Australia: Proposal for increased public reporting of tax and country-by-country information

Treasury released a consultation paper (5 August 2022) on several of the government's pre-election tax policies targeting multinationals—including tax transparency proposals.

The intention is to introduce targeted tax transparency initiatives aimed at multinational entities and specifically directed towards deterring aggressive tax planning strategies while balancing privacy and confidentiality. 

The measures explored in the consultation paper would require the public release of information by more taxpayers and in more detail, and could include the publication of data on the amounts of tax large multinationals pay in the jurisdictions they operate, as well as on the number of employees in these jurisdictions—in other words, CbC reporting.

There are alternative options being considered including:

• Mandating public CbC reporting on an annual basis in accordance with European Union rules (December 2021)
• Mandating reporting in accordance with the Global Reporting Initiative's tax standard (GRI 207)
• Legislating the (currently voluntary) Tax Transparency Code and including CbC disclosures in the reporting framework

The consultation questions focus on a range of issues, including determining which entities would be in scope (e.g., whether these rules would apply to “significant global entities” only), and the compliance costs associated with adhering to these public reporting requirements.

Another initiative is the requirement to disclose material tax risks to shareholders, so as to assist shareholders to better understand their investments and any underlying tax structuring arrangements.

A key issue is the definition of a “material tax risk.” Treasury is considering whether this would apply to companies that have tax haven exposure, or alternatively whether companies would be required to make a disclosure when they have self-assessed a high-risk rating under the Australian Taxation Office (ATO) Practical Compliance Guidelines. 

The inclusion of a disclosure when the company has self-assessed a high-risk rating appears to go beyond the original pre-election announcement, which had suggested a “material tax risk” would arise if the company is doing business in a jurisdiction with a tax rate below the global minimum of 15%.

This measure proposes that all firms tendering for Australian government contracts worth more than $200,000* (inclusive of GST) would have to state their country of domicile for tax purposes. This would complement the information that tenderers are already providing under existing rules, including the provision of a Statement of Tax Record to evidence satisfactory engagement with the tax system for certain large government procurement contracts.

Matters for consultation include how this commitment would be implemented, and whether the entity’s tax residency status would be used as the definition of “tax domicile.”

Although this part of the government’s multinational tax policy has received less attention than the tax integrity measures, tax professionals have observed that it is clear that tax transparency is high on the government's agenda and that the government appears to be keen to implement reforms as part of fulfilling its election promises.

The design of the transparency measures will be important for achieving a reasonable balance between the public benefit obtained from the measure and any additional administrative and compliance burden that falls on the disclosing taxpayers. This could include trying to align with international developments when possible so that multinationals do not have a multiplicity of different requirements to comply with.

An important consideration will also be how to put the additional transparency information in a meaningful context. Up to now, certain transparency-focused initiatives have not necessarily had this component.

The closing date for submissions is 2 September 2022.

For more information, contact a KPMG tax professional in Australia:

Jenny Wong | jywong@kpmg.com.au

Philip Beswick | pbeswick@kpmg.com.au