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Eight out of 10 Australian companies say they can’t comply with the new Year 2 local file requirements without some assistance, as part of the base erosion and profit shifting (BEPS) Action 13 requirements, but here are some steps to get it right.
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5 tips to getting BEPS right every time
21 September 2018
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12 minute read
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The survey of participants at our recent webinar, BEPS: One Year On, suggests that many companies (80 per cent) are still not confident in meeting the requirements of the Australian Taxation Office (ATO) local file as part of the BEPS Action 13 requirements, which came into effect last year.
This is especially the case given the ATO has made some changes to the local file for Year 2 lodgements.
Some of the compliance worries stem from the ATO promising to increase its audit and reviews this year. Threats of fines up to $525,000 make companies understandably nervous.
However, for most companies, the worst is over. Having gone through the difficult first-year tasks of researching and understanding the new requirements, extracting and compiling the detailed information, determining how to convert the data into the required XML format, and making the final electronic lodgement, companies are now well placed to repeat and, ideally, improve their local file process in Year 2.
Here are five tips to get BEPS reporting right:
- Follow the ATO’s detailed instructions to save time
Within the ATO’s local file detailed design, comments explain which questions are mandatory and which ones depend on factors such as the transaction type, or the answer to a previous question.
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This ensures you don’t miss mandatory questions, or waste time answering questions that aren’t required (which would also trigger validation errors that take time to fix).
- Retain your workpapers
Save a workpaper version with links to your raw data extracts. This makes it easier to review and ensure the same processes are followed each year. However, the final template for upload cannot have any links, so you need to remove them in the final version before you upload it.
- Keep track of all attachments
Save them all in one folder. If you have any new intercompany agreements or amendments, make sure you have copies of those. You can also put a transaction number against each file. Note: The ATO does not accept zipped file attachments or files over 20MB.
- Review data and proactively explain potential red flags
If you have already lodged an International Dealings Schedule (IDS) for the same reporting period, make sure the numbers in the local file reconcile with the IDS numbers. Also, compare your prior-year local file disclosures. If you see anything that could trigger questions from the ATO, provide a proactive explanation. A new optional field in the 2018 schema lets you add comments per transaction.
- Don’t let formatting problems slow you down
Incorrectly formatted data will slow down your lodgement. Use the drop-down boxes to prevent any typos. Remove any special characters in entity names or file names such as ampersands, and delete any formulas or links.
Companies should feel confident in their ability to comply with the local file requirements and streamline the Year 2 lodgement process by applying these best practices. Regardless of how you lodge your local file, either outsourced or completed in-house, take control of the process, and set aside time to get your data correct from the get-go.
Joanne Ting, transfer pricing product specialist, Thomson Reuters
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