On 1 January 2025, the Australian Taxation Office (ATO) tightened its Country-by-Country (CbC) reporting exemption framework, making it significantly harder for multinational enterprises (MNEs) to qualify for tax exemptions. With fewer fast track exemption categories, stricter documentation requirements, and increased coverage and complexity of the Short Form Local File (SFLF), MNEs must reassess their compliance obligations—or risk penalties.
This update outlines the changes to the CbC reporting landscape and the key steps that MNEs in Australia should take to stay compliant.
Revised ATO exemption guidance – What’s changed?
The default position is that an Australian entity that is part of a CbC reporting group must lodge a local file, master file and CbC report with the ATO. However, if the ultimate parent entity (UPE) lodges the CbC report in a foreign jurisdiction that has a tax-sharing arrangement in place with Australia, the ATO will not require the Australian entity to also file a CbC report.
Previously, it was possible for an Australian entity to obtain an ATO exemption from filing a CbC report despite the report not being prepared by the UPE. Also, Australian entities with no international related party dealings did not need to lodge a local file under an administrative concession provided by the ATO.
Under the ATO’s new CbC reporting rules, exemptions are strictly limited to the following 3 categories:
| Exemption category | Exemption description | Exemption availability |
| Australian-only operations | Australian CbC reporting parent entities, or members of a group consolidated for accounting purposes with an Australian CbC reporting parent, that have no foreign operations (including foreign subsidiaries or branches). | CbC report |
| Threshold discrepancy | Australian entities who fall into the Australian CbC reporting rules where aggregated turnover of the MNE group exceeds AUD $1 billion as a result of conversion of the group turnover from a foreign currency into AUD, whilst the group turnover is under the foreign reporting threshold (e.g. €750m) based on its applicable reporting currency. | CbC report |
| Corporate restructuring | Entities that were part of a CbC reporting group in the preceding year but have exited the group during the current reporting year due to a demerger or sale to a third party, and do not anticipate being part of a CbC reporting group in the foreseeable future, may be exempt from filing both the CbC report and the master file. | CbC report and master file |
The ATO has also withdrawn its administrative concession in respect of the local file, meaning that all Australian CbC reporting entities must file a local file, even if they have no international related party dealings. Practically, they will need to file the SFLF at a minimum.
Lodging an exemption request
The ATO emphasises that exemptions outside the above specified categories will be rare and granted in exceptional circumstances only. MNE’s seeking an exemption will need to provide comprehensive documentation to ensure that their application adheres to the ATO’s criteria. Consistency between information provided in the exemption application and disclosures in associated tax returns and financial statements is critical – any inconsistencies could lead to rejections.
The exemption report must set out all required details to be considered and address the following key elements:
- An analysis of why the entity making the request is subject to Australian CbC reporting rules.
- An explanation of how the taxpayer meets the circumstances of the exemption category for which they are applying and set out all the relevant facts or circumstances.
- For exceptional cases falling outside the three above categories, additional information must be provided to substantiate why an exemption should be provided.
- Source materials to support the taxpayer’s analysis and conclusions must be provided to the ATO, such as:
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- A breakdown of the shareholders of the UPE to demonstrate that it is the UPE (and not controlled by any other entity).
- The financial statements of the UPE group (to show that there are no other income items in the P&L that may result in the group exceeding their local reporting threshold)
- Details regarding acquisitions and divestments,
- Calculations of Australian equivalent amount of global turnover.
Applicability of the revised guidance
These changes apply to all CbC exemption requests submitted to the ATO after 1 January 2025, regardless of the income year they relate to.
Removal of the administrative relief from the local file is applies to reporting periods starting after 1 January 2024 i.e. first applying to financial years ending 31 December 2024 and 30 June 2025.
What’s next?
To navigate the revised CbC reporting landscape MNE’s should consider the following:
- If your Australian entity is a CbC reporting entity that has not prepared a local file as it had no international related party dealings, it will need to start filing a local file. You should ascertain which year this will first impact you. The local file can be lodged at the same time as your income tax return, or one year after the relevant year end.
- If your UPE has not lodged or will not lodge a CbC report in its foreign jurisdiction, then enquiries will need to be made to understand why.
- If an exemption for a CbC report is required, engagement with the ATO must occur early, as the exemption process can take some time to be completed.
Significant changes to the SFLF
Local File changes
The ATO released a new detailed design for the Australian local file (including instructions) that must be applied to all reporting periods beginning on or after 1 January 2024.
Historically, taxpayers were required to provide a SFLF in free-text form. Now, the SFLF must be prepared in the standardised message structure table (MST) format which will be converted to an XML format (similar to existing Local File Part A and B) designed by the ATO.
This means that disclosures are mandatory and in many instances rigid.
The information that needs to be included in the SFLF has also been broadened. One of the substantial changes relates to the disclosure of restructures. Under the new rules, the ambit of a restructure has been defined, with various arrangements being deemed to constitute a restructure. If there is a disclosable restructure, then disclosures will be required in respect of identified Australian tax risk, attachment of any transaction step plans obtained by the group in respect of the restructure, and provision of commentary on the global tax impact, Australian tax impact, and commercial impact.
The SFLF instructions explicitly indicate that disclosures regarding “restructures” are not related just to transfer pricing risk but will also include other Australian tax risks such as Part IVA (anti-avoidance rules), withholding tax impact, Division 832 (hybrid mismatches), Division 855 (capital gains and losses for foreign residents), Division 974 (debt/equity rules) and tax deductibility.
What’s next
MNEs should familiarise themselves with the new requirements and investigate whether there have been any disclosable business restructures in the group. Given the broadened scope and changed format, our recommendation is to start preparing the local file early to avoid late lodgements.
At William Buck, we understand that these revised CbC reporting requirements introduce additional paperwork and compliance burdens for multinational enterprises. However, failure to meet these new obligations can result in significant ATO penalties, making it crucial to ensure your tax reporting is accurate and compliant.
Our team of experienced tax professionals is equipped to guide you through these complexities, helping you prepare and submit the necessary documentation with confidence. Please get in touch with one of our tax experts to see how we can assist you.
