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Proposed changes to the short form local file
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  • 8 minute read
  • October 09, 2024

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The ATO has proposed changes to the short form local file for country by country (CBC) reporting to address concerns regarding insufficient information provided in the current system.

9 October 2024

In brief

The ATO has announced material changes to the short form local file which will impact all Australian taxpayers required to lodge a local file as part of their country by country (CBC) reporting obligations for periods starting on or after 1 January 2024. The proposed changes to the short form are the most significant change in CBC reporting since its inception.

Addendum 21 October 2024: Further to its ongoing consultation with stakeholders, the ATO has provided a further welcoming update on its proposed approach for the short form local file relevant to country by country reporting. Read more in our Tax Alert dated 21 October 2024.

In detail

In May 2024 the ATO has announced changes to the short form local file which will impact country by country reporting entities (CBCREs) in respect of reporting years starting on or after 1 January 2024. 

Existing short form requirements 

The current short form is part of the annual country by country (CBC) reporting requirements in Australia and is completed by all taxpayers that are required to lodge a local file. The current short form requires taxpayers to provide information in relation to the following matters:

  • a description and copy of the organisational structure of the reporting entity, including a description of the individuals to whom local management reports and the countries in which such individuals maintain their principal offices 
  • a description of the reporting entity’s business and strategy 
  • a description of any business restructures, including any changes in related party financing, affecting the reporting entity in the current or previous income year, and an explanation of its significance
  • a description of any transfers of intangibles in the current or previous income year, and an explanation of its significance; and
  • a list of key competitors of the reporting entity. 

The information is presented in the current short form in free text format with the ability to include attachments as relevant. 

Guidance is published by the ATO on its website in relation to the content requirements of the current short form and this is updated periodically. 

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Short form changes 

The ATO has announced changes with effect from 1 January 2025 (for reporting periods commencing on or after 1 January 2024) that will incorporate the short form section into the Message Structure Table (MST) of the local file and master file XML schema, which was developed by the ATO for lodgment of CBC statements. This means that the short form will use a similar lodgment format to the local file Part A and B going forward. 

The ATO has stated that the changes are proposed to alleviate concerns from the ATO that the current approach is not delivering a sufficient level of information to detect higher risk international tax structuring and profit shifting arrangements. This is due to: 

  • inconsistent reporting content 
  • inconsistent reporting format; and
  • incomplete information in some reports not satisfying the level of reporting required in the short form instructions.

The proposed short form changes seek to standardise the format and level of detail required in the short form. New instructions will be issued to set out key definitions and instructions on how to complete the form prior to December 2024. A draft version of the guidelines was released as a part of a public consultation process in August 2024.

Some of the more significant elements of the proposed changes to the short form are set out below.

Business strategy and key competitors 

  • All business lines or functions will need to be included in the new short form.
  • For each of the business lines and functions, details will need to be provided in relation to the strategies employed and the extent of overlap with other functions. 

Organisational structure 

  • The short form will require reporting on both direct (formal) reporting relationships and indirect (effective) relationships. Where the most senior Australian based individual reports effectively to multiple individuals overseas, then each of those relationships will need to be identified and reported. 
  • The most senior Australian based individual is to be considered by reference to each particular function or activity and not the Australian business as a whole. For example; if an Australian R&D manager is part of a project team and effectively reports to an overseas person (or multiple persons in the case of involvement in multiple projects) then each of those relationships will need to be reported. This will be the case even where the Australian R&D manager formally reports to a more senior Australian based individual.
  • The existing disclosures require reporting relationships as at the end of the year. The proposed changes will require all reporting relationships throughout the year to be disclosed, with the dates of any changes identified and disclosed.
  • The full name, location of principal office and country of residence for all individuals to whom Australian employees report will be required to be disclosed. 

Restructures or new arrangements involving intangibles 

The proposed short form collapses the requirements for the disclosure of both business restructures and changes in relation to intangibles into one section.

  • For entities that report a significant restructure, the following specific details of the restructure will need to be included:
    • code (from a selection of high-level types of restructures) indicating the nature of the restructure
    • total capital value of the restructure arrangement 
    • Australian tax impact (anticipated increase, decrease or neutral tax impact) 
    • the commercial context and impact of the restructure/arrangement 
    • description of the global tax impact of the restructure/arrangement 
    • for each step of the restructure (regardless of whether a step plan exists) 
    • the date 
    • identification of the parties (including the name and residency of any international related parties) 
    • details of any connected change in transfer pricing functional characterisation
    • a copy of the step plan (if there was one).
  • The draft guidance defines a restructure as including:
    • changes in ownership, equity or related party financing; or
    • changes in the tax residency or entity classification of your controlled entities or of entities which control you (examples include an upstream controlling entity that makes a check-the-box election for US tax purposes or a new overseas ultimate parent entity). 
  • Any transactions between overseas members of the group connected to a restructure will also need to be disclosed. The definition of this is potentially broad.
  • A restructure is considered ‘significant’ if the relevant change involved assessment of the Australian tax impact or tax risk by internal or external tax advisors to the global group (regardless of whether it was determined that there would not be any Australian tax adjustment or tax impact from the changes). 
  • Significant changes in related party debt include introduction of new or termination of existing related party debt arrangements or any significant changes in the terms or conditions.
  • Any new arrangements involving the transfer, licence or creation of intangibles will need to be reported in the same structure as above. 

Next steps 

The ATO is undertaking a targeted consultation with taxpayers, advisors and industry bodies and expects this to conclude in October 2024. 

The ATO are expecting to issue updated (and final) short form instructions before December 2024. 

The takeaway

Additional information will be required to complete the short form for all CBC reporting entities required to lodge a local file, some of which may be offshore. CBC reporting entities should start planning for the data required to complete the short form as part of their 2024 CBC reporting. Please reach out to your PwC International Tax contact or contact us.

Contact us

If you would like to further discuss the draft legislation, reach out to our team or your PwC adviser.

Nick Houseman

Australian Transfer Pricing Leader, Sydney, PwC Australia

+61 421 051 314

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Emily Falcke

Partner, Global Tax - Transfer Pricing, Brisbane, PwC Australia

+61 409 476 046

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Hamish McElwee

Partner, Tax, Perth, PwC Australia

+61 434 350 203

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Georgie Hockings

Managing Director, PwC Australia

+61 417 534 787

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