House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Chapter 4: Multinational tax transparency - country by country reporting

Outline of chapter

4.1 Schedule 4 to the Bill implements Australia's public CBC reporting regime by amending the TAA to require certain large multinational enterprises (defined as CBC reporting parents) to publish selected tax information on a CBC basis for specified jurisdictions, and on either a CBC basis or an aggregated basis for the rest of the world. The information is to be published on an Australian government website, with publication facilitated by the Commissioner. The objective of these amendments is to improve information flows to help the public, including investors, to compare entity tax disclosures, to better assess whether an entity's economic presence in a jurisdiction aligns with the amount of tax they pay in that jurisdiction.

Context of amendments

4.2 The Australian Government announced in the October 2022-23 Budget a package of targeted measures to improve corporate tax transparency disclosures. The measures form part of the Government's multinational tax integrity election commitment package, helping to ensure a fairer and more sustainable tax system.

4.3 The tax transparency measures complement the Government's broader regulatory mix to improve corporate disclosures and reflects the shifting public sentiment for greater transparency and accountability on corporate activity, particularly from large businesses. This includes from investors and capital providers.

4.4 The shifting attitude for enhanced corporate disclosures is observed across the corporate governance landscape, including environmental and sustainability claims and on climate related financial disclosures.

4.5 Tax transparency has generally lagged other forms of corporate disclosures. But there is momentum internationally to improve this, with the GRI 207 and European Union's public CBC reporting Directive (EU Directive 2021/2101) constituting two examples of schemes intended to enhance the tax transparency of multinational enterprises.

4.6 It is in this broader context that the Government is committed to improving the quality and comparability of tax disclosures by large businesses in Australia, by introducing standardised reporting requirements for large businesses.

4.7 Currently, large multinational enterprises are subject to confidential CBC reporting (in accordance with Action 13 of the OECD/G20 Base Erosion and Profit Shifting Project). In addition, some companies voluntarily disclose some CBC information, but disclosures are fragmented leading to inconsistencies and difficulties interpreting and comparing the information.

4.8 To enhance transparency, as well as improve comparability and accessibility, these amendments will require certain large multinationals to publicly disclose selected tax information based on the GRI 207. While there is significant overlap in the required data disclosures between the OECD confidential CBC reporting, the EU Directive 2021/2101, and the GRI 207, the GRI 207 provides for a broader set of disclosures, consistent with the intended policy outcome. To assist taxpayer compliance and minimise compliance costs, the amendments align with these CBC regimes where possible.

4.9 The information required to be disclosed is on a CBC basis for specified jurisdictions and on either a CBC basis or an aggregated basis for the rest of the world. This builds on global trends to help inform the public debate on the tax affairs of large multinationals. The information will be reported in a standardised format and will be centrally hosted to facilitate comparability across entities, jurisdictions, and reporting periods – building up a database that will increase in value over time for the public to access.

Summary of new law

4.10 Schedule 4 to the Bill amends the TAA to impose a new reporting obligation on certain large multinational enterprises.

4.11 Unless otherwise exempt, the reporting obligation applies to CBC reporting parents that are certain types of constitutional corporations, partnerships or trusts, and that are members of a CBC reporting group. Further, the CBC reporting parent is only subject to the reporting obligation if $10 million or more of their aggregated turnover for the income year is Australian-sourced. The CBC reporting parent is required to publish selected tax information on an Australian government website by giving the information in the approved form to the Commissioner, with the Commissioner facilitating publication. Penalties apply for non-compliance.

Detailed explanation of new law

Entities covered by the amendments

4.12 The requirement to publish selected tax information applies to entities that are a CBC reporting parent within the meaning provided by section 815-375 of the ITAA 1997 and:

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if the CBC reporting parent is a company, it is a constitutional corporation; or

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if the CBC reporting parent is a trust, each of the trustees is a constitutional corporation; or

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if the CBC reporting parent is a partnership, each of the partners is a constitutional corporation.

Constitutional corporation is defined in subsection 995-1(1) of the ITAA 1997. [Schedule 4, item 1, paragraph 3D(1)(a) of the TAA]

4.13 In addition, the CBC reporting parent is only required to publish information in relation to a reporting period if:

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they were a CBC reporting parent for a period that includes the whole or a part of the preceding reporting period; and

[Schedule 4, item 1, paragraph 3D(1)(b) of the TAA]

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they are a member of a CBC reporting group at any time during the reporting period; and

[Schedule 4, item 1, paragraph 3D(1)(c) of the TAA]

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at any point during the reporting period, they, or a member of their CBC reporting group, is an Australian resident or foreign resident with an Australian permanent establishment; and

[Schedule 4, item 1, paragraph 3D(1)(d) of the TAA]

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$10 million or more of their aggregated turnover for the income year is Australian-sourced; and

[Schedule 4, item 1, paragraph 3D(1)(e) of the TAA]

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they are not an exempt entity or included in a class of exempt entities.

