Multinational enterprises operating in Australia face greater taxation obligations with the adoption of new global rules making the shifting of profits to low tax jurisdictions harder.
Australia has implemented the OECD Pillar Two rules, which adopt a new 15 per cent global minimum tax rate for multinational enterprises (MNE) operating in Australia with a global turnover exceeding EUR 750 million.
This is the most significant global overhaul of international tax compliance we have seen in Australia for decades, and Australian companies who are members of significantly large multinational groups could be caught by the new laws, applied under the Global Base Erosion Model Rules (GloBE).
A global minimum corporate tax rate of 15 per cent is important for Australia as it protects Australia’s corporate tax base and limits the ability of companies to shift their profits to lower-tax jurisdictions.
Generally, the global minimum tax rules will allow tax authorities in Pillar Two jurisdictions to apply a top-up tax on a resident multinational parent or subsidiary companies where the jurisdiction’s income is taxed below 15 per cent.
The laws apply from income years starting on or after 1 January 2024, with first lodgements due in June 2026. Failure to comply with these new rules can leave companies exposed to significant failure to lodge penalties.
Also effective from 1 January 2024 is the 15 per cent DMT, which imposes a top-up tax on Australian members of the MNE group who fall below the 15 per cent ETR threshold. This DMT tax takes priority over tax under the IIR or the UTPR.
The IIR, which applies from 1 January 2024, mandates that an Australian parent entity may impose a top-up tax on group members whose effective tax rate (ETR) is calculated to be less than 15 per cent.
Australia’s implementation framework includes three central rules: the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and the Domestic Minimum Tax (DMT).
The UTPR will follow shortly after and applies to income years commencing on or after 1 January 2025.
Australia’s implementation of Pillar Two laws follows the OECD’s model rules. This includes the use of a Transitional Safe Harbour which provides temporary relief to certain jurisdictions during the early years of the rules. The 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 only if it meets certain tests.
With the first year of compliance already underway, companies must shift their focus to Pillar Two readiness plan around data collection and lodgement, with first lodgements due in June 2026.
The laws are complex and introduce four new lodgement requirements: the GloBE Information Return (GIR), Foreign lodgement notification, the Australian IIR/UTPR Tax Return (AIUTR), and the Australian DMT
Tax Return (DMTR). With lodgement deadlines approaching, now is the time for MNEs to assess exposure under each requirement, model potential top-up tax liabilities, and get compliance-ready.