The ATO has made available (on it’s website) a document which it calls: ‘Local File – high level design’ to help taxpayers understand their new reporting requirements as part of Country-by-Country (CbC) reporting.

The Local File is of one of three statements multinational entities, with an annual global income of at least A$1 billion, are required to provide the ATO for income years commencing on, or after, 1 January 2016. under Subdiv 815-E of the Income Tax Assessment Act 1997, inserted by the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (which received Royal Assent on 11 December 2015 after the 2015/16 Federal Budget).

The design and format of the Local File was developed in consultation with representatives from a mix of corporations, industry groups, tax and legal advisors. The Local File design:

  • outlines our approach to the information requirements in Annex II of the OECD/G20 Guidance on ‘transfer pricing documentation’ and ‘Country-by-Country Reporting’ (see link).
  • builds on our advice in paragraphs 40-43 of our Law Companion Guideline
  • ensures Australia meets its commitments under OECD Action 13, while minimising overlap with existing reporting requirements.

CbC reporting is part of a broader suite of international measures aimed at combating tax avoidance through comprehensive exchanges of information between countries. Australia is one of 44 countries that have already signed up for the exchange of reports.

The statements require multinationals to report details regarding their international related party dealings, revenues, profits, and taxes paid by jurisdiction. This will assist in gathering a global picture of how multinationals operate, so we can better assess transfer pricing risks.

[ATO announcement] [LTN 129, 7/7/16]

 

OECD/G20 Guidance [abstract]

This document contains revised standards for transfer pricing documentation and a template for country-by-country reporting of revenues, profits, taxes paid and certain measures of economic activity.

These new reporting provisions, and the transparency they will encourage, will contribute to the objective of understanding, controlling, and tackling BEPS behaviours.

Countries participating in the BEPS project will carefully review the implementation of these new standards and will reassess, no later than the end of 2020, whether modifications should be made to require reporting of additional or different data. Effective implementation of the new reporting standards and reporting rules will be essential. Additional work will be undertaken to identify the most appropriate means of filing the required information with and disseminating it to tax administrations.

[OECD/G20 Guidance]

 

Country-by-Country reporting and transfer pricing documentation [extract]

Reporting requirements – Statements must be lodged electronically in the approved form.

CbC report

The OECD has released details of the final XML schema for the standardised exchange of CbC reports between jurisdictions. The XML schema is an international standard and must be used to provide us with the CbC report.

Local file

The high level design for the Local file is now available. The instructions to go with the Local file and the XML schema to lodge the file are in development and will be available on this page.

Master file

We are adopting Annex I of the OECD guidance on Action 13 as the Master file. Further information on how to lodge the Master file will be made available on this page.

[ATO website]

 

LCG 2015/3 on Subdiv 815-E of the Income Tax Assessment Act 1997: Country-by-Country reporting

Information requirements

40. The approved form for the local file will be based on the information requirements outlined in Annex II of the OECD guidance. The local file will therefore include information about a local entity’s management structure and business strategy, specific cross-border related party transactional data, and financial information.

41. We are in the process of determining the details of the information that will be required in the local file. We intend to provide differentiated approved forms for the local file, aimed at balancing the cost of compliance with the information needs we require to adequately risk assess significant global entities.

42. The proposed approach is of three differentiated approved forms for the local file:

  • A full Local File: all three components of the local file based on the specified information in Annex II.
  • A simplified local file: all three components of the local file listed in Annex II but with less information than is required under a full local file.
  • A short form local file: the first component of the local file listed in Annex II.

(See Annex II of the OECD guidance for an outline of the three components of the local file.)

43. We will provide more information in future releases of guidance material on CbC reporting, outlining which differentiated ‘approved form’ for the local file an entity will need to lodge. Factors that we may take into account include the entity’s risk profile, their income or turnover in Australia and whether the type of transactions and arrangements to which the local entity is a party are listed on the ‘inclusions list’ (see paragraphs 44 to 47 of this Guideline).