[Schedule 4, item 1, paragraphs 3D(1)(f) and (g) of the TAA]

4.14 CBC reporting parents that are Australian residents without foreign operations are still required to publish the selected tax information, provided they meet all other requirements. This requirement differs from OECD CBC reporting obligations and supports the policy intent of the measure which includes enhancing the tax transparency of large businesses operating in Australia.

4.15 The obligation is placed on the CBC reporting parent as the selected tax information required to be published is likely to be more accessible to a CBC reporting parent as opposed to a local subsidiary, helping to support compliance.

Entities with a small Australian presence excluded

4.16 CBC reporting parents are not required to publish the selected tax information if their aggregated turnover for the income year includes less than a total of $10 million of Australian-sourced income. 'Aggregated turnover' has the meaning given by section 328-115 of the ITAA 1997 and is calculated for an entity's income year. If a CBC reporting parent's reporting period is not an income year, they must assume their reporting period is an income year for the purposes of calculating their aggregated turnover. [Schedule 4, item 1, paragraph 3D(1)(e) of the TAA]

4.17 The concept of a materiality threshold aligns with the approach in the EU Directive 2021/2101 and ensures that CBC reporting groups with genuinely small Australian operations are not subject to the reporting requirements. The $10 million threshold aligns with the small business entity threshold provided by section 328-110 of the ITAA 1997.

Other exemptions

4.18 The CBC reporting parent must publish selected tax information that relates to itself and its CBC reporting group. This extends to public and private groups, which is consistent with the EU Directive 2021/2101. However, the amendments provide exemption powers to respond to exceptional circumstances where disclosure of information by a class of entities or a specific entity would be inappropriate.

4.19 A class of entities may be exempt from having to publish the selected tax information. This can either be by way of the Commissioner specifying the class of entity as exempt by legislative instrument, or the class of entity being prescribed by regulation. Section 18 of the TAA provides that the Governor-General may prescribe matters that the TAA permits to be prescribed. [Schedule 4, item 1, paragraph 3D(1)(f) and subsection 3DB(4) of the TAA]

4.20 The Commissioner may also exempt specific entities from having to publish the selected tax information for a single reporting period through a written notice. Such a notice is not a legislative instrument within the meaning of subsection 8(1) of the Legislation Act 2003 as it is of an administrative character. [Schedule 4, item 1, paragraph 3D(1)(g) and subsections 3DB(5), (7) and (8) of the TAA]

4.21 In addition, the Commissioner may specify that an entity is exempt from publishing information of a particular kind for a single reporting period through a written notice. Providing an exemption for only a particular kind of information reflects the intent that an entity should comply with the reporting requirements to the greatest extent possible. Such a notice is not a legislative instrument within the meaning of subsection 8(1) of the Legislation Act 2003 as it is of an administrative character. [Schedule 4, item 1, paragraph 3D(3)(a) subsections 3DB(6), (7) and (8) of the TAA]

4.22 Where the Commissioner exempts a specific entity from publishing or exempts a specific entity from publishing information of a particular kind, the exemption only applies for a single reporting period. This reflects that the circumstances of individual entities may change over time and that the exemption powers are expected to be exercised in limited circumstances. [Schedule 4, item 1, subsection 3DB(7) of the TAA]

4.23 In exercising these discretions, it is expected the Commissioner would have regard to the primary purpose of the amendments which is to enhance tax transparency. In considering an exemption request, it may be appropriate for the Commissioner to consider matters such as whether disclosure of the information would:

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impact national security;

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breach Australian law (disregarding the requirements imposed by these amendments) or breach the laws of another jurisdiction; and

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result in substantial ramifications for an entity (by an objective standard) by revealing commercially sensitive information.

4.24 It is expected that the Commissioner will provide more comprehensive guidance in relation to how these exemption powers will be applied. It is also expected that the CBC reporting parent will have the option to disclose where an exemption has been granted to differentiate this from non-compliance.

