Quantera Global media release (Aug 2016): Country-by-Country reporting - Local File design finalised


In December 2015, the Australian Government passed the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015, which included Australia’s new Country-by-Country Reporting (“CbCR”) rules.  The CbCR rules will apply to years beginning on or after 1 January 2016, in line with the OECD’s recommendation.  It applies to all Australian residents and non-residents operating in Australia who are members of a significant global entity, defined as a corporate group with annual global revenue of at least A$1 billion.  It is estimated that approximately 1,300 – 1,500 multinational groups will be affected by these new rules.

The affected multinational groups will need to provide the following three statements to the Australian Taxation Office (“ATO”):

  • A Country-by-Country report (“CbC report”) containing information on the location of the economic activity undertaken by the multinational group (including revenue, headcount, main business activities, taxable income and tax paid in each tax jurisdiction globally);
  • A Master File, providing a high-level description of the multinational group’s business operations; and
  • A Local File, describing the Australian entity’s operations and the underlying documents relating to its cross border related party dealings.

The Australian Taxation Office (“ATO”) has stated that it will accept the CbC report and the Master File prepared in accordance with the OECD recommendations.  However, in relation to the Local File, the ATO has recently finalised the design, format and the content of the information requirements to be filed in Australia by the affected entities.  It is important to note that the Local File will not be a transfer pricing report; rather, it will require certain specific transfer pricing and business information to be reported in a standardised electronic form.

Local File requirements

The design and format of the Local File has been developed by the ATO in consultation with representatives from a mix of corporations, industry groups, tax and legal advisors.  The filing requirements for the Local File has been characterised into following:

  • A short-form Local File, which will be available for very small taxpayers and taxpayers with immaterial related-party dealings; and
  • A (full) Local File, which will apply to other taxpayers.

Short-form Local File

This will be available only to taxpayers if:

  • The aggregate value of its international related party dealings is less than A$2m; or
  • Its turnover is less than A$25m for the year; or
  • Its total international related party dealings (expense or revenue) represent less than or equal to 2.5% of its total turnover for the year.

The materiality thresholds for the short-form Local File are very low, so in practice few multinationals will be eligible for this option, other than those who have minimal related party dealings.  In brief, a short-form Local File will require the following information:

  • An organisation structure, including a description of the individuals to whom local management reports and the countries in which such individuals maintain their principal offices;
  • A description of the entity’s business and strategy;
  • A description of any business restructures affecting the entity in the current or previous income year, and an explanation of its significance;
  • A description of any transfers of intangibles in the current or previous income year, and an explanation of its significance; and
  • A list of key competitors of the reporting entity.

Full Local File

A full Local File consists of the information in the short-form Local File, plus additional information such as:

Part A

Details of all inter-company transactions during the year including the transaction type, dollar values, the counterparty to the transactions, their country of residence, the transfer pricing methodology applied and the level of documentation prepared and maintained to support the arm’s length nature of those transactions.

Part B

In relation to material inter-company transactions not covered by the specifically defined “exclusion list”, the entity is required to submit the following information:

  • Inter-company agreements;
  • Details regarding foreign advance pricing arrangements (“APA”) or rulings in relation to intercompany transactions;
  • The transfer pricing methodology relied upon by the overseas related party, if known; and
  • Financial statements of the Australian reporting entity.

It is evident from the above that the Part A requirements of the Local File overlap with the disclosure requirements in Section A of the International Dealings Schedule (“IDS”).  To provide relief from this duplication, taxpayers will be permitted to File Part A of the Local File with the income tax return (which is due about six months earlier than the Local File) instead of preparing and filing Section A of the IDS.

Furthermore, it is expected that an entity that has negotiated an APA will not be exempted from the Local File. However, it is expected that these taxpayers will not be required to provide information already available and provided to the ATO.


The CbC reporting package, including a CbC report, a Master File and a Local File, will need to be filed with the ATO by the end of the year following the relevant year.  Therefore, the first reports for the year ending 31 December 2016 will be required to be filed by 31 December 2017 unless:

  • The multinational group is exceeding the A$1 billion threshold for the first time in 2016, in which case they are given an additional year to get ready for reporting; or
  • A specific exemption has been provided by the ATO (e.g., sovereign wealth funds, entities exempt from tax in Australia and/or entities with a low level of transfer pricing risk, have been specifically exempted); or
  • The ATO releases further guidance in relation to specific classes of entities that will be exempted and relevant factors that will be taken into consideration in determining whether to provide an exemption.

