Australia has now introduced legislation to implement the OECD’s Pillar Two framework, bringing global and domestic minimum tax rules into law. This new measure introduces the Global Anti-Base Erosion Model Rules (GloBE rules), which require large multinational enterprise groups (MNEs) to pay a minimum tax rate of 15% in every jurisdiction where they operate.
Who will be affected?
The Australian Pillar Two rules apply to in-scope multinational enterprise (MNE) groups with annual consolidated revenue of €750 million (approximately AUD 1.2 billion at the time of writing) or more in at least two of the preceding four fiscal years. These rules capture groups operating in multiple jurisdictions and apply to Australian constituent entities within those groups, including both Australian-headquartered multinationals and foreign-headquartered groups with Australian operations.
When do the rules apply and what do they mean?
The implementation of the GloBE Rules via Australian tax law is staggered as follows:
- Global minimum tax:
- Income Inclusion Rule (IIR) – applies for income years starting on or after 1 January 2024 and ensures the ultimate parent entity located in Australia pays a top-up tax if any group entity is taxed below the 15% minimum effective tax rate (ETR);
- Undertaxed Profits Rule (UTPR) – applies for income years starting on or after 1 January 2025 and acts as a backstop where profits are not taxed under an IIR and the Group’s ETR in another jurisdiction is below 15%;
- Domestic Minimum Tax (DMT) – applies for income years starting on or after 1 January 2024 and allows Australia to collect top-up tax locally before foreign jurisdictions apply the above two rules.
What do I need to lodge?
Four new lodgement requirements are introduced as part of the new Pillar Two regime, consistent with the GloBE Rules:
- GloBE Information Return (GIR);
- Domestic Minimum Tax Return (DMTR);
- IIR/UTPR Return (AIUTR);
- Foreign lodgement notification.
Each Australian entity in an MNE will be required to also lodge a GIR, but the rule allows for a simplified process where a single GIR can be filed on behalf of the Group by a nominated entity. In this scenario, the GIR is lodged overseas in a jurisdiction with a Qualifying Competent Authority Agreement (QCAA) with Australia and the Australian entity will only need to submit a foreign lodgement notification to the ATO.
Conversely, the AIUTR and DMTR are Australian domestic tax returns and must be lodged even if the GIR has been filed overseas. These returns apply where a MNE has an Australian IIR/UTPR tax amount or an Australian DMT tax amount, including nil amounts.
At the time of writing, the ATO is currently developing forms for the foreign lodgment notification, the AIUTR and the DMTR and it is anticipated that these will most likely be combined into the one form to simplify the lodgment process.
Lodgment deadlines in Australia
The GIR, foreign lodgment notification, AIUTR and DMTR must be lodged:
- 18 months after the end of the first fiscal year of being in-scope;
- 15 months for subsequent fiscal years.
For in-scope 31 December 2024 year end entities, the deadline is fast approaching for 30 June 2026 whilst 30 June 2025 lodgers have until the 31st of December 2026.
Are safe harbours available?
Australia’s Pillar Two rules include safe harbour measures aligned with the OECD framework to simplify compliance and reduce administrative burden for MNEs. The transitional Country-by-Country (CbC) reporting safe harbour allows an MNE to use CBC reporting and financial accounting data as a basis for the safe harbour calculation.
This safe harbour applies to fiscal years beginning on or before 31 December 2026 but not including a fiscal year ending after 30 June 2028. To qualify, an MNE must demonstrate through Qualified CbC Reports and Qualified Financial Statements for the Australian entity that it meets one of the following tests:
- De Minimis Test – jurisdictional revenue is less than €10 million and profit/loss before tax is less than €1 million;
- Simplified ETR Test – simplified covered taxes divided by profit before tax is equal to or greater than the transitional rate for the year;
- Routine Profits Test – jurisdictional profit before tax is equal to or less than its substance-based income exclusion amount (calculated with reference to a fixed percentage of payroll costs and tangible assets or a ‘carve out amount’).
Applying a safe harbour sets the jurisdictional top-up tax to zero. However, this does not automatically exempt an entity from filing obligations.
With a wealth of knowledge and experts in international tax, if you’d like to know more about how Accru could assist you with your new compliance obligations, please feel free to reach out.
