New Australia Tax Reporting Rules Set High Mark for Transparency

Australia is setting a high-water mark for tax transparency obligations with its new comprehensive public country-by-country reporting regime imposing some of the most onerous disclosure obligations globally. It requires both qualitative and quantitative information on the tax affairs of multinational groups that exceeds what is required in comparable systems, such as the EU CbC reporting directive.

As tax governance becomes more intertwined with corporate responsibility, investors, regulators, nongovernmental organizations, and other interested stakeholders—not to mention revenue authorities outside of Australia—will be paying attention.

The Australian Taxation Office reviews almost all large groups operating in Australia on an ongoing basis. Groups should expect greater scrutiny if the ATO considers that their approach to tax isn’t transparent or that it doesn’t reflect their business strategies and commercial objectives, and should therefore consider how the ATO may view the group’s approach to tax and consider engaging proactively on the issue when faced with a review.

Guidance Challenges

Despite expectations that recently released guidance would offer greater clarity, the guidance didn’t expand on or clarify the qualitative disclosure requirements, leaving many of the key uncertainties unresolved.

A key qualitative component is the requirement to report on the relevant group’s “approach to tax.” Australia based it on the Global Reporting Initiative’s 2019 standard known as GRI 207, which was developed for voluntary use worldwide.

This new (and untested) requirement will give the ATO another angle through which to consider the tax affairs of multinational groups, allowing the ATO to scrutinize the amount of tax paid and the strategy and governance behind tax decisions.

The ATO is likely to use this information as part of its ongoing compliance activities, through which it has acquired ample knowledge on how taxpayers approach their tax affairs—particularly how they manage tax risks and governance.

A company’s approach to tax wouldn’t be limited to a statement that the company complies with local and international tax laws. Parent companies (on whom Australia’s regime imposes direct obligations, regardless of where they’re located) are expected to explain who within the organization is responsible for tax decisions, how the tax strategy is aligned with corporate governance, and whether it supports broader sustainability goals.

The change reflects that alignment with the group’s commercial and sustainable development objectives is the central focus of the approach to tax aspects of GRI 207. This goes beyond just numbers; it’s about understanding how tax fits into the group’s broader strategic framework.

The requirement to disclose the group’s approach to tax suggests the ATO will focus on understanding how tax strategies align with commercial outcomes. Specifically, based on our experience in recent years, it may seek to test whether groups are adopting tax policies that align with business and commercial purposes.

If the ATO concludes that tax strategies appear to be aimed primarily at reducing tax rather than being driven by business activities, it could lead to increased ATO scrutiny. This question isn’t black and white—the ATO tends to bring a skeptical eye to such issues.

Exemption Uncertainty

The update includes instructions for public CbC reporting for parent companies on registration, but there hasn’t been guidance about its approach to granting reporting exemptions. This guidance is now due to be published in July.

At this stage, the only guidance on exemptions is in the explanatory memorandum to the legislation, which only mentions three circumstances that may be relevant to the grant of an exemption for disclosures that:

• Affect national security
• Breach Australia’s or another country’s law
• Cause substantial impact for an entity by revealing commercially sensitive information

The explanatory memorandum indicates that exemptions from disclosure (either for a whole entity or for information of a particular kind) will be difficult to obtain, and parent companies will need to demonstrate convincing grounds to justify an exemption from disclosure.

This adds a layer of complexity for parent companies that may have hoped to avoid public reporting of certain commercially sensitive jurisdictions or business structures.

Noncompliance Penalties

If reports aren’t submitted within the required 12 months after income year-end, penalties begin at A$165,000 ($108,000) for each day of delay, up to a total of A$825,000. Errors in the disclosure that aren’t corrected within 28 days of discovery can lead to further penalties.

Noncompliance also may have criminal consequences, as a new offense of failing to publish information when required to do so has been introduced in conjunction with the regime.

The inclusion of qualitative obligations means there is inherent flexibility in how a parent company may report. In the context of reporting an approach to tax, the GRI 207 requirements are fuzzy and open to different interpretations, reflecting that GRI 207 was intended to be a voluntary standard.

At least in the early days, this could lead to gaps between corporate practices and ATO expectations, as groups attempt to interpret and apply the broader principles of GRI 207 in this context.

Some companies already voluntarily publish tax transparency reports, which may well go some way toward compliance with the new requirement, but not necessarily as far as is necessary to meet the requirements under the new Australian regime (and ATO expectations).

Going Forward

The coming years will reveal how the ATO interprets and enforces the new requirements in practice and how multinational groups will approach meeting their obligations. As the regime matures, both companies and regulators will be navigating uncharted territory. Ongoing engagement and adaptability will be essential for all stakeholders.

With public reports likely to attract a broader audience that closely scrutinizes the disclosures—including revenue authorities, investors, analysts, NGOs, and the public—groups must ensure their statements about their approach to tax are both sufficiently detailed and reflective of their actual practices. Any perceived or inadvertent misalignments or overstatements could risk regulatory attention as well as reputational and financial risks.

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

Author Information

Niv Tadmore is partner at Jones Day focusing on tax audits, tax disputes and large-scale transactions.

Benjamin Lancaster is of counsel at Jones Day focusing on tax dispute resolution, transfer pricing, and other international tax issues.

Alice Robertson is an associate at Jones Day specializing in tax disputes.

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

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