In this regard, the OECD has recently released guidance on the implementation of CbC reporting. One of the issues covered in the guidance relate to ‘transitional filing options for multinationals’ that voluntarily file in the parent entity jurisdiction.  This was in response to concerns about the 'gap' year where the parent company’s jurisdiction is implementing CbC reporting but will not be able to implement with respect to the fiscal period commencing from 1 January 2016, which therefore gives rise to a transition issue.

This guidance now enables those multinationals to file voluntarily with their respective tax authorities and have the tax authorities exchange the CbC report (subject to agreement) with other jurisdictions.  The guidance states that Japan, the US and Switzerland have confirmed that they will allow the voluntary filing as per the OECD guidance.  However, this is unlikely to have any significant issue for these multinationals with Australian operations given that the ATO has already provided for a 'transitional first year' exemption.  It is however important for these multinationals to confirm if similar relief is also available in other jurisdictions.  If similar transition relief is not available in other jurisdictions, then consideration on matters such as penalties, audit enquiries, investigation and potential double taxation should form the basis for determining whether it should indeed prepare and file these documents ‘voluntarily’ with the relevant authorities in parent entity jurisdictions to manage risk exposure in other jurisdictions.


The Australian Government in its budget released on 3 May 2016, announced that with effect from 1 July 2017, taxpayers that fail to satisfy their CbC reporting obligations will face administrative penalties.  Currently, the maximum ‘failure to lodge’ penalty is A$4,500.  This maximum penalty is proposed to increase to A$450,000 from 1 July 2017.  It is clear that the ATO strongly intends to ensure compliance by multinationals and failure to comply with these reporting requirements is also likely to result in further ATO scrutiny.

Quantera Global comments

The CbC report, Master File, and Local File will allow the ATO to perform a comparative risk assessment of the taxpayer in the context of the global structure.  Multinationals that have plans in place to prepare Local Files based on a standard global template may need to adjust their requirements for Australia.  A standard OECD Local File may not satisfy the Australian filing or penalty protection requirements.

It is also important to note that the preparation of a Local File does not serve as a replacement to preparing contemporaneous Australian transfer pricing documentation for local compliance purposes.  The affected multinationals will therefore have to prepare four sets of documents: a CbC report, a Master File, a Local File and a contemporaneous transfer pricing report for local compliance purposes.

A contemporaneous transfer pricing report is required to be prepared in order to establish a ‘reasonably arguable position’ and mitigate any potential penalties in the case of an ATO audit and transfer pricing adjustment.  This report must be prepared prior to filing the relevant tax return and must consider the Australian transfer pricing law.  As such, multinationals that are in the process of preparing Australian reports based on the OECD guidance will be able to leverage from this to prepare Australian transfer pricing documentation, but should not expect that an OECD report with no local customisation will be adequate for Australian penalty protection purposes.

It is evident from the above that these rules represent a significant shift in the compliance obligations of local taxpayers which will now have to actually file their Local and Master Files including the CbC report with the ATO.  Time and care will therefore need to be taken to evaluate what risks each of the impacted tax authorities may identify when they review the information required to be provided and to consider how these risks can best be managed.  The A$1 billion global revenue threshold is not very high and there will be a large number of Australian subsidiaries of multinational groups that operate in Australia as small to medium enterprises (some of which may meet the simplified documentation criteria) that will be impacted.

Although the Local and Master Files, and the CbC report, are not required to be filed until 31 December 2017, multinationals must ensure that they do not underestimate the time that will be required to ensure that their systems and processes are ready to produce the information needed to prepare the reports.

How can we help?

Quantera Global can assist corporate entities and multinational corporations in the preparation or review of the transfer pricing disclosure forms and all four types of transfer pricing documentation necessary to evidence the company’s correct application of the arm’s length principle from the perspective and rules set by the Australian Taxation Office.

About Quantera Global

Quantera Global is one of the world’s leading independent transfer pricing advisory firms, providing specialist and integrated transfer pricing services to multinationals of all sizes across the globe. We provide specialist transfer pricing consulting services throughout the Asia Pacific region, as well as in Europe and the Americas.


Douglas Fone: d.fone@quanteraglobal.com

Steven Carey: s.carey@quanteraglobal.com

Stean Hainsworth: s.hainsworth@quanteraglobal.com

Ashish Dave: a.dave@quanteraglobal.com

George Condoleon: g.condoleon@quanteraglobal.com

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