The Australian Taxation Office (ATO) has issued guidance on implementing the OECD/G20 Two Pillar Solution, also known as the Global and Domestic Minimum Tax, for multinational businesses in Australia on 24 June, 2024.
Although this measure has not yet become law, the ATO is proactively working on its implementation. This involves designing domestic returns and creating the essential systems to administer the regulations, which must be completed by 30 June, 2026.
Global and domestic minimum tax
The Global Anti-Base Erosion Rules (GloBE Rules) are a key element of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework’s Two-Pillar Solution to address the tax challenges arising from the digitalisation of the economy.
The aim, to set a minimum on tax rates to discourage large multinational enterprise groups (MNE groups) from moving their profits to countries where they have to pay less tax.
GloBE rules:
- Provide for a coordinated system of taxation intended to ensure large MNE Groups are subject to a global minimum tax rate of 15% in each of the jurisdictions where they operate;
- Are model rules developed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting to inform the design of domestic legislation;
- Consist of two interlocking rules
- The Income Inclusion Rule (IIR) acts as the primary rule which allows jurisdictions to apply a top-up tax on multinational parent entities located in a jurisdiction if the group’s effective tax rate in another jurisdiction is below 15%
- The Undertaxed Profits Rule (UTPR) acts as a backstop rule which allows jurisdictions to apply a top-up tax on constituent entities located in a jurisdiction if the group’s effective tax rate in another jurisdiction is below 15% and where the profit is not brought into charge under an IIR
- Provide the option for jurisdictions to implement a domestic minimum tax, giving a jurisdiction the option to claim primary rights to impose top-up tax over any low-taxed profits in that jurisdiction in priority over the IIR and UTPR.
Pillar Two implementation in Australia
On 9 May 2023, as part of the 2023-24 Budget, the government announced that it would implement key aspects of Pillar Two of the OECD/G20 Two-Pillar Solution to address the tax challenges arising from the digitalisation of the economy.
The Government has proposed changes to implement a global minimum tax and a domestic minimum tax.
Status of ATO implementation
Although the measure is not yet law, the ATO is taking steps to progress it before it becomes law. This includes designing domestic returns and developing the systems required to administer the measure before the first lodgements, due by 30 June 2026.