[LCG 2015/3 – extract]

‘Local-File – High level design’ – [extract]

Table 1 outlines the two ‘tiers’ of local file, with the amount of information required for a particular local file tier reflecting the entity’s business operations, complexity and perceived level of risk.

Reference is made to a short form exceptions list and an exclusions list. The short form exceptions list details specific types of transactions, that if engaged in by the Reporting Entity, will mean it will not be eligible to complete the short form local file.

The exclusions list is only relevant for those entities lodging a local file, and identifies transactions that are not material controlled transactions for the purposes of Part B of the Local File.

Table 1: Design Overview

File Type Criteria
Short Form Local File The Reporting Entity is only required to provide the Short Form Local File to the ATO if it meets at least one of the following criteria:

  • the aggregate value of its international related party dealing (IRPDs) is less than $2 million and it has no international related party dealings (IRPDs) on the Short Form Exceptions List
  • the Simplified Transfer Pricing Record Keeping (STPRK) criteria for ‘Small Taxpayers’ and it has no IRPDs on the Short Form Exceptions List
  • the STPRK criteria for ‘Materiality’ and it has no IRPDs on the Short Form Exceptions List.
Local File Where the Reporting Entity does not meet the criteria for the short form local file, it will be required to complete the local file.

Table 1: Design Overview (continue)

File Type Information Content
Short Form Local File Reporting entity description

  • a description and copy of the organisational structure of the Reporting Entity, including a description of the individuals to whom local management reports and the countries in which such individuals maintain their principal offices
  • a description of the Reporting Entity’s business and strategy
  • a description of any business restructures affecting the Reporting Entity in the current or previous income year, and an explanation of its significance
  • a description of any transfers of intangibles in the current or previous income year, and an explanation of its significance
  • a list of key competitors of the reporting entity.
Local File The local file consists of the information in the short form local file, plus:

Controlled transactions

Part A

The following information for all controlled transactions for the income year:

Note: in the case of an agreement included in a Relevant Agreement Series or under an Umbrella Agreement, all the agreements covered by the Relevant Agreement Series or the Umbrella Agreement are aggregated for the purpose of completing Part A.

  • name of the Australian counterparty
  • name of the non-resident counterparty
  • country of tax residency of the non-resident counterparty
  • category of the transaction per Table 4
  • amounts of consideration payable/receivable (of a capital nature for Australian income tax purposes)
  • amounts of expenditure/revenue (not of a capital nature for Australian income tax purposes)
  • for IRP debt factoring and securitisation arrangements, the book value of transferred debts will also be required
  • where foreign currency gains or losses are incurred for the transaction, disclosure of the FX gain/loss will also be required
  • Note: for the above labels
    • zero values are shown for nil payment or consideration (as per item 14a of the IDS)
    • there will be an indicator for non-monetary consideration (as per item 14b of the IDS).
  • the transfer pricing method relied on for the transaction per Table 3
  • if it is a capital transaction, the capital asset pricing methodology used
  • the transfer pricing documentation code
  • for the purposes of Part B, whether the transaction is covered by a category on the Exclusions List.

Part B

For each transaction not covered by the Exclusions List (material controlled transactions):

  • the transfer pricing method relied on for the transaction by the IRP per Table 3 (or an indication the Reporting Entity was not able to obtain the information)
  • an indication whether there is a written agreement and, if so, whether the agreement has been previously provided to the ATO (where the agreement has been previously provided, we will require the title of the agreement to enable ATO identification)
  • a copy of the agreement (unless previously provided to the ATO)
    • Note: there will be special rules for providing agreements included in a Relevant Agreement Series or under an Umbrella Agreement
  • any foreign APAs or rulings provided by another jurisdiction in relation to an agreement (unless previously provided to the ATO).

Financial information

Financial accounts for the Australian Reporting Entity

[ATO’s guidance document] [LTN 129, 7/7/16]

Category: Tax Month - July 2016

Author: John Morgan

John Morgan is a tax specialist lawyer of more than three decades experience now practicing at the Victorian Bar - w: www.FJMtax.com e: f.john.morgan@vicbar.com.au