- It’s two years since the Australian Taxation Office brought in its BEPS reporting requirements, and companies can expect more scrutiny this year.
- Businesses must show consistency across all public financial reporting, such as annual reports and ATO filings.
- Incomplete or incorrect filings risk fines of up to A$525,000.
By Joanne Ting CA
It’s two years since the Australian Taxation Office (ATO) brought in local reporting to help combat base erosion and profit shifting (BEPS) by multinationals. And it’s clear the ATO is keeping a close watch on businesses trying to artificially shift profits to low or no-tax jurisdictions. There are fines of up to A$525,000 for incorrect or incomplete information in local reports.
The OECD estimates that as much as US$240 billion of tax revenue is lost to governments each year through this practice, so there’s plenty of incentive for countries to adopt the OECD/G20 Base Erosion and Profit Shifting Project.
BEPS reporting in New Zealand
New Zealand is still in the early stages of implementing the three tiers of the OECD’s BEPS Action 13 reporting – a master file, local file and country-by-country report of revenue, profit and taxes paid.
New Zealand has not yet legislated local file reporting but multinationals operating in the country increasingly will notice the impact of the OECD’s recommendations.
At the moment, the requirements apply to corporate groups headquartered in New Zealand with annual consolidated group revenue of more than €750 million (about NZ$1.3 billion).
“It’s clear the ATO is keeping a close watch on businesses trying to artificially shift profits to low or no-tax jurisdictions.”
Year two of Australia’s BEPS reforms
We’re now well into the second year of ATO local file reporting on BEPS, which applies to businesses in Australia with annual global income of A$1 billion or more, or whose parent entity has an income over A$1 billion. A lot of Australian subsidiaries of overseas headquartered companies are affected.
Accountants in some companies are wiping their brows, having already lodged their master file, local file and country-by-country report with the ATO in December, due to year-end reporting obligations. Others still have it marked in red on their calendars for June.
What we have learned so far is that businesses must show consistency across all public financial reporting, such as annual reports, as well as ATO filing. The devil is in the detail and figures should be the same, otherwise the ATO could pick a filing apart.
Year two of the BEPS reforms has brought new requirements and the ATO is asking new questions. It is likely further changes will come in the next few years until the process is more established.
“Under the tightening tax compliance environment, ‘clever accounting’ takes on a new meaning.”
The new face of clever accounting
The BEPS reforms signal a change in how the world expects businesses to behave. It’s not only about being smart and innovative. Transparency and accountability are becoming ever more important for a company’s reputation and success.
Looking to the future, these kinds of reforms are shaping the role of accountants and their visibility in and importance to the business.
While in the past accountants have had a ‘back-office’ role to make sure the numbers stack up, accountants increasingly will be called on as strategic business advisers.
Under the tightening tax compliance environment, ‘clever accounting’ takes on a new meaning – helping businesses be smarter and more innovative in the way they structure and plan their business operations by looking for financial opportunities to drive decisions.
5 tips to get BEPS reporting right
1. Follow the ATO’s detailed instructions to save time
Look at the comments section for explanations on which questions are mandatory and which ones depend on factors such as the transaction type, or the answer to a previous question. These details are contained in the local file template in the Thomson Reuters ONESOURCE BEPS Action Manager software as well.
2. Retain your work papers
Save a work paper version with links to your raw data extracts. This will make the process easier year on year.
Note: You must remove any links from the final template before uploading.
3. Keep track of all attachments
Save them all in one folder and put a transaction number against each file. If you have any new intercompany agreements or amendments, make sure you have copies of those. If you are using the Thomson Reuters software, you can upload the entire folder of attachments, and it will automatically map each attachment to the related transactions.
Note: The ATO does not accept zip file attachments or files over 20MB.
4. Review data and explain potential red flags
If you have already lodged an International Dealings Schedule (IDS) for the same reporting period, make sure the numbers in the local file reconcile with the IDS numbers. Also, compare your prior year local file disclosures. If you see anything that could trigger questions from the ATO, provide a proactive explanation. A new optional field in the 2018 schema lets you add comments per transaction.
5. Don’t let formatting problems slow you down
Incorrectly formatted data will slow down your lodgement. Use the drop-down boxes to prevent any typos. Remove any special characters in entity names or file names such as ampersands, and delete any formulas or links.
Joanne Ting CA is a transfer pricing product specialist at Thomson Reuters in Sydney.