Local file changes from 1 January 2025

May to June 2024

V 4.0 draft specifications to digital service providers (including external vendor testing environment code deployment).

July to September 2024

• Industry liaison
• Advance instructions provided to stakeholders.

July to December 2024

Building and testing by digital service providers.

Provide a description of your business and strategy.

You should:

• identify all of your main business lines and functions
• describe the strategies deployed in each business line or function
• describe the extent each business line or function overlaps or complements each other.

When describing your business and the strategies deployed for each business line or function, you should consider consistency with the other disclosures such as those made in the director's report section of your annual report (if applicable) or those made in other management or reporting documents.

Provide a list of key competitors of the reporting entity.

The list of key competitors should be provided for all of your main business lines and functions identified in your disclosures relating to your business and strategy.

• Number of main business lines or functions.
• Description of each main business line or function.
• For each above business line/function
  • business strategies employed
  • extent of overlap with other main business lines/functions
  • key competitors.

Provide a description and copy of your organisational structure, including a description of the individuals to whom local management reports and the countries in which such individuals maintain their principal offices.

You should include:

• the job title and responsibilities of the most senior Australian based individuals to whom the local staff reported for each separately reporting local business line or function at the end of the income year
• in the case of foreign owned entities and operations, and any other scenario in which there is formal or effective overseas reporting 
  • the job title and responsibilities of the overseas based individuals to which the identified most senior Australian based individuals effectively report at the end of the income year
  • the countries in which such overseas individuals maintain their principal offices 
• the name of the entity which employs the identified overseas based individuals
• information about multiple reporting lines where the identified most senior Australian based individuals formally or effectively report to more than one overseas based individuals.

If there was any change during the income year in the most senior Australian based individuals to whom the local staff reported for each separately reporting local business line or function, or in the individuals or countries to which the most senior Australian based individuals reported, provide:

• the date on which the change occurred
• the information requested above for the reporting arrangements just prior to the change.

Provide a description of any business restructures affecting your business in the current or previous income year and an explanation of its significance.

You should describe any significant business restructures that have occurred during the reporting period or previous income year, and an explanation of its significance, including:

• significant changes in your ownership, equity or related party debt funding
• significant disposal or acquisition of your assets, including interests in foreign entities
• commencement or cessation of significant operations including operations of your controlled foreign companies or entities (CFCs) and operations you carry on at or through an overseas permanent establishment
• any resulting cross border tax hybrid arrangements.

This covers any significant changes of, and disposals or acquisitions by, any member of your Australian consolidated group or MEC group, and any of your CFCs.

In determining whether a change, disposal or acquisition is significant, take into account the anticipated impact on your Australian tax liabilities for the income period and following income years, including any anticipated impact on Australian withholding tax liabilities.

The description should include:

• the commercial context and explanation for the changes, or disposals or acquisitions
• a description of transactions or dealings connected with the changes, disposals or acquisitions.

(Examples are included which illustrate the required level of reporting for each connected step of the restructure)

• Whether you had any:
  • restructure (including any change in related party financing), or
  • any new arrangement involving transfer, licence or creation of intangibles (intangibles arrangement)

(Yes/No)

• If No, reporting section completed.
• If Yes, provide:
  • code (high level type) and description for restructure/arrangement
  • if intangibles arrangement, code for types of intangibles involved
  • anticipated Australian tax impact (including high level code) and global tax impact of restructure/arrangement
  • commercial context and impact of restructure/arrangement
  • code (based on IDS Q17 Appendix 11 codes) for total capital value of restructure/arrangement
  • number of steps in restructure/arrangement
  • for each step:
    • date
    • code (high level type) and description
    • number of parties to the step
    • name of parties
    • if the party is an international related party or Australian constituent entity, residency/branch details if applicable
    • if the party is an Australian constituent entity, TFN or ABN
    • details of any connected change in transfer pricing functional characterisation
  • if there was a step plan, attach the step plan.

Provide a description of any transfers of intangibles in the current or previous income year and an explanation of its significance.

You should describe any transfer of intangibles including any connected arrangements, such as related party licensing or service agreements, that occurred in the current or previous income year.

The term intangible includes property, assets or rights that are not physical or financial assets, which are capable of being owned or controlled for use in commercial activities. Examples of intangibles include intellectual property, goodwill, rights under service or distribution agreements, know-how and the right to access secret information or processes.

