Australia Tax Reporting Proposal Warrants Careful Implementation

In recommending the passage of a bill that proposes compulsory public country-by-country reporting measures, Australia’s Senate Economics Legislation Committee noted earlier this month that such reforms are a big step forward and will “enhance multinational tax transparency to the benefit of all taxpayers.”

But it is unclear whether the benefit of additional public disclosure of this detailed information will sufficiently outweigh the complexities, potential misalignment, and risks associated with reporting this information publicly—and in a different way than is reported elsewhere.

Sound policy informs public and targeted disclosure of multinational entities’ tax information. Equally, there are sound policy reasons for ensuring information provided to revenue authorities is kept strictly confidential. It is a question of balance.

The Australian government should heed industry recommendations to conduct a post-implementation review of the law, if passed. After all, planning is one thing, but practice is another. There is much at stake to warrant careful planning and robust testing.

Australia has been at the forefront of the global base erosion and profit shifting project and is now proposing to adopt some of the strongest compulsory public country-by-country reporting measures worldwide. The bill presents a pared-back version of controversial measures proposed in the 2023 and 2024 exposure drafts. However, because proposed new legislation is principally based on the GRI 207 reporting standard, as opposed to OECD and EU reporting guidance, its system differs from others and captures a broader array of information.

This has been a key criticism of the bill. But the Australian parliament appears to support a broader system “to achieve the greatest improvement in tax transparency in the Australian context.”

Key additional requirements under the Australian system include:

• Affected entities must provide a broad statement about their global approach to taxation.
• Revenue from third parties must be reported distinctly from revenue from related parties.
• The list of specified jurisdictions to be provided on a country-by-country basis is likely to be longer than the EU’s and is intended “to complement EU directive 2021/2101 to support the policy intent of meaningful improvements to global multinational tax transparency.” (The list will be informed by the Commissioner of Taxation’s International Dealings Schedule and will be provided via ministerial direction. The final list likely won’t be released until the law is passed.)

Potential anomalies or information gaps are a significant risk for entities (and their internal tax functions) reporting under these differing systems. Such gaps would at best cause confusion and at worst result in ill-informed and cynical observations as to why they exist.

This seems contrary to the goal of the Organization for Economic Cooperation and Development’s BEPS project, a key focus of which is global harmonization, consistency, and coherence.

The confidential provision and exchange of detailed tax information for certain multinational entities has been part of BEPS for some time, including in Australia. This raises the question of what the added benefit of making this information available to the general public is, and whether that benefit outweighs any associated risks.

An explanatory memorandum for a 2023 bill that would require Australian public companies to disclose information about subsidiary entities says that from a tax perspective, more public disclosures will help “to encourage behavioral change in terms of how companies view their tax obligations, including their approach to tax governance practices, decision-making around aggressive tax planning strategies and potential simplification of group structures.”

The counterargument is that the Australian Taxation Office has been pursuing this objective for some time. In the past few years it has managed to influence behaviors through comprehensive, intensive compliance and audit activities; engagement with taxpayers; publishing more guidance; testing cases in courts; and working with the government to design new and targeted laws.

There is clearly a purposeful gap between the level of information the ATO can obtain and what is available to the general public. The ATO couldn’t properly administer the tax laws without comprehensive disclosure from taxpayers. Taxpayers also have a right to expect that confidential, and often commercially sensitive, information stays that way.

The proposal isn’t completely clear on how commercially sensitive information will be treated. A number of submissions were made to the Senate Committee detailing concerns about such information being released to the general public and misused by competitors and others.

While the new bill provides a discretion for the ATO to exempt certain specific and/or classes of entities and certain information on a year-by-year basis, there isn’t yet detailed guidance about what information will qualify for such exceptions and the process to apply for them.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Niv Tadmore is partner at Jones Day in Melbourne, advising clients on conduct and resolution of tax audits, tax disputes, and large-scale transactions.

Alexandra Fraser is an associate at Jones Day in Melbourne, focused on tax controversy and large Australian and multinational corporations.

These are personal views or opinions of the authors; they do not necessarily reflect views or opinions of Jones Day.

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