In brief
On the 29 November 2024 the Australian Taxation Office (ATO) released important updates in relation to country by country (CBC) reporting exemptions. The ATO has significantly scaled back the use of exemptions such that, for periods starting on or after 1 January 2024, all CBC reporting entities will be required to lodge a short form and a master file, even where there are no international related party dealings and the group is Australian with no offshore constituent entities.
In detail
For reporting periods starting on or after 1 January 2024, annual exemptions will only be provided for certain CBC documents in the following circumstances:
- for a CBC report where the CBC reporting parent is an Australian entity and there are no foreign constituent entities (previously fast-track scenario 1 - Note no master file exemption is available)
- for a CBC report where the CBC reporting parent is foreign and it does not meet the group revenue threshold in that foreign jurisdiction (previously fast-track scenario 3 - note no fast-track scenario 4 master file exemption is available); and
- for a CBC report and master file where the entity left the CBC reporting group due to a demerger or sale and it is not a CBC reporting entity in the new group (previously fast-track scenario 5).
The existing fast-track exemptions in relation to master files (existing fast-track exemptions 1 and 4) and local files (existing fast-track exemption 7 for trusts, partnerships and permanent establishments) will no longer be available from 1 January 2025.
There is no longer an automatic local file exemption where a CBCRE has disclosed in its corporate income tax return that it has no international related party transactions by responding ‘false’ to question 26. This change will apply for periods starting on or after 1 January 2024 and where at least a short form local file will be required.
The tables below provide an overview of available exemptions prior to and after 1 January 2025.
Table 1 – Fast-track Exemptions
| Fast-track exemption | Until 31 December 2024 | Exemption requests made from 1 January 2025 | Notes |
|---|---|---|---|
| Scenario 1 - You are an Australian CBC reporting parent, or a member of a group consolidated for accounting purposes with an Australian CBC reporting parent, where the group has no foreign operations. No foreign operations means no constituent entity or permanent establishment outside Australia. | CBC report and master file | Only CBC report | Master file exemption is no longer available in this scenario |
| Scenario 2 - Scenario 1 above, with the additional fact that you have no international related party dealings. | Local file | No exemption | |
| Scenario 3 - The annual global income of your foreign CBC reporting parent is A$1bn or more but falls below the CBC reporting foreign currency threshold in the jurisdiction of the foreign CBC reporting parent. | CBC report | Only CBC report | Unchanged |
| Scenario 4 - Scenario 3 above, with the additional fact that Australia is the only jurisdiction in which the global accounting group has an obligation to lodge a master file. | Master file | No exemption | |
| Scenario 5 - You were an SGE or CBC reporting entity in the preceding year due to your membership of a group of entities but left that group during the CBC reporting year due to a demerger or sale to another entity and will not be an SGE or CBC reporting entity under your new structure. | CBC report and master file | CBC report and master file | Unchanged |
| Scenario 6 - You are a foreign resident with an Australian permanent establishment. | CBC report | No exemption | |
| Scenario 7 - You have no international related party dealings and, if you are a foreign resident operating through an Australian permanent establishment, no cross-border internal dealings. | Local file | No exemption | This exemption was also used for trusts and partnerships |
Table 2 - Automatic Exemption
| Until 31 December 2024 | From 1 January 2025 | Notes | |
|---|---|---|---|
| Automatic fast-track exemption from Local file based on disclosures in the Corporate income tax return | Local file | Local file (for 2024 tax year only) | This exemption will no longer available for periods started on or after 1 January 2024. |
The ATO notes that in exceptional circumstances it will consider other exemption applications particularly where granting the exemption is required to conform with the OECD Action 13 recommendations. We are currently seeking clarity on examples of such circumstances.
Where a CBCRE is applying for an exemption the ATO has provided guidance on the types of information that should be included in the request. This includes:
- the identity of all the Australian CBC group members
- the name, tax identification number and country of residence for the CBC reporting parent
- the global financial statements in English or translated to English. The ATO notes full financial statements including notes rather than an extract or summary are required; and
- evidence to support the exemption request.
The ATO notes that an exemption request should only be submitted after the income tax return has been lodged and the financial statements are available.
The existing automatic exemptions for tax exempt entities (covered by Division 50 of the Income Tax Assessment Act 1997) and the National Tax Equivalent Regime continue to apply noting that Australian CBC parent entities with offshore operations are required to lodge a CBC report.
The takeaway
This is a significant and immediate change for many CBCREs and specifically those trusts, partnerships and permanent establishments seeking a local file exemption for the year ended 30 June 2024 given submission of tax returns and exemption requests with full supporting information must be completed on or before 31 December 2024. Corporate taxpayers that are CBCREs will receive the automatic exemption up until periods starting on or after 1 January 2024 and consequently have a little more time to plan. CBCREs seeking a master file exemption for any completed reporting period will also need to submit their requests with supporting evidence on or before 31 December 2024.
In any event it is important that CBCREs understand the impact of these changes to CBC reporting exemptions on their reporting requirements and plan their CBC compliance obligations accordingly.
Georgie Hockings
Nick Houseman
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