The description should include:

• the commercial context and explanation for the transfer of intangibles
• a description of transactions or dealings connected with the transfer of intangibles.

This covers any transfer of intangibles by any member of your Australian consolidated group or MEC group, or by any of your CFCs.

(Examples are included which illustrate the required level of reporting for each connected step of the intangibles arrangement)

Covered by MST fields for Restructures (above).

1

Clarify how different business lines or functions are determined, e.g. how to treat back-office functions including HR, IT, finance and legal

Adopted

Revised instructions will clarify that:

• Different business lines or functions are determined taking into account the way in which the reporting entity’s business is organised.
• Supporting business lines or functions do not need to be reported to the extent they do not:
  • Generate revenue, or
  • Involve DEMPE functions for intangibles.

2

Remove reference to ‘function’ because this is a transfer pricing concept

Not adopted

‘Function’ has always been used by the ATO in the short form instructions in its general meaning of a business line or activity. It is not intended to be restricted to the meaning of ‘function’ for the purposes of the OECD’s transfer pricing guidelines.

3

Provide an example of a non-reportable business line or function

Adopted

The example in the revised instructions will be extended to illustrate how supporting functions (as above) are not reportable as a separate business lines or function.

4

Remove requirement to report names of overseas personnel, e.g., due to privacy obligations

Adopted

We have now changed the message structure table (MST) to make the relevant field non-mandatory. We have also made the name field for reporting local individual personnel non-mandatory.

5

Remove requirement to report residency of overseas personnel, e.g., due to difficulty in determining residency

Adopted

We have now changed the MST to make the relevant field non-mandatory.

6

Clarify the meaning of ‘effective’ reporting

Adopted

Revised instructions will clarify that effective reporting means accountable reporting. We have removed references to direct and indirect reporting.

7

Narrow the types of reportable changes in reporting arrangements and limit to final year end position only

Partially adopted

Revised instructions will clarify that short term and temporary changes to reporting arrangements do not need to be reported. Consistent with current short form instructions as reflected in previously lodged short forms, we continue to require non-temporary changes in reporting during the income year to be reported.

8

Limit the number of reporting lines that must be disclosed to reduce compliance burden

Not adopted

We do not think it is necessary or appropriate to put a cap on the amount of reporting lines that need to be disclosed. Reporting of overseas reporting is already limited to the most senior personnel for the business line or function, as reflecting how the business is organised.

9

Short form reporting should be confined to general ‘management’ reporting to overseas personnel and should not include overseas reporting by the ‘most senior individual’ for a business line or function

Not adopted

The current short form instructions require reporting ‘for the most senior Australian based individuals … for each separately reporting local business line or function’.

The revised instructions will provide an example where person A reports to ‘management – CEO’ and also effectively reports (as the most senior Australian based individual for a separately reporting business line) to overseas personnel for that global business line.

10

Clarify meaning of restructure and significant restructure

Adopted

Revised instructions will change the meaning of significant restructure. The revised instructions will provide that significant restructures include:

• Deemed significant restructures which cover specific kinds of arrangements that are always reportable.
• All other significant restructures where significance is determined having regard to materiality or potential Australian tax risk.

11

Requests to clarify that certain types of restructures are non-reportable restructures

Adopted

Revised instructions will expressly treat the following kinds of restructures as not reportable:

• Expanded examples of organic changes occurring in the ordinary course of commercial business operation, for example:
  • Changes in non-core back-office functions which do not generate revenue or involve DEMPE activities.
  • Entering into new third-party supply contracts.
  • Payment of dividends or distributions to your shareholders which are not connected to a reportable restructure.
  • Changes in the country of residence of the related counterparty from which you purchase tangible goods solely reflecting a change in the country of substantial manufacture or production of the tangible goods by the related counterparty.
  • Transfers of assets between members of an Australian tax consolidated group (TCG).
  • Transfer of assets between members of a Multiple Entry Consolidated (MEC) group which result in the assets being directly or indirectly held by the same eligible tier-1 company(ies).
  • New, replaced or terminated related party financing arrangements where the arrangements (including connected arrangements) have a capital value of $10m or less.

12

Introduce materiality thresholds for restructures to reduce reporting

Partially adopted

As above, the revised instructions will introduce a materiality threshold of $10m for new, replaced or terminated related party financing arrangements.

