The ATO has introduced stricter criteria for exemptions from filing country-by-country reporting statements. Many taxpayers who previously relied on exemptions will now need to prepare and lodge additional information with the ATO.
These changes reflect the ATO's continued focus on international tax risks and coincide with the expansion of local file reporting requirements effective from 1 January 2024. In our view, the stricter criteria and the expansion of the local file reporting requirements will increase the compliance burden for taxpayers that do not present substantial transfer pricing risk, and that the information provided, in the majority of cases, is unlikely to substantially assist the ATO in risk profiling and identification.
These developments are significant and country-by-country reporting entities (CbCREs) need to be aware of these changes as they may require master files and/or local files to be prepared for the first time.
The changes are relevant for exemption requests submitted to the ATO from 1 January 2025 and for local files lodged for reporting periods starting on or after 1 January 2024.
What these changes mean for you
If you are a CbCRE, you should:
- be prepared to lodge the local file as any exemptions are all but gone
- co-ordinate with head office with preparing the master file as exemptions will only be provided in limited circumstances
- expect a rigorous process for exemption requests made with the ATO as the previous self-assessment regime is replaced with an evidentiary approach
- be aware that the changes reflect the ATO’s increased scrutiny on international risk risks.
Key changes
From 1 January 2025, the ATO has revised the exemption request process and reined in circumstances where exemptions will be granted for filing country-by-country reporting statements (i.e., local file, master file and country-by-country report) with the key changes summarised below.
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Change
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Exemptions – Prior to 31 December 2024
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Exemptions – From 1 January 2025
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Process
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Taxpayers able to self-assess their eligibility for exemptions from filing one or more country-by-country reporting statements under the ‘fast-track’ exemption framework.
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The self-assessed ‘fast-track’ exemption framework is now a formal process where the ATO reviews each request based on the evidence submitted.
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The framework is available where the taxpayer’s circumstances met one or more of the ATO’s seven pre-defined scenarios. These scenarios covered exemptions for country-by-country report, master file and local files and, depending on circumstance, could be granted for one to three years.
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The scenarios where the ATO will likely grant exemptions has reduced to three and no longer includes the local file.
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Exemptions may be provided outside the seven pre-defined ‘fast-track’ scenarios through a formal exemption request process.
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Outside of these three scenarios, the ATO will only grant exemptions in exceptional circumstances.
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Local file
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For reporting periods commencing before 1 January 2024, taxpayers received automatic exemptions from filing the local file under the ‘fast-track’ exemption framework where they had no international related dealings.
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For reporting periods starting on or after 1 January 2024, this exemption is no longer available. Exemptions for local files will only be granted by the ATO in exceptional circumstances.
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Master file
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Exemption from filing the master file available for taxpayers that met the following criteria:
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The previous master file exemption criteria is no longer available. Exemptions for the master file will only be granted in exceptional circumstances.
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- The annual global income of your foreign CBC reporting parent is A$1b or more but falls below the CBC reporting foreign currency threshold in the jurisdiction of the foreign CBC reporting parent, and
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- Australia is the only jurisdiction in which the global accounting group has an obligation to lodge a master file.
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Country-by-country report
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Exemption from filing the country-by-country report available for taxpayers that met the following criteria:
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Previous exemption criteria remain available, but exemptions will now be granted for only one year at a time.
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- 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, or
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- The annual global income of your foreign CBC reporting parent is A$1b or more but falls below the CBC reporting foreign currency threshold in the jurisdiction of the foreign CBC reporting parent.
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Exemptions were available for one to three years.
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We’re here to help
It is important for CbCREs to be aware of these updates and to account for them when completing their country-by-country reporting statements. Taxpayers that have historically received exemptions from lodging the master file or local file, must take note as these exemptions may no longer be available, and the additional work required to comply may be significant.
Please contact Jason Casas, Christine Cornish, Keith To, if you wish to discuss the above or the broader implications of this outcome further.
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