The S Corporation Association today sent a letter to the Australian Tax Office (ATO) building on our ongoing discussions regarding how Australia’s proposed Country-by-Country (CbC) reporting rules could affect S corporations operating in the United States.
By way of background, Australia is in the process of implementing new CbC reporting requirements they say will provide greater transparency for multinational companies doing business in the country. These rules would apply to sizable companies doing business in Australia, including large S corporations.
S corporations are pass-through entities, however, taxed at the shareholder rather than the entity level, and therefore do not pay corporate income taxes or maintain entity-level tax information that the Australian rules are designed to capture.
As the letter notes:
Subjecting S corporations to the CbC reporting would fail to produce the information the rules are designed to collect – namely, whether large businesses operating in Australia are appropriately contributing to Australia’s tax base. Instead, the reporting would provide a distorted view of tax compliance by reporting income but no tax payments, while also raising significant shareholder privacy concerns.
S-Corp isn’t alone in raising concerns. Other companies have voiced similar warnings about the unintended consequences of Australia’s approach, citing both competitive and privacy risks. Together, these comments underscore the debate over CbC reporting is not about opposing transparency; instead, it’s about ensuring such efforts are designed to collect meaningful, accurate information without undermining legitimate privacy protections.
The letter also highlights the structural safeguards embedded in U.S. law that prevent S corporations from being used as vehicles for tax avoidance. Only individuals (not corporations or partnerships) can own S corporation shares while ownership is subject to a single class of stock rule that ensures all shareholders are treated proportionally. As the letter points out, “these unique rules ensure that, should the ATO grant an exemption for S corporations from the CbC reporting regime, it would not open the door to avoidance strategies.”
To address these concerns, the ATO should exempt S corporations from the CbC requirements entirely. At a minimum, they should limit reporting to business operations within Australia only. Such a targeted approach would avoid the misperception that S corporations pay no tax and protect shareholder privacy, while providing Australian authorities with meaningful information on income and activity within their jurisdiction.
We’ll continue working with Australian tax officials and other international stakeholders to ensure that S corporations are treated appropriately under foreign transparency regimes.