4.25 As the requirement to publish the selected tax information will cover a wide range of entities, there is a chance that it may apply to government entities that are subject to alternative disclosure or accountability regimes through government budget processes. The Commissioner may exempt government related entities from this requirement. This ensures that the application of these reporting requirements does not inappropriately affect these entities. [Schedule 4, item 1, subsections 3D(5) and (6) of the TAA]

Reporting period

4.26 An entity's reporting period will be the period for which audited consolidated financial statements for the entity are prepared. For CBC reporting parents that are Australian residents, this will typically be an income year. [Schedule 4, item 1, paragraph 3D(2)(a) of the TAA]

4.27 If the entity does not prepare audited consolidated financial statements, their reporting period will be the period that the entity would have prepared such statements for had it been a listed entity within the meaning of section 26BC of the ITAA 1936. This is intended to aid consistency in the selected tax information published. This differs from confidential CBC reporting which allows entities to choose its data source from its consolidated reporting packages, separate entity statutory financial statements, regulatory financial statements, or internal management accounts. [Schedule 4, item 1, paragraph 3D(2)(b) of the TAA]

Information that must be published

4.28 The CBC reporting parent is required to publish selected tax information that relates to itself and its CBC reporting group. Broadly, the information required to be published relates to presence and tax dealings in particular jurisdictions. For Australia and specified jurisdictions determined by the Minister, particular information must be published on a CBC basis. For all other jurisdictions the CBC reporting group operates in, the CBC reporting parent has a choice to publish that same information on either a CBC basis or an aggregated basis. [Schedule 4, item 1, paragraphs 3DA(1)(d) and (e) and subsection 3DA(2) of the TAA]

General information

4.29 The CBC reporting parent is required to publish the following general information:

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its own name;

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the names of each entity in the CBC reporting group; and

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a description of the CBC reporting group's approach to tax.

[Schedule 4, item 1, paragraphs 3DA(1)(a) to (c) of the TAA]

Information on a CBC basis

4.30 For Australia and specified jurisdictions determined by the Minister that the CBC reporting group operates in, the CBC reporting parent must publish, at a group level:

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the name of the jurisdiction;

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a description of main business activities;

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the number of employees (on a full-time equivalent basis) at the end of the reporting period;

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revenue from unrelated parties;

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revenue from related parties that are not tax residents of the jurisdiction;

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profit or loss before income tax;

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book value at the end of the reporting period of tangible assets, other than cash and cash equivalents;

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income tax paid (on a cash basis);

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income tax accrued (current year);

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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 and loss before income tax; and

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the currency used in calculating and presenting the above information.

[Schedule 4, item 1, paragraph 3DA(1)(d) and sections 3DA(3) and (4) of the TAA]

4.31 In addition to Australia and specified jurisdictions determined by the Minister, the CBC reporting parent can choose to publish the information listed above for all jurisdictions that the CBC reporting group operates in. In this case, the CBC reporting parent would not need to publish the same information on an aggregated basis. This choice reflects that reporting on a CBC basis for Australia and specified jurisdictions is the minimum compliance standard, and that entities may already report on a global CBC basis or may be inclined to voluntarily report in this manner in the future. [Schedule 4, item 1, section 3DA(2) of the TAA]

4.32 Jurisdictions determined by the Minister are expected to be informed by the Commissioner of Taxation's International Dealings Schedule specified countries or jurisdictions list and taxpayer behavioural trends. The list is intended to complement the EU Directive 2021/2101 to support the policy intent of meaningful improvements to global multinational tax transparency.

4.33 Multinationals may have an incentive to enter into arrangements to lower (or avoid) their Australian tax liability. In this regard, it may be appropriate for the Minister to consider Australian specific circumstances in deciding whether to specify a jurisdiction. This could include the quantum of international related party dealings relative to trade and investment flows, cross-border financing, intangibles arrangements, loan arrangements, and subsidiary structures; combined with other factors, for example, subsidiary employee numbers.

4.34 The determination of jurisdictions for the purpose of public CBC reporting is provided by legislative instrument. It is appropriate to provide the Minister with the power to determine these jurisdictions to allow the Government to consider current and emerging circumstances and respond in a timely manner. The legislative instrument would be subject to disallowance and sunsetting and will therefore be subject to appropriate parliamentary scrutiny. [Schedule 4, item 1, subsection 3DA(4) of the TAA]

Information on an aggregated basis

4.35 If the CBC reporting parent chooses to report on a CBC basis for all jurisdictions the CBC reporting group operates in, it does not need to publish any information on an aggregated basis. However, if the CBC reporting parent only publishes information on a CBC basis for Australia and specified jurisdictions determined by the Minister, it must publish the following information on an aggregated basis for all other jurisdictions the CBC reporting group operates in:

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a description of main business activities;

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the number of employees (on a full-time equivalent basis) at the end of the reporting period;

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revenue from unrelated parties;

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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); and

•

the currency used in calculating and presenting the above information.

