The Australian Parliament passed two tranches of legislation in late November resulting in significant disclosure obligations on large private groups:
- mandatory public country-by-country reporting of tax information (including tax information of a foreign parent) (Public CbC Disclosure Rules); and
- reporting of Pillar Two tax positions in public accounts (as a result of the Pillar Two rules shortly being ‘substantively enacted’ for the purposes of amended accounting standards) (Pillar Two Disclosure Rules).
Both rules will bring to light information which was previously kept out of the public spotlight, which will particularly impact private groups.
Public CbC Disclosure Rules will apply to years starting on or after 1 July 2024. Reports must be submitted 12 months after year end.
The Pillar Two Disclosure Rules will likely come into effect prior to 31 December. This means that affected entities should review the implications of the Pillar Two provisions to ensure they make accurate discloses in their financial statements, including in interim reports for the period ended 31 December 2024 (as applicable). The Pillar Two rules will take effect retrospectively from 1 January 2024.
‘Public’ CbC Disclosure Rules
The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 was passed on 29 November 2024 and has now received Royal Assent. Among other things, the legislation will introduce a ‘public’ CbC reporting regime to require certain large multinational enterprises to provide certain tax information to the Australian Tax Office on a CbC basis for forty jurisdictions (confirmed in Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024 issued on 12 December 2024), which will then be published on an Australian government website. Reporting is required for periods (for which audited consolidated financial statements are prepared) that start on or after 1 July 2024, with reports due within 12 months of year end (first reports will be due at the end of 2026).
The new reporting requirements affect Australian headquartered multinational groups but also foreign owned multinational groups if their Australian operations have an aggregate turnover of $10 million or more. The CbC reporting parent is required to do the reporting, which differs to the existing OECD CbC obligations, under which an Australian tax resident within the group is required to report. Existing CbC obligations (initiated by the OECD) continue to apply, and this new ‘public’ regime means there will be parallel obligations for multinationals to meet in Australia.
These ‘public’ CbC obligations go further than the OECD CbC and EU ‘public’ CbC obligations in a number of respects. In particular, the CbC reporting parent must provide a statement on the group’s approach to tax and reasons for the difference between the income tax accrued and the amount of income tax due if the income tax rate in the applicable jurisdiction were applied to the profit or loss before income tax. Further, amounts published must be based on amounts ‘as shown in’ the audited consolidated financial statements (other existing CbC obligations allow for a wider choice of source of data).
Administrative penalties apply for failure to provide the information to the ATO on time, and for a failure to correct a ‘material’ error on time (the maximum penalty is currently $825,000).
Exemptions are available if the Commissioner considers the disclosure of information would impact national security, breach Australian or other laws, or would result in substantial ramifications for an entity by revealing commercially sensitive information. Further guidance is expected in February 2025 on how the exemption powers will be applied.
The ATO issued web guidance on 11 December on these new ‘public’ CbC obligations, but much of the detail remains to be provided in further guidance next year.
On a related note, the ATO has also recently issued guidance on their approach to the exemptions from OECD CbC obligations, which will apply from 1 January 2025. The guidance makes clear that exemption requests which are not supported by adequate evidence or that are not lodged in accordance with the exemptions framework are likely to be declined. Of particular note is the statement that exemptions to ensure conformity with the OECD Action 13 (CbC) recommendations will be granted in only very limited circumstances.
Pillar Two Disclosure Rules
On 26 November 2024 and 27 November 2024, the Pillar Two Bills passed Parliament and have now received Royal Assent. We expect the subordinate legislation (which contains the underlying computations) will be registered shortly.
Our earlier alert provided a detailed summary of the Pillar Two rules.
While the full suite of Pillar Two rules will take effect the day after the subordinate legislation is registered, the Domestic Minimum Top-up Tax (DMT) and the Income Inclusion Rule (IIR) apply to fiscal years beginning on or after 1 January 2024 and the Undertaxed Profits Rule (UTPR) will apply to fiscal years beginning on or after 1 January 2025.
The Pillar Two rules will apply to groups with a consolidated revenue of >EUR 750 million in two of the preceding four fiscal years (subject to exceptions).
Lodgement of financial statements with ASIC
Private companies may have an obligation to lodge audited reports with the Australian Securities and Investments Commission (ASIC) depending upon their size (being, small or large) and ownership status. Financial statements lodged with ASIC are generally publicly accessible.
In relation to foreign-controlled companies, the ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204 provides an exemption where the company is not part of a ‘large group’. A group is a ‘large group’ when, on a combined basis, it satisfies at least two of the following criteria for the financial year of the company in question:
- its combined Australian revenue for the financial year is $50 million or more (subject to any regulations being made);
- the combined value of its Australian gross assets at the end of the financial year is $25 million or more (again subject to regulations); and/or
- it has 100, or any other prescribed number, or more, employees at the end of the financial year (part-time employees are counted as an appropriate fraction of a full-time equivalent) in Australia.
Lodgement of financial statements with the ATO
Even if an entity is not required to lodge financial statements with ASIC, it may be required to lodge them with the ATO.
Separately to the Public CbC Disclosure Rules, section 3CA of the Taxation Administration Act 1953 (Cth) requires CbCR entities to prepare and lodge ‘general purpose financial statements’ (GPFS). GPFS must be prepared in accordance with accounting principles and be lodged with the ATO for each income year, unless the entity (or its parent) lodges qualifying GPFS with ASIC for the period.
The ATO must provide the GPFS to ASIC, following which they will become publicly accessible.
Pillar Two disclosures in financial statements lodged with ASIC and/or the ATO
Consistent with foreign accounting standards, the Australian Accounting Standards Board amended AASB 112 (Income Taxes) in 2023 to introduce:
- a mandatory temporary exception to accounting for deferred Pillar Two taxes; and
- targeted disclosure requirements designed to assist with a better understanding of the entity's exposure to Pillar Two taxes. Examples of information an entity might disclose include qualitative information such as the main jurisdictions in which exposures to Pillar Two taxes might exist and quantitative information such as an indication of the proportion of an entity's profits that might be subject to Pillar Two taxes, and the average effective tax rate applicable to those profits.
The disclosure requirements apply when the Pillar Two rules are ‘substantively enacted’ or ‘enacted’. This is likely to occur prior to 31 December, meaning the requirements may start to apply from this half year onwards.
