Australia: Changes to Country-by-Country Local File Reporting 

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Australian Tax Authorities announced significant changes to the short form local file, affecting all Australian taxpayers required to submit a local file as part of their Country-by-Country (CbC) reporting obligations for periods beginning on or after 1 January 2024. These proposed changes represent the most substantial update to CbC reporting since its introduction.

ABOUT THE REPORTING CHANGES

Starting 1 January 2025:

• Country by Country Reporting Entities (CbCREs) will use an updated Local File/Master File (LCMSF) service for lodgments for reporting periods beginning on or after 1 January 2024.

• LCMSF Schema Version 4.0 (V 4.0) will incorporate the short form (SF) section into the Message Structure Table (MST), improving the clarity and consistency of reporting.

CURRENT SF CHALLENGES

The existing SF design, which requires CbCREs to submit details about Australian entities and operations, has led to:

• Inconsistent reporting content.

• Inconsistent reporting format or structure.

• Incomplete information that does not meet SF reporting standards.

SF reporting is crucial for detecting high-risk international tax structuring and profit-shifting practices. The current design does not provide sufficient information to achieve these goals.

KEY CHANGES WITH LCMSF SCHEMA VERSION 4.0

• Effective Date: V 4.0 will apply to statements lodged from 1 January 2025, for reporting periods starting on or after 1 January 2024.

• Transition: Statements for reporting periods starting before 1 January 2024 can continue using V 3.0, though using V 4.0 will be encouraged. V 3.0 will be deactivated on 1 January 2026.

Planned Delivery Timeline

LCMSF SCHEMA VERSION 4.0 REQUIREMENTS SUMMARY

1. BUSINESS AND STRATEGY, AND KEY COMPETITORS

• Current Requirements:

• Provide a description of your business and strategy, including:

• Main business lines and functions.

• Strategies for each business line or function.

• Overlap and complementarity between business lines.

• List key competitors for each business line.

• V 4.0 Requirements:

• For each main business line/function:

• Description and strategy.

• Overlap with other lines.

• List key competitors.

2. ORGANISATIONAL STRUCTURE (INCLUDING OVERSEAS REPORTING)

• Current Requirements:

• Provide a description of the organisational structure, including management reporting lines for local and overseas entities.

• V 4.0 Requirements:

• Indicate if personnel report to overseas personnel (Yes/No).

• If yes, provide:

• Names, job titles, and details of reporting personnel.

• Information about overseas personnel, including job titles, residency, and office locations.

• Organisational structure diagram.

3. RESTRUCTURES (INCLUDING RELATED PARTY FINANCING CHANGES)

• Current Requirements:

• Describe business restructures affecting the business, including changes in ownership, equity, or related party debt, as well as cross-border tax hybrid arrangements.

• V 4.0 Requirements:

• Indicate if there has been any restructuring or intangibles arrangement (Yes/No).

• If yes, provide:

• Code and description of the restructure.

• Australian and global tax impact.

• Commercial context and significance.

4. INTANGIBLES ARRANGEMENTS

• Current Requirements:

• Describe any transfers of intangibles and related party arrangements, including their commercial significance.

• V 4.0 Requirements:

• Reporting for intangibles will be covered under the same fields as restructures.

WHY IS THE REPORTING CHANGING

The LCMSF Schema Version 4.0 aims to:

• Simplify reporting for CbCREs without complex international operations or restructures.

• Increase efficiency by merging reporting fields for restructures and intangibles.

• Enable structured SF data for risk detection.

• Reduce follow-up needs for incomplete information.

• Prevent incomplete or inconsistent SF reporting.

• Clarify attachment rules for financial accounts, allowing them to be lodged separately from Local File - Part B.

SOURCE/ RECOMMENDED READ: 

• Local file changes from 1 January 2025 | Australian Taxation Office (ato.gov.au)