As part of the Base Erosion and Profit Shifting (BEPS) action plan, Country-by-Country (CbC) reporting applies to a significant global entity, if it is a global parent entity with an annual global income of at least $1 billion, or a member of a group of entities consolidated (for accounting purposes), where the global parent entity has an annual global income of $1 billion or more.
Entities reporting have to lodge three CbC statements including the CbC report, a master file, and a local file.
The ultimate aim of the new reporting rules is to capture and reduce profit shifting and tax avoidance.
Facing the Senate Economic Legislation Committee yesterday, ATO deputy commissioner Mark Konza revealed that the tax office has now received 42 CbC reports, 1,463 master files, and 2,116 local files.
“Those files are taken by us and where there are very large companies, we already have compliance teams examine whether they are doing the right thing or not, so we'll feed those files to those teams, and they'll read them, analyse them, and make sure they're consistent with what they already know,” said Mr Konza.
“Where the companies are smaller, we'll use either teams of people or computers to examine them in a more mass process, looking for particular risks.”
ATO commissioner Chris Jordan said he was keen to examine the master files in particular, having never had access to that data previously.
“This is pretty cool, this is good stuff, these master files basically tell us what their transfer pricing strategies are, how they go about this - this is really rich, we've never had this sort of stuff,” said Mr Jordan.
“Local files are interesting but we can get a lot of that anyway by our work with the companies but it is the master files that are sitting at the top of the empire, so to speak, describing its overall strategy.”
Fending off calls to make the information public, Mr Konza added that Australia’s deal as one of 67 jurisdictions to have signed the CbC Multilateral Competent Authority Agreement meant it was obligated to keep to the terms of the deal.
“We are party to a global deal where all the countries got together, examined the issue and agreed these files would be transferred between the countries as long as confidentiality was maintained, so for Australia to move unilaterally to publish them would be to break a deal that we've made as a country,” said Mr Konza.
“If we move to publication, we would be breached by the OECD very quickly, and upon being breached, the other countries would not have to share their documents with us.
“We haven't even begun to read all these files, and then we have to see what is in those files that we were not already aware of. We will check these files and look for what we've not been told, but we would be disappointed if we learnt anything dramatic in the bigger companies[;] might be the smaller ones where we'll learn something along the way,” he added.
“If people are concerned about the global situation, I'd be careful to do anything that threatens the information flow, because for smaller countries, this will be the first statement of tax strategy that they will have ever got from a company.”
On the ground
Though the industry has been broadly supportive of combatting tax avoidance, administrative and compliance issues are persisting in some parts.
Tricor ChewandDormers director Tony Dormer has warned of the heavy administrative workload in complying with the reporting requirements.
“It is a major drama in terms of getting organised and people should be aware that they might be caught by CbC,” said Mr Dormer.
“We've had several overseas companies provide us with their first attempt at it and they've got to be put in the tax office format which is a major assignment. It is good work but a challenge to get right in the early years,” he added.
Likewise, HLB Mann Judd partner Peter Bembrick has seen companies trip up in accessing the full financials of their global parent entity, believing that CbC does not apply to them because they do not meet the threshold requirement.