Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA)
The Australian and United States governments have an intergovernmental agreement (IGA) in relation to the implementation of FATCA. The agreement is intended to establish a framework to assist Australian financial institutions in meeting their obligations under FATCA.
Australia's domestic law gives effect to the IGA and requires Australian financial institutions to collect information about their customers that are likely to be taxpayers in the United States, and report that information to the ATO. The Australian Commissioner of Taxation will then pass this information on to the US Internal Revenue Service (IRS).
Australia has also adopted the OECD’s Common Reporting Standard (CRS). Financial Institutions, including banks and other deposit-taking institutions, custodial institutions, or entities that hold financial assets for the account of others, are required to report information in the form of an annual CRS report to the Commissioner of Taxation about financial accounts held by foreign tax residents. The annual CRS report is due to be lodged with the ATO for the previous calendar year by 31 July each year. In turn, the Commissioner of Taxation will provide this information to the foreign residents’ tax authorities and will receive information on Australian tax residents with financial accounts held overseas.
OECD Multilateral Convention
The OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS), which was signed by Australia on 7 June 2017, has effect for applicable Covered Tax Agreements from as early as 1 January 2019. The Multilateral Instrument (MLI) provides participating jurisdictions with a means to swiftly modify Australia's bilateral treaties to implement measures developed as part of the OECD/G20 BEPS Project without having to negotiate changes on a treaty-by-treaty basis.
The Commissioner of Taxation is required to publish limited information about the tax affairs of public and foreign-owned companies and Australian-owned private companies with total income of at least AUD 100 million (for years prior to 2022/23, a threshold of AUD 200 million applied to Australian-owned private companies) for an income year, as reported in the entity’s tax return, and those with a liability to pay the PRRT. The published information discloses the entity’s name, Australian Business Number, total income, taxable income, and tax payable.
All companies with an annual turnover of AUD 100 million or more are encouraged to adopt a Voluntary Tax Transparency Code (TTC) for increased public disclosure of their tax information.
The government intends to introduce new reporting requirements for relevant companies to enhance the tax information that is disclosed to the public, including:
- For CbC reporting parent entities to prepare for public release of certain tax information on a country-by-country basis and a statement on their approach to taxation, for disclosure by the ATO, for income years commencing from 1 July 2024.
- Australian public companies (both listed and unlisted) to disclose information on its subsidiaries and their country of tax residence for financial years commencing from 1 July 2023.
- Tenderers for Australian government contracts worth more than AUD 200,000 to disclose their country of tax domicile by supplying their ultimate head entity’s country of tax residence (in addition to the existing Statement of Tax Record requirements, see further below).
Foreign investment tax conditions
Foreign investors that invest in Australia are subject to additional criteria as part of the clearance process for proposed foreign investment in Australia. Tax conditions are formally applied and will be considered in making an assessment of Australia’s national interest, a key criterion in the foreign investment clearance process. These tax conditions may include requirements relating to the settlement of outstanding debts, ongoing compliance with tax laws, and annual reporting to the ATO.
An entity that meets the definition of a ‘sovereign entity’ is liable to pay Australian tax other than where it is covered by a specific limited exemption. The income tax (and withholding tax) exemption typically will apply to returns on a less than 10% ‘portfolio-like’ interest in an Australian company or MIT and where no member of the sovereign entity group has influence (either directly or indirectly) over decisions that comprise the control and direction of the operations of the Australian company or MIT. As the scope of the exemption was significantly narrowed in 2018, transitional rules can apply to returns on an investment asset acquired by a sovereign entity on or before 27 March 2018.
Statement of Tax Record
All businesses that tender for a Commonwealth Government procurement contract over AUD 4 million are required to have a satisfactory Statement of Tax Record issued by the Australian Taxation Office (ATO), which focuses on up-to-date tax registrations, on-time tax lodgments, and tax payment obligations being met. The requirements also apply to first tier subcontractors where the estimated sub-contract value will be at least AUD 4 million.
Mandatory disclosure rules
Australia has not yet enacted any mandatory disclosure rules in relation to taxation; however, see above for transparency related initiatives.