Country-by-country (CbC) reporting is expected to be a “game changer” for the Australian Tax Office (ATO) and its corporate tax compliance activities. This makes it essential for corporate tax managers to understand how the data they provide in CbC reports may be used by the ATO for compliance purposes.
While tax officials are generally very guarded about operational matters, high-level ATO representatives recently told the Senate inquiry into corporate tax avoidance that they are “just beginning to scratch the surface” when it comes to CbC reports (BEPS Action 13).
As reported in Issue 12 of Thomson Reuters Weekly Tax Bulletin (dated 23 March 2018), the ATO told the Senate inquiry that it has received 42 CbC reports, together with about 1,500 master files, which describe the global strategy of that company, and about 2,400 local files, which describe all their related-party transactions. The CbC reports, which technically consist of the 3 files together, provide a much broader range of information.
In respect of the 100 companies, the ATO said its tax officers would be unlikely to learn anything new out of the CbC reports because the ATO has dedicated teams that know these taxpayers well. But for the next 2,000 companies below that top 100, the CbC reports reveal a great deal more information to the ATO that they otherwise wouldn’t know, the ATO said.
As the CbC report is simply a spreadsheet including all sorts of numbers by jurisdiction, tax officers typically look at the CbC reports to come up with at least 10 hypotheses about what might be going on, said Mr Mark Konza, ATO Deputy Commissioner, Public Groups and International. However, to interpret the spreadsheet, he said tax officers also need to read the master file, where the company itself says, “This is what we think is going on here.”
A tax officer might dispute the company’s view, but at least they know what the company says is happening, Mr Konza said. The ATO can then test what the company says is happening by looking at the local file, which tells more about the actual transactions that are going on. The ATO also noted that CbC reporting is very important for the rest of the world in terms of getting access to that sort of information to improve countries’ capacity around the world.