Australia Requires Public Companies to Disclose Tax Information

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The Australian government has proposed a new set of laws that intends to increase transparency and accountability in public companies’ financial reports.

Transparency and accountability are vital aspects of good governance. However, the information on tax revenues needs to be completed and provided in enough detail to the public. This lack of transparency can lead to a lack of compliance with tax laws, which can harm the overall tax system.

As part of the 2022-23 budget, the Australian government announced an integrity measure to tackle the risks that excessive debt deductions pose to Australia’s domestic tax base. This measure aims to strengthen Australia’s thin capitalism rules, aligning them with the best practices recommended by the Organisation for Economic Cooperation and Development (OECD).

To implement this measure, the government has developed an exposure draft legislation to replace the current asset-based thin capitalisation rules with new earnings-based rules for certain entities.

“This Budget makes our tax system more sustainable by making sure multinationals pay a fairer share of tax in Australia, by extending successful tax compliance programs, and by giving the [Australian Tax Office] the resources they need to crack down on tax dodging,” Treasurer Jim Chalmers told the Australian Parliament last year.

According to the proposed amendments, if a public company is required to prepare financial statements for a consolidated entity under the applicable accounting standards, the consolidated entity under the applicable standards, the consolidated entity statement must include specific details about each entity within the consolidated entity at the end of the financial year.

In addition, the Australian government has proposed a new draft of legislation requiring all public companies to disclose information about the number of their subsidiaries and their country of tax domicile in their financial reports.

It aims to improve tax transparency for multinational enterprises and protect Australia’s domestic tax base. The legislation will also amend the thin capitalisation rules to limit multinational enterprises’ debt deductions and remove a deduction for interest expenses incurred to derive dividends from foreign subsidiaries.

The suggested measures will apply to financial statements prepared by public companies for each financial year beginning on or after July 1, 2023. The Treasury is accepting submissions on this proposal until April 13, 2023.

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