavioural trends'. It also notes that the list is 'intended to complement the EU Directive 2021/2101' but that it may also consider 'Australian specific circumstances'. Both the draft list of 41 jurisdictions and the International Dealings Schedule specified jurisdictions list are more extensive than the EU's 'blacklist' and 'grey list', and include key jurisdictions not currently found on the EU lists such as Hong Kong, Switzerland and Singapore.

Correction of errors

In the event that an entity becomes aware of a material error in the information provided, the Bill requires the entity to provide the Commissioner with a document correcting the error within 28 days of becoming aware of the error. This is a slight departure from the April 2023 exposure draft, which required all errors to be corrected 'as a soon as practicable' (regardless of whether or not they were material). Whether an error is a material error is a matter of professional judgement. The EM states that "it is expected that CBC reporting parents would have regard for their relevant Accounting Standard in determining whether an item, or an aggregate of items, is material…"

Timing of CBC reporting regime

The new public CBC reporting regime is expected to apply to reporting periods which commence on or after 1 July 2024. CBC Reporting Parents will be obligated to provide a document containing the relevant information to the Commissioner, in the approved form, within 12 months after the end of the reporting period.

Penalties under the CBC reporting regime

If an entity (including a foreign CBC reporting parent) fails to publish the relevant information by the specified time, it will attract a penalty of 500 penalty units (A$156,500 at current rates) for each period of 28 days (or part thereof) that it is overdue (up to a maximum of 2,500 penalty units or A$782,500, however this is expected to increase from 1 July 2024). Technically, further minor penalties could be imposed under Subdivision 268-C of Schedule 1 of the Taxation Administration Act 1953.

An Australian entity which fails to comply with an obligation to publish tax information may also commit an offence under section 8C of the Taxation Administration Act 1953 (Cth). Such an offence is an offence of absolute liability. The sanctions vary for such breaches, but penalty units of up to 250 units can apply for repeat offences.

We encourage the Australian CBC reporting parent companies to start to plan for the introduction of the rules and the implications arising from the disclosures. Australian subsidiaries of multinational groups will need to begin communicating with their global parents about the changes to global parent's Australian obligations.

Please reach out if you would like to discuss these issues further.