Updates to the Australian Local File
– Short Form Local File
What is the change?
The Australian Taxation Office (ATO) has introduced significant changes to the Australian Local File (ALF), specifically the Short Form Local File (SFLF). The new instructions apply for reporting periods beginning on or after 1 January 2024.
Current SFLF requirements
The Local File has been one of the three statements required to be submitted to the ATO under Australia’s country-by-country (CbC) reporting regime. Historically, taxpayers were required to provide an SFLF attachment, in which CbC reporting entities (CbCREs) disclosed specific information about their Australian operations, specifically in response to the following five questions:
1. Organisational reporting structure, including overseas reporting lines for local functions.
2. Business and strategy.
3. Business restructures, including significant changes in ownership structure, related party funding arrangements, assets, or operations.
4. Transfers of intangibles, including associated related party licensing or service arrangements.
5. Key competitors
New SFLF requirements
While the focus remains on the five areas noted above, there are now detailed and prescriptive questions which taxpayers must complete, with an enhanced focus on details relating to business restructures and intangible related transactions. The new Local File and Master File XML schema (LCMSF) reflects the ATO’s focus on obtaining more detailed and structured information to better detect higher-risk international tax and transfer pricing arrangements.
For taxpayers that are CbCREs, the new SFLF introduces 50 new questions. Some of these questions need to be answered multiple times if there are multiple business lines, offshore reporting lines, or restructures involving different counterparties. These have been summarised in the following pages.
How does it look?
Current Requirements
Q1. Organisational structure and overseas reporting
Q2. Description of main business or function
Q5. Key Competitors
Q3. Business Restructures
Q4. Transfer of intangibles
Question Categories
1. Organisational Structure and Overseas Reporting
New Requirements
20 Questions
Organisational reporting structure and overseas reporting
5 Questions
Main business lines or functions and key competitors
25 Questions
Restructure or new arrangements involving transfer, licence, or creation of intangibles
CbCREs are required to confirm whether there are any personnel employed within the Australian operations that have accountability to report to overseas personnel. Where the response is ‘yes’, CbCREs will need to:
Provide the job title of these local personnel, and Australian Business Number (ABN)/Tax File Number (TFN) of the employing entity
Confirm the number of overseas personnel to whom the local person reports to
Provide the job title, principal office location, and employing entity details for the overseas personnel.
Describe the functions or activities for which reporting occurs
Provide relevant dates, if the overseas reporting commenced or ceased during the income year.
Each reporting entity is required to attach a diagram illustrating its organisation reporting structure or provide comments detailing the reporting structure. This is required even where there are no Australian employees reporting to overseas personnel.
2. Business, Strategy and Key Competitors
CbCREs are required to identify all the main business lines or functions within their local Australian operations. Specifically, CbCREs must:
Describe each business line or function.
Delineate the strategies employed for each business line or function.
Discuss whether any of the business lines or functions overlap.
Identify key competitors for each business line or function.
The business lines and functions reported in the local file should be broadly consistent with the way they are reported in a group’s annual report or other management or reporting documents.
3. Restructures
CbCREs are required to assess annually whether they have had any:
• Restructures (including any change in related party financing); or
• Any new arrangements involving the licence, transfer, or creation of intangibles.
The definition of a “restructure” has been expanded, no longer limited to changes affecting the local business. Under the updated guidelines, transactions between overseas members of the group related to a restructure may also now require disclosure, even if the Australian taxpayer has no direct involvement in the restructuring activities.
Restructures now include significant changes to the taxpayer’s “material” related-party financing arrangements. This includes the introduction of new financing arrangements, the termination of existing arrangements (especially before maturity), replacing borrowings with private credit arrangements, or making significant amendments to the terms and conditions of existing arrangements. The Australian Tax Office (ATO) considers any arrangements with a capital value of $10 million or higher as “material” for reporting purposes.
Additionally, the ATO has clarified that the disclosure of such restructures is part of the broader push for transparency, particularly regarding international related-party transactions. As the ATO increases scrutiny on cross-border arrangements, taxpayers should be aware that failure to disclose restructures involving overseas members could lead to penalties, especially when the ATO deems the disclosure as crucial for assessing transfer pricing compliance and risk.
4. Intangibles Arrangements
CbCREs are required to describe any transfer of intangibles including any connected arrangements, such as related party licensing or service agreements, that occurred in the current or previous income year.
The term intangible includes property, assets or rights that are not physical or financial assets, which are capable of being owned or controlled for use in commercial activities. Examples of intangibles include intellectual property, goodwill, rights under service or distribution agreements, know-how and the right to access secret information or processes.
The description should include:
• The commercial context and explanation for the transfer of intangibles; and
• A description of transactions or dealings connected with the transfer of intangibles.
This covers any transfer of intangibles by any member of your Australian consolidated group or MEC group, or by any of your controlled foreign companies (CFCs).
Taxpayers are advised to carefully assess all restructuring activities, both local and international, to ensure they meet the updated disclosure requirements and avoid potential issues with the ATO.
Where applicable, CbCREs will need to:
• Provide a description of the restructure or intangibles arrangement;
• Disclose the anticipated Australian tax impact and global tax impact of the restructure or intangibles arrangement;
• Provide the commercial context and impact of restructure/arrangement;
• Provide total capital value of the restructure/arrangement; and
• Number of steps in the restructure/arrangement.
If there was a step plan, then the relevant step plan should also be attached.
Pitcher Partners Observation
Taxpayers should be prepared for a significant increase in the work required to identify, validate, and provide disclosures for the updated SFLF. There is certainly an increased compliance burden to satisfy the ATO’s new requirements.
Some of the information needed, particularly relating to restructures, may be held offshore and may not directly pertain to the taxpayer's transfer pricing arrangements.
Additionally, the disclosure of personal details (such as personnel names) to meet organizational structure requirements could potentially violate privacy and confidentiality laws in other jurisdictions. As a result, it will be challenging for taxpayers to balance compliance with SFLF requirements and adherence to other international laws.
Please get in touch if you require any clarification or further information on the new changes for the Short Form Local File and how it might affect you.
Simon Chun Tax Partner
p +61 7 3222 8447
e schun@pitcherpartners.com.au
Tom Splatt Tax Partner
p +61 7 3222 8308
e tsplatt@pitcherpartners.com.au
Murray Graham Tax Partner
p +61 7 3222 8470
e mgraham@pitcherpartners.com.au
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