New public country-by-country reporting requirements in Australia and the European Union will require certain multinational enterprises to publicly disclose tax and financial information, increasing compliance obligations and transparency risks.
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New public tax transparency obligations apply to non-European Union (EU) headquartered multinational enterprises (MNEs) with global operations. These two new regimes include MNEs based in the United States, the United Kingdom, and other jurisdictions. The reports for these two new regimes―the Australian Public Country-by-Country (CbC) Reporting regime and the EU Public Reporting Directive―will be published for public access. The following are the two new reporting requirements imposed recently:
The Australian regime applies to the global parent entity (the non-EU parent, whether the United States, the United Kingdom, or other jurisdictions), not the Australian subsidiary. Threshold Requirements
Annual global consolidated revenue of AUD $1 billion or more
Australian-sourced turnover of AUD $10 million or more in the reporting period
At least one Australian resident entity or permanent establishment in the group
Who Files?
The non-EU parent entity files directly with the Australian Taxation Office (ATO). The Australian subsidiary has no separate filing obligation.
The EU regime is triggered by the presence of large or medium-sized EU subsidiaries or branches of non-EU parents. Threshold Requirements
Group consolidated revenue exceeding EUR 750 million for two consecutive years
At least one large or medium-sized EU subsidiary or branch*
* A medium-sized or large EU subsidiary is one that meets two of the following three criteria: (i) balance sheet total > EUR 5 million, (ii) net turnover > EUR 10 million, or (iii) average number of employees > 50. For branches, only the net turnover threshold is relevant (typically EUR 8–10 million, depending on the member state). These thresholds must be met for two consecutive financial years. Note that some member states have implemented slightly different thresholds. Who Files? The non-EU parent can designate a single EU subsidiary to file on behalf of the entire group. All other EU subsidiaries are then exempt.
Some companies may be inclined to treat public CbC reporting as a low-priority compliance exercise. Proactive engagement will have a great impact.
Reputational Stakes Are High
Unlike confidential CbC reporting filed with tax authorities, public CbC reporting data will be accessible to anyone—journalists, competitors, customers, employees, and investors. As the data within the reports will reveal your group’s tax practices, this is information you will want to control rather than allow others to define it. Information will be disclosed regarding the locations of corporate profits, which should match location of employees and assets. Inconsistencies between public reporting and other disclosures, such as voluntary sustainability reporting, could be recognized.
Data Consistency Is Critical
Large MNEs already face multiple overlapping tax transparency obligations, such as confidential CbC reporting to tax authorities, Pillar Two GloBE Information Return, and domestic tax strategy reporting.
Although these reports use different definitions, jurisdictional scopes, and data sources, consistency is critical. Discrepancies should be reconciled to avoid investigations by tax authorities and stakeholders.
Take the Advantage in Narrative
Preparing early can dictate the corporate message. Delaying reporting can allow others to interpret data, often resulting in incorrect or uncharitable interpretations. Key stakeholders should be briefed before publication and media responses prepared in advance. These reporting requirements allow the opportunity to present voluntary contextual information to elaborate on mandatory disclosures.
Governance Expectations
As these disclosures will be publicly available, board and audit committee engagement is critical. The board should provide applicable signoffs for the approach to tax statement (Australia) and auditor verification requirements (EU).
The Cost of Errors
In addition to the financial penalties (up to AUD 825,000 in Australia, up to EUR 1,000,000 in some EU states), the cost to corporate reputation of noncompliance or incorrectly prepared disclosures can be significant. During this time of increased scrutiny of corporate tax practices, public CbC reporting will become a key input for environmental, social, and governmental ratings; customer procurement decisions; and public trust.
Ryan’s international tax professionals can assist with complying with the nuanced reporting requirements of these and other reporting regimes. Ryan has developed a new tool that creates the filings for both the EU and Australia and provides analytics and visuals to help the taxpayer know what will become public. Deadlines are approaching soon for many multinational companies, so it is important for affected companies to prepare their filings in the near future.
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals.
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