Under Australian tax laws, special reporting obligations apply to an entity that is a ‘Significant Global Entity’ (SGE). If your company is an SGE, there are four additional documents that you need to lodge with the Australian Taxation Office (ATO). These are 1) General Purpose Financial Statements 2) Local File 3) Master File 4) Country-By-Country Report. We summarise the requirements, preparation, and lodgement deadlines for these additional documents below.
1. General Purpose Financial Statements
The ATO requires corporate Significant Global Entities (SGEs) to lodge general purpose financial statements by the due date of their annual tax return if they do not lodge one with the Australian Securities and Investment Commission (ASIC).
2. Local File
The Local File has three parts – Short form, Part A and Part B. The ATO requires all SGEs to lodge a short form local file.
Local File – short form
The ‘short form local file’ requires disclosures on five aspects of your Australian businesses:
- Organisational reporting structure including overseas reporting lines for local functions
- Business and strategy
- Business restructures including significant changes in ownership structure, related party funding arrangements, assets or operations
- Transfer of intangibles including associated related party licensing or service arrangements
- Key competitors.
If you satisfy at least one of the following criteria, the short form local file is the only Local File you need to lodge.
- The aggregate value of your International Related Party Dealings (IRPDs) is less than $2 million and you have no IRPDs on the ATO’s ‘short form exceptions list‘
- You meet the ATO’s Simplified Transfer Pricing Record Keeping (STPRK) criteria for ‘small taxpayers’ and you have no IRPDs on the short form exceptions list.
- You meet STPRK criteria for ‘materiality’ and you have no IRPDs on the short form exception list.
Other SGEs need to lodge Local File Part A or Local File Part A and B, as described below.
Local File – Part A
Part A of the Local File requires detailed disclosures of each of the IRPDs, including the name and country of the tax residence of the overseas counterparty, transaction category, transaction amount, transfer pricing methodology, and foreign exchange gains and losses (for certain arrangements). If a transaction is covered by the ATO’s ‘exclusions list’, then you need to include the relevant transfer pricing documentation code in your Local File Part A.
Local File – Part B
If a transaction is not covered by the exclusions list, the ATO requires a written agreement together with any Advance Pricing Arrangements (APAs) or rulings issued by another jurisdiction under Part B, unless these have been provided to the ATO previously.
Lodgement of Local Files
The Local File is due for lodgement with the ATO 12 months after the end of your income year.
If you take up the ATO’s ‘administrative solution’ (which means that you do not need to complete questions 2 to 17 of the International Dealing Schedule), then Local File Part A is due at the same time of your income tax return. You must lodge all Local Files electronically using a valid XML Schema file.
3. Master File
A Master File describes your global operations and activities and the transfer pricing policies relating to the arrangements between members of the group. It must be in English and cover the following sections – organisational structure, description of the group’s businesses, intangibles, intercompany financial activities, and financial and tax positions.
The ultimate parent entity of the group usually prepares the Master File centrally. It is due for lodgement with the ATO 12 months after the end of the income year and must be lodged electronically using a valid XML file. However, if another Australian entity is lodging your Master file on your behalf, you can obtain relief by notifying the ATO when lodging your Local File.
4. Country-by-Country (CbC) Report
A CbC report summarises the group’s global activities and financial attributes by tax jurisdiction. It must be lodged in the approved form, following the OECD XML Schema. It comprises three tables:
- Table 1 provides an overview of income, taxes, employees and assets of the group allocated to each of the entities in the different tax jurisdictions.
- Table 2 lists all constituent entities of the group by tax jurisdiction, together with their main business activities.
- Table 3 allows the group to provide any additional information to facilitate the understanding of the information provided in the CbC report.
The group’s global parent entity usually prepares the CbC report centrally and lodges it in their jurisdiction. The report is then automatically exchanged with the tax authorities in other jurisdictions where the group operates.
The CbC report is due for lodgement with the ATO 12 months after the end of the income year, but lodgement can be satisfied by notifying the ATO of the name, tax jurisdiction and tax identification of the foreign entity that lodges the report in an overseas jurisdiction when lodging your Local File.
Support for SGE compliance obligations
If you are unsure whether your entity is a Significant Global Entity, please see our article SGE definition & requirements. The obligations for an SGE entity are significant and pose a serious financial risk unless carefully assessed and managed.
Please contact Accru Felsers in Sydney if you need assistance to review your internal processes and systems to deal with the risks of penalties and transfer pricing law changes, or with your lodgment and reporting obligations.