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Opinion: Australian public CbCR opens new era of tax transparency

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Public CbCR will soon be the norm in a world where tax planning is facing greater scrutiny from governments.

The Australian government may be about to usher in a new era with its proposal to make country-by-country reporting public on a worldwide basis. It’s not just that CbCR will be public – it will include information on global activities and assets.

Companies may end up publishing highly sensitive information in Australia that they have not shared elsewhere. This is a significant break with OECD standards because BEPS Action 13 maintains that such information should not be made public.

Businesses have until April 28 to make their views on the draft bill known to the government, but some tax experts are concerned this public consultation is too short. The final legislation will have to be drafted and approved before its implementation date of July 1.

Prime Minister Anthony Albanese may have eschewed higher taxes (for now) but the policy of public worldwide CbCR more than makes up for this lack of radicalism. Greater transparency may help raise public support for the Australian Taxation Office to crack down further on tax avoidance.

The Albanese government moved quickly to start working on a proposal to make CbCR public – it was first announced in October 2022 following another consultation on tax transparency held from August to September.

Although the Australian draft bill sets a new standard, it is not the first time public CbCR has been proposed or legislated for. All EU member states have to transpose the public CbCR directive into national law by June 22 2023.

Romania was the first EU member state to introduce public CbCR legislation in 2022, while Germany was the first to do so in 2023. However, the EU directive is much less broad than the Australian draft bill, which sets a stronger precedent for transparency.

Until the Australian proposal, the EU directive was the most powerful commitment to public CbCR in the world. This could mean European leaders might consider changing their rules to match the Australian standard.

Domino effect

Australia may turn out to be first to make CbCR public globally and not the last. Many governments can see the political advantage of tax transparency because cracking down on tax avoidance is an easy way to win votes.

The fact that Australia is a part of the Anglosphere may mean other English-speaking countries will follow its example. Certainly, the disclosures in Australia are likely to draw attention in Canada, New Zealand, the UK and the US.

Liberal governments in Canada and New Zealand are more likely to enact similar legislation, whereas the UK Treasury already has provisions in place to activate public CbCR. Meanwhile, US lawmakers are set to discuss public CbCR over the next few months, though Congress is unlikely to pass such a bill because it probably won’t secure majority support.

Nevertheless, there is a very real possibility of a domino effect where the Australian example leads to similar legislation in other countries sooner or later. The broader Anglosphere includes countries as far apart as India, Nigeria and South Africa.

This is why some tax directors think public CbCR was inevitable once the OECD introduced BEPS Action 13 in 2015. Once governments began collecting such data, the next question was who has the right to access it, and a public interest case is hard to resist.

Most multinational companies can handle CbCR due to their scale. Compliance isn’t the issue – public CbCR opens up potential reputational fallout even when businesses meet legal requirements.

A tax strategy may well be perfectly legal in terms of the letter of the law but can still come under serious criticism once revealed to the public. What constitutes acceptable tax planning is a moral judgement.

The economic advantages of tax planning are not going to go away, but politicians will be able to appeal to the public on the back of disclosures to turn up the pressure on tax avoidance.

Everyone agrees that tax evasion is a problem, whereas someone’s stance on tax avoidance depends on their moral outlook. The results can be unpredictable. Something upstanding today can become a scandal by tomorrow.

Taxpayers must be prepared for this new era of transparency. Risk management and dispute prevention will only become more important. Companies may become more risk-averse than ever before because the days of tax secrecy are coming to an end.

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