Australia has implemented the OECD Pillar Two rules and Global Minimum Tax laws (Global Base Erosion Model Rules GloBE) and they are now part of Australia’s tax legislation.

With effect from income years starting on or after 1 January 2024, multinationals operating in Australia with a global turnover above EUR 750 million will be required to comply with the 15% global minimum tax regime. The first year of compliance deadlines are fast approaching, with first lodgements due in June 2026. Failure to lodge Pillar Two tax returns can leave you exposed to the hefty significant global entities’ penalties.

Australia’s Implementation Framework

Australia’s implementation of Pillar Two includes three core rules:

  • Income Inclusion Rule (IIR) – which imposes a top-up tax by the Australia Parent entity, for income years commencing on or after 1 January 2024, on behalf of group members with an effective tax rate of less than 15%.
  • Undertaxed Profits Rule (UTPR) – applies to income years commencing on or after 1 January 2025, if the parent entity of the group is located in a country that has not implemented the 15% global minimum tax. The UTPR imposes the 15% minimum tax on the members of the group that are in countries that have implemented the Pillar Two tax regime in relation to the members of the group with less than 15% effective tax rate.
  • 15% Domestic Minimum Tax (DMT) – applies to income years commencing on or after 1 January 2024. The DMT imposes a top-up tax on Australian members of the multinational group that have an effective tax rate of less than 15% in Australia. It takes priority over IIR and UTPR in Australia.

Notwithstanding the headline 30% corporate tax rate in Australia, a large multinational company’s effective Australian tax rate may still fall below 15% in some instances, for example, where the company generally has permanent differences between accounting and tax. In these instances, the domestic minimum tax may apply so that Australia would collect the revenue that would otherwise have been collected by another country’s global minimum tax.

Four new lodgement requirements are introduced as part of Australia’s global and domestic minimum tax, they are:

  1. GloBE Information Return (GIR).
  2. Foreign lodgment notification.
  3. Australian IIR/UTPR Tax Return (AIUTR).
  4. Australian DMT Tax Return (DMTR).

In-scope taxpayers are required to lodge nil returns even if they don’t have any top-up tax to pay under the three core rules. The ATO has indicated that the foreign lodgement notification, AIUTR and DMTR will be combined in one form, which is due to be released in Q1 2026.

Transitional Safe Harbour

Australia’s implementation of Pillar Two follows the OECD’s model rules, including the use of a Transitional Safe Harbour to provide temporary relief to certain jurisdictions during the early years of the rules.

This safe harbour applies to fiscal years beginning on or before 31 December 2026 but not including a fiscal year that ends after 30 June 2028.

An MNE group may elect to use the safe harbour if it can demonstrate, based on their Qualified CBC Reports and Qualified Financial Statements, that it meets one of the following tests for a jurisdiction:

  • ETR Test: Jurisdictional effective tax rate is at least 15% (FY2024), 16% (FY2025), or 17% (FY2026).
  • De Minimis Test: Total revenue < €10 million and profit before tax < €1 million.
  • Routine Profits Test: Jurisdictional profit before tax is no more than a routine return on tangible assets.

MNE data collection

The most resource intensive and immediate issue for MNEs is the comprehensive data strategy to understand the data requirements needed for Pillar Two. Previously, international tax reporting mainly used high-level, group-wide data. Pillar Two changes this approach completely. It requires detailed, entity-by-entity and country-by-country calculations to work out each jurisdiction’s effective tax rate and any potential Top-up Tax under the GloBE rules.

This new standard demands a level of cross-functional collaboration not previously seen in tax reporting. Tax teams must now coordinate closely with Finance, IT, Legal, and HR to source, validate, and report complex data accurately. Consequently, the tax function’s operating model is evolving—from a compliance-focused process to a strategic, enterprise-wide data initiative that supports broader business decision-making.

Penalties

Failure to lodge on time penalties in line with significant global entities apply, currently $165,000 for up to the first 28 days then up to a maximum of $825,000 per lodgement per Australian entity.

How we can help

HLB has met with the ATO multiple times to discuss their compliance approach for Pillar Two. We can assist you to:

  • Assess whether your group are subject to Pillar Two and may fall below the 15% ETR in Australia or other jurisdictions;
  • Model potential top-up tax exposures;
  • Prepare and file new reporting and compliance requirements;
  • Calculate and assess if safe harbour reliefs are available.

With lodgement deadlines fast approaching, now is the time to assess your exposure and get compliance-ready.

Contact us to discuss how Pillar Two may impact your group.