Australia: Increased reporting requirements for Local file

The Australian Taxation Office (ATO) on May 2, 2024, released its proposed Local file and Master file XML schema (LCMSF) 4.0 (applicable to reporting periods beginning on or after January 1, 2024), which includes increased reporting requirements in the short form Local file (SFLF):

• Taxpayers will be required to disclose more extensive information than previously, including the number of main business lines or functions and for each business line/function, detailed descriptions of the operations, business strategies employed, extent of overlap with other main business lines/functions and key competitors.
• In addition to attaching an organizational structure diagram, taxpayers will be required to disclose whether they have any personnel employed in their operations effectively reporting to overseas personnel (including both formal and informal reporting). If so, taxpayers will be required to provide details such as name, job title, residency, principal office location and employing entity details for such overseas personnel.
• Taxpayers will be required to disclose whether they had any significant restructures or new arrangements involving transfer, license, or creation of intangibles. The definition of "significant" restructure was also considerably broadened with the ATO providing several illustrative scenarios which would warrant a restructure disclosure, including inward/outward migration of intangibles, any check-the-box election by an offshore related counterparty, any disposal of a controlled foreign company (CFC), new related-party financing, and any significant changes in related-party financing and restructures when tax advice (internal or external) has been obtained.

The ATO released draft instructions to accompany LCMSF Schema 4.0, focusing on the changes to the SFLF, in early August for consultation. It is expected that the ATO will release the final instructions in the last quarter of 2024 and is concurrently working with digital service providers to build and test the new schema.

KPMG observation

While the SFLF instructions are in draft, taxpayers must prepare for a significant increase in the work required to identify and validate disclosures and to provide the information as part of the updated SFLF. Some of the information required relating to restructures may be held offshore and may not be directly relevant to the transfer pricing arrangements for the taxpayer. Furthermore, changes around disclosure of personal details (such as names of personnel) to respond to the organizational structure requirements may also breach privacy and confidentiality obligations in other jurisdictions. As such, it will be challenging for taxpayers to strike the right balance between compliance with the SFLF requirements and compliance with other laws overseas.
 

For more information, contact a KPMG tax professional in Australia:

Jane Rolfe | janerolfe@kpmg.com.au

Aaron Yeo | aaronyeo@kpmg.com.au

Zafirah Ismail | zismail1@kpmg.com.au