Key takeaways
- Pillar Two of the Organisation for Economic Co-operation and Development’s (OECD) “Two Pillar Solution” introduces a global minimum corporate tax rate of 15% to put a floor on competition over corporate income taxes from different jurisdictions for multinational enterprises (MNEs) with revenue above €750 million.
- The Australian legislative framework to implement Pillar Two has been enacted.
- A 15% global minimum tax applies to relevant MNEs in Australia, with an income inclusion rule applying to fiscal years starting on or after 1 January 2024, and an undertaxed payment rule applying to fiscal years starting on or after 1 January 2025.
- A 15% domestic minimum top-up tax applies to relevant MNEs in Australia that are subject to an effective tax rate below the 15% global minimum rate for fiscal years starting on or after 1 January 2024.
Table of contents
- Introduction
- Overview of Pillar Two
- The Australian legislative framework
- The Australian Taxation Office (ATO) consultation on Pillar Two
- Observations and conclusion
Introduction
Legislation to implement the global and domestic minimum taxes has been enacted in Australia, evidencing Australia’s commitment to implement Pillar Two of the OECD’s “Two-Pillar Solution” to address the tax challenges arising from the digitalisation of the global economy.
Overview of Pillar Two
Australia is among a group of more than 140 countries and jurisdictions that signed the OECD’s Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy dated 8 October 2021 (the Two-Pillar Solution) for Action 1 of the OECD’s Base Erosion and Profit Shifting (BEPS) project.
While Pillar One aims to ensure a fairer distribution of profits and taxing rights among countries for certain large MNEs, Pillar Two introduces a global minimum corporate tax rate of 15% to put a floor on competition over corporate income taxes from different jurisdictions for MNEs with revenue above €750 million. In particular, Pillar Two comprises:
- The following two interlocking domestic rules (together the Global anti-Base Erosion Rules (GloBE Rules)):
- An Income Inclusion Rule (IIR) as a primary rule to impose top-up tax on a parent entity in respect of the low taxed income of a constituent entity; and
- An Undertaxed Payment Rule (UTPR) as a backstop rule to deny deductions or require an equivalent adjustment to the extent the low-tax income of a constituent entity is not subject to tax under an IIR, and
- A treaty-based Subject to Tax Rule (STTR) that allows source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate of 9%.
The Australian legislative framework
The Australian legislative framework to implement Pillar Two includes three Bills that received assent on 10 December 2024, as well as subordinate legislation that was registered on 23 December 2024. These are:
- The Taxation (Multinational — Global and Domestic Minimum Tax) Imposition Act 2024 (Act No 133 of 2024, the Imposition Act). The Imposition Act imposes top-up taxes, namely the IIR top-up tax, the UTPR top-up tax and the domestic top-up tax
- The Taxation (Multinational — Global and Domestic Minimum Tax) Act 2024 (Act No 132 of 2024, the Assessment Act). The Assessment Act establishes the liability and framework for the global and domestic minimum taxes
- The Treasury Laws Amendment (Multinational — Global and Domestic Minimum Tax) Consequential Act 2024 (Act No 134 of 2024, the Consequential Act). The Consequential Act is an amending Act containing consequential and miscellaneous provisions affecting the Pillar Two tax legislation, necessary for the administration of the global and domestic minimum taxes in Australia.
- The Taxation (Multinational — Global and Domestic Minimum Tax) Rules 2024 to provide for the substantive computations of top-up tax under the GloBE Rules.
The legislative framework is designed in a way such that future OECD administrative guidance can be incorporated on a timely basis. It implements:
- A 15% global minimum tax that applies to relevant MNEs, with the IIR applying to fiscal years starting on or after 1 January 2024 and the UTPR applying to fiscal years starting on or after 1 January 2025, and
- A 15% domestic minimum “top-up” tax that applies to relevant MNEs that are subject to an effective tax rate below the 15% global minimum rate for fiscal years starting on or after 1 January 2024. It operates consistently with the GloBE Rules to effectively enable Australia to claim primary rights to impose top-up tax over any low-taxed profits in Australia, in priority over the IIR and UTPR.
In addition, Australia pledged its support for the STTR in September 2024. Broadly speaking, the STTR essentially allows developing countries to apply ‘top-up tax’ when certain types of income have not been taxed at a nominal rate below 9%.
The Australian Taxation Office (ATO) consultation on Pillar Two
ATO consultation on Pillar Two is ongoing. Early consultation focused on providing preliminary education and awareness and seeking feedback on impacts in association with the new measure. The next phase of consultation has commenced through a special purpose working group to seek feedback on the data points in the domestic return, and ways in which the ATO can support implementation, including about communications, public advice and guidance and one-to-one engagement channels. In addition, consultations with digital service providers are continuing; the ATO is currently considering future ATO-led consultations. For further information, see the ATO website.
Notably, Wolters Kluwer CCH Integrator is a fully certified partner with the Australian Taxation Office (ATO). It is also a Digital Service Provider Working Group Member solution for compliance with the BEPS Pillar Two legislation.
Observations and conclusion
Interestingly, while the Biden administration agreed in principle to the Two-Pillar Solution in 2021, the United States (US) has not yet implemented Pillar Two. Perhaps this is not surprising, as US rules on global intangible low-taxed income (GILTI) and base erosion and anti-abuse tax (BEAT) are arguably a “form” of Pillar Two. Further progress is unlikely, as President Trump reportedly signalled not long after his second inauguration in January 2025 that global minimum tax would not be implemented in the US.
Nevertheless, numerous jurisdictions across the world have either implemented or are in the process of implementing Pillar Two. To ensure relevant legislative requirements are fulfilled and reporting obligations fully adhered to, impacted MNEs are strongly encouraged to familiarise themselves with the complex legislative frameworks.