House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Attachment 3: Impact Analysis - Multinational tax transparency - country by country reporting

Introduction

On 22 June 2023, the Government introduced into Parliament the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. The Impact Analysis accompanying the Bill addressed the three tax transparency elements of the Government's election commitments (as announced in the October 2022-23 Budget), including considerations which informed the public CBC measure, even though only one transparency measure was included in the Bill. This reflected the Government's commitment to transparency on the policy development process.

This is an addendum to the original Impact Analysis. It includes updated information on the public CBC measure, reflecting the key developments of the revised policy settings in line with the Government's announcement to defer the introduction of the measure to allow for further industry consultation on elements of the policy (the Assistant Minister's media release of 22 June 2023 refers).

Timeline of events

Public consultation – summary

Treasury consulted publicly on the revised exposure draft legislation from 12 February to 5 March 2024. 42 written submissions were received (including 5 confidential) – the public submissions are available on the Treasury website. Treasury held in-person meetings with individual entities, industry representatives (domestic and foreign), and foreign government officials.

In general, civil society stakeholders continued to support the policy intent to improve corporate tax transparency. The business community broadly welcomed the revised draft and acknowledged the closer alignment with the EU regime – while they continued to claim the EU regime should be adopted (on the basis this would reduce compliance costs for large multinationals), there was a recognition the revised draft largely addressed previous claims the initial measure was too broad and would give rise to unintended consequences (excessive compliance costs and taxpayer confidentiality concerns). However, some stakeholders continue to claim the cost of complying with public CBC outweighs any public benefit, noting that the ATO already has access to a lot of this information and that without additional context the public would have limited ability to interpret the data.

There were three broad themes emerging from the consultation: clarity on the exemptions provision, clarity on the specified jurisdictions list (disaggregated public CBC reporting), and preferences for the EU regime. The Government responded to this feedback principally via further guidance in the explanatory materials. Legislative changes were relatively minor, limited to technical drafting changes to provide additional clarity on interpretation.

Exemptions provision

The draft legislation provides a provision allowing entities to request an exemption from publishing particular kinds of information. Corporate stakeholders requested further clarity on how this would apply, particularly regarding commercially sensitive information.

The Government responded to this feedback by augmenting the explanatory memorandum to include specific examples which the Commissioner (ATO) would have regard for in considering exemption requests. The legislation maintains a coherent principles approach.

Specified jurisdictions – disaggregated CBC reporting

The draft legislation was revised to narrow the scope of jurisdictions in which MNEs would need to disclose tax information. The legislation was also revised to allow entities the option to voluntarily publish disaggregated reporting for all jurisdictions in which they operate in, or otherwise report on an aggregated 'rest of the world' basis. The original policy settings required entities to report on all jurisdictions in which they operate.

Civil society stakeholders suggested broadening the draft list to include Ireland, the Netherlands, Luxembourg, the UAE, Puerto Rico and Trinidad and Tobago (as examples). Corporate stakeholders sought further details on the criteria underpinning the list, asserting that the list should be narrowed in line with the EU approach.

Ultimately, the specified CBC jurisdiction list is a Ministerial determination. The draft list of jurisdictions is informed by the ATO's specified country list (per the international dealings schedule for international transactions). It reflects an Australian perspective having regard for our tax settings and multinational entities' observed arrangements, and it is acknowledged that the proposed CBC list is broader than the EU. For public CBC purposes, a number of factors would be considered in finalising the list, including: trade and investment flows relative to contracted international related party transactions, employee numbers in the offshore jurisdiction (relative to the related party expenditure/income flows) and the type of assets subject to the related party transaction (e.g. royalty/intangible or interest payments). Jurisdictions in scope of the EU public CBC rules were not included in the list, reflecting a complementary approach to global public CBC rules.

The Government intends to respond to stakeholder feedback via the explanatory statement supporting the Ministerial determination (expected to be signed after legislation is in place).

EU regime v Australian regime

Corporate stakeholders suggested the Government should adopt the EU regime, claiming the EU regime is an adequate model for public CBC reporting. This would include aligning with the EU data labels, exemption process, reporting process, and specified jurisdiction list. Stakeholders claimed this would minimise compliance costs, noting Australia's proposed approach would be duplicative.

The Government responded to this feedback via minor amendments to the legislation, and a number of text amendments to the explanatory memorandum to provide further clarity on the context of the Government's policy and the rationale for adopting the GRI's model as the base.

Proposed policy revisions – summary

Impacts associated with revised approach

The revised policy settings (above) seek to balance the policy intent of delivering a meaningful enhancement to corporate tax transparency with reducing compliance cost imposts for taxpayers. The policy revisions align more closely with the EU regime which is expected to lower compliance and transition costs for taxpayers (in practice they reduce the disclosure obligations on multinationals) while the augmented guidance in the explanatory materials is expected to address taxpayers' concerns on disclosing commercially sensitive information.