Key takeaways
- The Australian Taxation Office (ATO) has released significant updates to the Australian Local File (ALF) as part of the Short Form and Master File XML Schema version 4.0 (LCMSF V 4.0).
- Key changes include integration of Short Form into structured reporting and expanded questionnaires, addressing ATO’s concerns regarding insufficient data collection under the current approach.
- Country-by-Country Reporting Entities (CbCREs) will be required to report using LCMSF V 4.0 for statements lodged from 1 January 2025 for reporting periods starting on or after 1 January 2024.
- CbCREs are encouraged to start using the use of V 4.0 for all reporting periods. Existing service V 3.0 will be deactivated on 1 January 2026.
Table of contents
- Introduction
- Why are these changes coming from the ATO?
- Implementation timeline
- Consideration for taxpayers
- How can technology help?
Introduction
The local file has been a core component of Australia’s Country-by-Country (CbC) Reporting regime since its inception, comprising of the Short Form Local File (SFLF), Parts A and B. has historically been required as an attachment, disclosing specific details regarding the Australian operations such as organisational reporting structures and business strategies.
Such requirements align with the “Local Entity” information in an OECD Local File. Under the current framework and schema V 3.0, the information is presented in free text format and attachment as relevant.
On 2 May 2024, the ATO first announced the proposed LCMSF V4.0 with various changes to the reporting requirements. Among the changes is the integration of the SFLF into the structured reporting Message Structure Table (MST). Since then, the ATO has continually been working to finalise these changes with a targeted electronic lodgment go-live date in early January 2025.
Why are these changes coming from the ATO?
The existing LCMSF design requires CBCREs to provide an SFLF with details of Australian entities and operations. The ATO has noted that without these new changes, the approach can lead to:
- inconsistent reporting content
- inconsistent reporting format or structure
- incomplete information in some reports which does not satisfy the expected level of reporting in the SF instructions.
These issues hinder the ATO’s ability to detect higher risk international tax structuring or profit shifting arrangements and increase administrative efforts relating to assurance activities.
Implementation timeline
Version 4.0 will be applicable to statements lodged from 1 January 2025 for reporting periods starting on or after 1 January 2024 (effectively reporting periods ending 31 December 2024 or after). As SFLF is generally due 12 months after the end of financial year, the first round of SFLFs required on V 4.0 will be due by 31 December 2025.
Version 3.0 is expected to be deactivated on 1 January 2026 for all reporting periods.
Considerations for taxpayers
The updates aim to simplify reporting requirements and reduce the need for ATO follow-ups.
- Streamline the data capture process for reporting requirements for the majority of CbCREs that don’t have:
- Overseas personnel reporting; or
- Restructures including related party financing.
- Increasing reporting efficiency through combined MST reporting fields
- Enable use of structured SF reporting data in ATO analysis and risk detection
- Reduce the need for the ATO to identify and follow up incomplete information
- Reduce the ability to avoid the required level of SF reporting
- Include minor adjustments to existing validation rules for the full local file
- Move the files for attaching financial accounts to clarify that financial accounts can separately be lodged with the SF section and do not have to be lodged with Local File - Part B.
How technology can help
By proactively adapting to the changes from the ATO and utilising tools such as the CCH Integrator ALF solution, businesses can streamline their transition, minimise administrative challenges, and stay compliant with the shifting regulatory environment.
Wolters Kluwer’s Australian Local File 2024 solution is now available as part of the CCH Integrator corporate tax management platform. The solution complies with the ATO’s V 4.0 schema with capabilities such as in-platform validation and direct electronic lodgments to the ATO via Standard Business Reporting (SBR) channel, further alleviating the compliance burdens on tax teams.
The solution leverages Wolters Kluwer’s in-depth, in-house tax technical content and tax product expertise and continues to stay up to date with any future legislative or technical changes from the ATO.
In conclusion, the introduction of Version 4.0, reflects a significant step toward streamlining compliance and improving efficiency. With CCH Integrator, organisations are better equipped to meet reporting obligations accurately and efficiently. By preparing for these changes and leveraging tools like the CCH Integrator ALF solution, businesses can ensure a smoother transition, reduce administrative burdens, and maintain compliance with the evolving regulatory landscape.
