Australia's Treasury is consulting on amendments to its multinational top-up tax framework, aligning domestic rules with the latest OECD GloBE guidance to preserve the country's qualified jurisdiction status under Pillar Two.
Australia’s Treasury has initiated a public consultation, on 1 May 2026, on the Taxation (Multinational—Global and Domestic Minimum Tax) Amendment (2026 Measures No. 2) Rules 2026 (the Amending Rules), which amends the Taxation (Multinational—Global and Domestic Minimum Tax) Rules 2024.
The Taxation (Multinational—Global and Domestic Minimum Tax) Amendment (2026 Measures No. 2) Rules 2026 (the Amending Rules) were introduced to ensure that Australia’s domestic framework for multinational top-up tax remains consistent with the OECD GloBE Rules and incorporates the latest Agreed Administrative Guidance. These amendments are critical for maintaining Australia’s “qualified status” in its implementation of these international tax standards.
The Amending Rules incorporate elements from OECD guidance released in December 2023, June 2024, and January 2026.
By aligning with the OECD’s Pillar Two initiative, these rules aim to maintain Australia’s status as a qualified jurisdiction for taxing massive enterprise groups. Ultimately, the statement serves as a technical guide for implementing a fairer global tax system through coordinated, retrospective regulatory measures.
The key changes include:
Modifications to Flow-through Entities (Chapter 3)
The rules regarding Flow-through Entities have been refined to ensure that Financial Accounting Net Income or Loss (FANIL) is allocated appropriately.
The classification of a Flow-through Entity as either a Tax Transparent Entity or a Reverse Hybrid Entity is now determined by the tax law of the jurisdiction of the “Reference Entity” (the owner closest to the entity in the ownership chain that is not itself a flow-through entity). Income is only allocated to a Constituent Entity-owner if that owner is actually subject to tax on that income. This ensures that income and the taxes paid on it are included in the same jurisdictional Effective Tax Rate (ETR) calculation.
Blended CFC Allocation Key (Section 4-55)
The Amending Rules expand the Blended Controlled Foreign Corporation (CFC) Allocation Key to ensure Covered Taxes are allocated consistently across all relevant entities, including those that are not Constituent Entities.
The allocation rules now explicitly apply to Permanent Establishments (PEs).
Minor amendments remove the requirement that an entity be located in the same jurisdiction as the tested Constituent Entity, ensuring the allocation formula works correctly regardless of location.
For entities not required to compute an ETR (e.g., those using a Safe Harbour), the rules provide an alternative methodology to calculate the Blended CFC Allocation Key.
Substitute Loss Carry Forward Rule (Section 4-95)
The provisions for Substitute Loss Carry-Forward Deferred Tax Assets (SLCF DTAs) have been restructured into three distinct categories based on how a jurisdiction’s tax regime applies:
- Category 1: Where a jurisdiction requires foreign source income to be offset by domestic losses before applying foreign tax credits, allowing those credits to be carried forward.
- Category 2: Where a jurisdiction allows domestic source income from a later year to be recharacterised as foreign source income to use foreign tax credits.
- Category 3: A combination where both credit carry-forwards and income recharacterisation are permitted.
Safe Harbour Amendments (Chapter 8)
Several amendments have been made to ensure Safe Harbours function correctly and align with OECD agreements.
The Transitional CbCR Safe Harbour’s transition period has been extended by 12 months, now covering fiscal years beginning before 31 December 2027 and ending before 1 July 2029. Clarifications have also been introduced regarding PE income tax allocation, ensuring such taxes are attributed to the PE’s jurisdiction rather than the Main Entity’s for the simplified ETR test.
Additionally, new rules address Investment and Insurance Investment Entities to prevent double counting in CbC Reports, while the QDMTT Safe Harbour has been expanded to include Stateless Constituent Entities and Stateless JVs, enabling them to benefit from the safe harbour where a Qualified Domestic Minimum Top-up Tax applies.
Commencement and Application
The Amending Rules commence the day after registration but apply retrospectively from 1 January 2024. This retrospectivity is intended to align with the global start date of OECD Pillar Two and maintain a coordinated international approach.
The consultation is set to conclude on 22 May 2026.