Amounts should be added for a cumulative total and positive and negative amounts should 'net off' if applicable. [Schedule 4, item 1, paragraph 3DA(1)(e) and subsection 3DA(5) of the TAA]

4.36 The currency used in calculating and presenting the information is required to provide necessary context and assist in comparing disclosures.

Other requirements for reporting

4.37 These disclosures have been adopted from the GRI 207, which also covers a number of disclosure items that form part of the OECD recommendations for CBC reporting.

4.38 There is significant overlap between the requirements in the GRI 207 and the requirements in the OECD Transfer Pricing Guidelines. The GRI 207 should be treated as the primary source of guidance in interpreting the requirements entities must publish under these amendments, including where there is any inconsistency between guidance materials. Where relevant, the disclosures are intended to align with the meaning of those in the GRI 207, even where the terminology is not identical. This is to ensure the terminology used in the amendments is appropriate for, and consistent with, Australia's domestic law. For example, the data disclosure on revenues from unrelated parties reflects the equivalent GRI 207 data label 'revenue from third party sales'.

4.39 Regard can be had to the BEPS Action 13 Guidance and the OECD Transfer Pricing Guidelines, particularly Chapter V and Annexes I to IV to Chapter V (which incorporates the OECD/G20 Base Erosion and Profit Shifting Project Action 13 - 2015 Final Report), where they provide greater detail on the interpretation of particular terms.

4.40 The inclusion of the OECD Transfer Pricing Guidelines is intended to reduce the compliance burden on entities already familiar with its interpretation as it is used by these entities in meeting their existing obligations for confidential CBC reporting under paragraph 815-355(3)(c) of the ITAA 1997. [Schedule 4, item 1, subsection 3DA(7) of the TAA]

4.41 The combination of information required to be published is intended to provide the public with a comprehensive picture of the CBC reporting group's tax affairs while minimising the compliance and administrative burden imposed on the CBC reporting parent. To further support these disclosures, where a CBC reporting group has prepared a report under the EU Directive 2021/2101, they are expected to publish a link to, or copy of, this report when publishing the tax information required by these amendments. CBC reporting groups may also provide further context to their reports on their own websites.

4.42 The selected tax information must be published within 12 months after the end of the reporting period to which it relates. [Schedule 4, item 1, subsection 3D(3) of the TAA]

4.43 The selected tax information published by the CBC reporting parent must be sourced from audited consolidated financial statements. The intent is for the data to be reconcilable and verifiable, and of a generally high standard for public release, without necessitating additional auditing. [Schedule 4, item 1, paragraph 3DA(6)(a) of the TAA]

4.44 In circumstances where the CBC reporting parent has not prepared audited consolidated financial statements for the reporting period, the information published must be based on amounts that would be shown in such statements, had the entity been a listed company within the meaning of section 26BC of the ITAA 1936 and been required to prepared them. [Schedule 4, item 1, paragraph 3DA(6)(b) of the TAA]

Regulation making power to require additional information

4.45 The amendments include a power to make regulations to prescribe further tax information that must be published in addition to the requirements set out above. This could include information that the CBC reporting parent must publish in relation to itself, or on a CBC or aggregated basis in relation to the CBC reporting group. [Schedule 4, item 1, paragraph 3DA(1)(f) of the TAA]

4.46 The regulation-making power will allow the Government the ability to ensure the requirements are kept up to date and reflect changes in the tax landscape. For example, if an additional requirement was added to the GRI 207, the Government may include this in the regulations if it was determined that the publication of this information was important in improving tax transparency. This update would provide certainty to taxpayers on their reporting obligations in a timely manner. The regulations would be subject to disallowance and therefore would be subject to appropriate parliamentary scrutiny.

4.47 Pursuant to section 17 of the Legislation Act 2003, additional information that is included through regulations would be subject to appropriate consultation.

Interaction with confidential CBC reporting

4.48 The existing confidential CBC reporting obligations required under Subdivision 815-E of the ITAA 1997 and the new public CBC reporting obligations introduced in these amendments will operate in parallel, but they are distinct and separate reporting regimes. This approach is consistent with the approach taken by the EU, whose public CBC reporting regime also operates as a distinct and separate reporting regime compared to the confidential regime devised under Action 13 of the OECD/G20 Base Erosion and Profit Shifting Project.

4.49 The 'CBC report' required to be provided to the Commissioner under paragraph 815-355(3)(c) of the ITAA 1997 is subject to strict confidentiality and cannot be publicly disclosed under Australia's international obligations under Action 13 of the OECD/G20 Base Erosion and Profit Shifting Project.

