What is Pillar Two?
Pillar Two introduces a global minimum effective tax rate of 15%, targeting multinational enterprise (MNE) groups with consolidated global revenue exceeding €750 million. This framework is part of the OECD/G20 Inclusive Framework and aims to reduce profit-shifting and establish consistent tax rules across jurisdictions.
Status of Implementation in Australia – Royal Assent Received
On 27 November 2024, the Australian Parliament passed domestic legislation bringing into law Pillar Two of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework.
The legislation received Royal Assent on 10 December 2024, officially bringing into effect Australia’s domestic rules imposing the OECD’s GloBE Model Rules which make up Pillar Two.
Passage of Pillar Two in Australia follows a public consultation period of the three primary legislative instruments, and introduction of the Bills to Parliament for passage in July 2024. The three legislative instruments, as noted below, are retrospective in their application with commencement from 1 January 2024.
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Taxation (Multinational — Global and Domestic Minimum Tax) Bill 2024
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Treasury Laws Amendment (Multinational — Global and Domestic Minimum Tax) (Consequential) Bill 2024
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Taxation (Multinational — Global and Domestic Minimum Tax) Imposition Bill 2024
Subordinate legislation, yet to be passed, provides further details of the Rules, their calculation and operation, and various safe harbour rules. This legislation is to apply from 1 January 2024, in line with the primary bills.
The key Rules and their implementation dates, subject to availability of Transitional Safe Harbour (TSF), are summarised as follows:
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Income Inclusion Rule (IIR) applying to years starting on or after 1 January 2024. The IIR Rule acts as the primary mechanism which allows Australia to apply a top-up tax on MNEs which are either located in Australia, or otherwise subject to the IIR under the Rules, if the group’s effective tax rate in another jurisdiction falls below 15%;
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Domestic Minimum Tax (DMT) applicable to years starting on or after 1 January 2024. The DMT Rule allows Australia to claim primary taxing rights on top-up taxes arising from low-taxed profits in Australia. This applies to constituent entities of MNEs headquartered elsewhere, by implementing a Qualified Domestic Top-up Tax Rule (QDMTT); and,
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Undertaxed Payments Rule (UTPR) applying to years starting on or after 1 January 2025. Operating in conjunction with the IIR, although not effective for years starting on or before 1 January 2025 (i.e., not effective for the 2024 year), the UTPR Rule is considered a ‘backstop’ which allows Australia to apply a further top-up tax on constituent entities located in Australia, if the group’s effective tax rate in another jurisdiction nis below 15% and where those profits are not charged under an IIR.
What does this mean for Australian MNEs?
Compliance – Tax
Forms to administer Australian compliance obligations are still under consultation and development with the Australian Taxation Office (ATO), however, the framework of each obligation expected is as follows:
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GloBE Information Return (GIR) – provides data to help tax administrators evaluate an MNE's compliance with the GloBE Rules. Each entity is required to lodge a GIR by default, however the entities have the ability to nominate another entity in the group to lodge the GIR on their behalf, whether to the ATO or a foreign entity lodging to a foreign government agency.
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Foreign Lodgement Notification – group entities are required to lodge a foreign lodgement notification, where they have nominated a foreign entity to lodge the GIR on their behalf to a foreign government agency.
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Australian IIR/UTPR Tax Return (AIUTR) – Australian top up tax return where an Australian entity may be subject to IIR/UTPR tax amount, even if it is Nil.
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Domestic Minimum Tax Return (DMTR) – Domestic top up tax return to assess and pay liabilities determined under the QDMTT Rule, even if it is a Nil amount. Where more than one constituent entity operates in the tax jurisdiction, they may nominate a single designated local entity to file on their behalf.
Entities may nominate a designated local entity to file these obligations on their behalf. This may occur in such instances where an MNE has multiple constituent entities in Australia, to which one entity is designated the local reporting entity for Pillar Two compliance purposes.
All obligations are required to be lodged 18-months after the end of the first fiscal year and 15-months after the end of each subsequent fiscal year.
Financial Reporting
The Australian Accounting Standards Board (AASB) has previously issued AASB 2023-2 Amendments to Australian Accounting Standards – International tax Reform – Pillar Two Model Rules.
AASB 2023-2 amends AASB 112 Income Taxes by extending temporary relief from accounting for deferred taxes arising because of Pillar Two. A mandatory temporary exception to accounting for deferred taxes must be disclosed in the financial statements.
Further, the financial reports must separately disclose the amount of current income tax expense/(benefit) attributable to Pillar Two as well as provide qualitative and quantitative information about the entity’s exposure to Pillar Two. Qualitative information may include an indication of how Pillar Two legislation applies to the entity (e.g., which Rules apply to the entity and its assessment of current year exposure), and the main jurisdictions in which exposure might exist. Quantitative information may include what portion of profits may be subject to Pillar Two and the effective tax rate applicable to those profits.
These disclosure requirements necessitate a detailed review of Pillar Two at a group level to understand the implication for each constituent entity, and the jurisdiction to which they report.
How can Moore help?
The introduction of Pillar Two brings significant tax and reporting obligations for multinational enterprises, regardless of their primary tax jurisdiction’s status of implementation. There are equally significant data collection requirements on the horizon, and we recommend that MNEs engage with tax and financial reporting advisors to understand if their current systems can accommodate these requirements, as well as meet the prescribed reporting and tax deadlines.
At Moore Australia, we tailor to your specific requirements. We have a global network of trusted specialist advisors who are well connected and available to assist with all your Pillar Two requirements from end-to-end compliance and advisory, to a targeted and bespoke solution to suit your needs.
Through our Moore Global network we have partnered with Wolters Kluwer and have acquired a global license to their newly developed BEPS Pillar Two corporate tax management module, which is part of their CCH Integrator global corporate tax platform.
Whatever your need, our advisors will assist in tailoring a solution that fits your business, and provide ongoing guidance through the analysis, implementation, calculation, and compliance process.
Click here for more information about how Moore Australia can help you on your Pillar Two journey.