13

Reportable ‘creation of intangibles (IP)’ should be narrowed so all types of creation of IP are not reportable restructures

Adopted

The revised instructions will:

• Narrow the meaning of creation of IP (confined to IP that is for the benefit of overseas related parties and/or made accessible to overseas related parties).
• Include a list of specific kinds of excluded (non-reportable) IP creation arrangements.

14

Clarify the meaning of connected steps

Adopted

The revised instructions will provide:

• More clarity about determining connected steps, and
• An example to illustrate application of the instructions.

15

Remove reporting requirement for prior year restructures to current year reporting only

Not adopted for 2024

Short form reporting has always required reporting of significant restructures implemented in the current or previous year on an ongoing basis, consistent with Annexure II in the OECD Action 13 ReportExternal Link.

We will reconsider our current approach having regard to the implementation and ongoing operation of structured short form reporting using V4.

16

There should be special carve outs for banks for reporting significant financing restructures

TBA

The ATO has requested the stakeholders which raised this issue for more detail about relevant scenarios and is open to receiving further feedback. We intend to continue engaging with interested stakeholders on this issue.

17

Short form reporting is ‘beyond power’ or ‘invalid’ under Subdivision 815-E of the ITAA 1997 because it has not been limited to reporting of transactions or restructuring raising ‘transfer pricing risks’, e.g., transactions covered by TR 2011/1

Not agreed

The ATO considers that the current short form reporting requirements and the proposed structured short form reporting requirements using V4 are an appropriate ‘approved form’ under subsection 815-355External Link(1) of the ITAA. Such approved form relevantly relates to ‘operations, activities, dealings and transactions’ of the reporting entity within the meaning of paragraph 815-355External Link(3)(b) of the ITAA 1997, and relevantly corresponds or relates to Annexure II of the OECD Action 13 ReportExternal Link.

Australia’s approach to transfer pricing rules reflect the specific provisions in Division 815 of the ITAA having regard to relevant Australian court decisions, for example, the decision of the Full Federal court in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62External Link.

The OECD Action 13 ReportExternal Link expressly refers to use of CbC reporting information in risk assessment or evaluation of transfer pricing risks and other Base Erosion and Profit Shifting (BEPS) risks.

Assessment of transfer pricing risks (and of other BEPS risks) includes considering:

• The nature and scale of an Australian entity’s business operations
• Extent of integration or connection of the Australian entity’s management or operations with that of offshore related parties
• The nature of benefits actually obtained from or provided by offshore related parties
• Underlying risk or incentives for profit shifting from non-arm’s length relationships or dealings, for example:
  • Changes in related counterparties’ operations, ownership structure or overseas tax treatment
  • Connected dealings or relations within the reporting entity’s global group.

18

Reduce duplication of reporting with RTP Schedule, International Dealings Schedule (IDS) and processes for Top 100 taxpayers

Partially adopted with further changes TBA

Changes are being proposed to the RTP Schedule instructions to reduce provision of duplicated information in the RTP Schedule comments for relevant arrangements (where information about relevant restructures is provided in the short form).

Further consideration is being given to changes to the IDS instructions to address duplication.

Structured V4 short form reporting on significant restructures by CbC reporting entities will be an important set of data used by the ATO for population analysis and reporting.

In relation to Top 100 program processes:

• Short form reporting by Top 100 taxpayers making proactive disclosures of new transactions and changes under the pre-lodgment disclosure framework will continue to be relevant in supporting ATO’s verification processes in a Top 100 refresh review of implemented restructures.
• Top 100 taxpayers choosing to continue to voluntarily lodge their short form reporting with their ITR may improve timeliness of the ATO verification processes.

19

Australian reporting entities not currently in possession of relevant offshore information in their global group should not have any obligation to obtain or provide this information in short form reporting, e.g., information about tax status of offshore related counterparties or connected transactions between offshore members of global group

Not agreed

An Australian reporting entity should request their global group’s personnel for information relevant to meeting its short form reporting about overseas reporting arrangements, significant restructures or new intangibles arrangements, for example, information held offshore by the group on:

• Connected steps and offshore tax treatment for significant related party restructures
• Overseas employing entity of overseas personnel to which relevant personnel report.

Reporting entities are expected to have made reasonable documented inquiries of offshore group personnel who may be expected to hold relevant information, including personnel of the:

• Overseas parent
• Group tax area.