4.50 The information in the CBC report that is given to the Commissioner under Subdivision 815-E, or that is received on exchange pursuant to international exchange agreements, will not be published. This principle applies even in the event that a CBC reporting parent fails to publish the information required under these amendments.

Publication facilitated by the Commissioner

4.51 The CBC reporting parent will fulfil its requirement to publish the selected tax information by providing the information in the approved form to the Commissioner, for the purpose of the information being made public. The Commissioner will then make the information available on an Australian government website as soon as practicable. [Schedule 4, item 1, subsections 3D(3) and (4) of the TAA]

4.52 The Commissioner's role is limited to facilitating the publication of the selected tax information. The Commissioner cannot amend or modify any of the information provided by the entity before it is published.

4.53 The concept of approved forms is used in the tax laws to provide administrative flexibility to specify the precise form of information required and the manner of providing it. This includes the particular electronic format and form of electronic transmission, which is necessary for the Commissioner to make the information available as soon as practicable using administratively convenient processes.

Correction of errors

4.54 If a CBC reporting parent becomes aware of a material error contained in any of the selected tax information that has been published, the CBC reporting parent must, no later than 28 days after the entity becomes aware of the material error, publish information that corrects the material error by giving a document containing the information to the Commissioner in the approved form. [Schedule 4, item 1, paragraph 3DB(1)(a) and subsection 3DB(2) of the TAA]

4.55 Materiality is a matter of professional judgement. 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, and would be required to be recognised and corrected.

4.56 If a CBC reporting parent becomes aware of a non-material error in any of the selected tax information that has been published, the CBC reporting parent may publish information that corrects the error by giving a document containing the information to the Commissioner in the approved form. This may cover circumstances such as where an entity makes a typographical error that it seeks to correct. [Schedule 4, item 1, paragraph 3DB(1)(b) of the TAA]

4.57 Upon receiving the document containing the information to correct the material or non-material error from the CBC reporting parent, the Commissioner must make the information available on an Australian government website as soon as practicable. [Schedule 4, item 1, subsection 3DB(3) of the TAA]

Disclosure of protected information

4.58 Secrecy provisions in Division 355 of Schedule 1 to the TAA apply to protected information of entities. These provisions make it an offence for a taxation officer to disclose protected information, except in certain circumstances.

4.59 Imposing a statutory duty on the Commissioner to publish information provided by CBC reporting parents under sections 3D and 3DB ensures that the publication does not contravene the existing taxpayer confidentiality provisions of the TAA. This is because the publication falls within an existing exception (in subsection 355-50(1) of Schedule 1 to the TAA) for disclosures in the performance of a taxation officer's duties. [Schedule 4, item 1, subsections 3D(4) and 3DB(3) of the TAA]

Penalties for non-compliance

4.60 Australian resident entities will be subject to the penalties under section 8E of the TAA if they commit an offence under section 8C of the TAA by refusing or failing to comply with their obligation to publish the selected tax information. Section 8C of the TAA has been amended to ensure it applies to this obligation. [Schedule 4, item 2, paragraph 8C(1)(ab) of the TAA]

4.61 A CBC reporting parent is liable to an administrative penalty if the entity is required to publish information under section 3D of the TAA and fails to do so on time. That is, if the entity does not publish the information by giving the information to the Commissioner in the approved form within 12 months after the end of the reporting period to which it relates. [Schedule 4, item 3, subsection 288-140(1) of Schedule 1 to the TAA]

4.62 A CBC reporting parent is also liable to an administrative penalty if the entity is required to publish information to correct a material error and fails to do so on time. That is, if the entity does not publish the information to correct the material error by giving the information to the Commissioner in the approved form within 28 days of the entity becoming aware of the error. [Schedule 4, item 3, subsection 288-140(1) of Schedule 1 to the TAA]

4.63 An entity will be penalised 500 penalty units for each period of 28 days or part of a period of 28 days starting on the day when the information is required to be published and ending when the entity provides the information to the Commissioner (up to a maximum of 2,500 penalty units). The administrative penalty incentivises CBC reporting parents to comply with these reporting obligations and is consistent with the penalties for failing to lodge the confidential CBC reporting statements required under Subdivision 815-E of the ITAA 1997. [Schedule 4, item 3, subsection 288-140(2) of Schedule 1 to the TAA]

Commencement, application, and transitional provisions

4.64 The amendments commence on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent.

4.65 The amendments apply to reporting periods commencing on or after 1 July 2024. For example, where an entity has a reporting period ending 31 December, the first reporting period for that entity commences on 1 January 2025. [Schedule 4, item 4]