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Australia has now implemented the Global Anti-Base Erosion Model Rules (“GloBE Rules”) by introducing a global and domestic minimum tax, which are a key part of the OECD/G20 Two Pillar Solution to address the tax challenges arising from the digitalisation of the economy (“the Pillar Two rules”). The GloBE rules subjects Multinational Enterprises (“MNEs”) to a global minimum tax rate of 15% in each of the jurisdictions they operate.
On 10 December 2024, the Australian parliament passed the primary legislation that implements the Pillar Two rules. Subsequently, on 23 December 2024, subordinate legislation containing the detailed computational rules was registered as a legislative instrument. This means the GloBE Rules are now in force.
The Australian version of the GloBE rule is generally consistent with the OECD’s Model Rules and includes provisions which reflect principles from the Agreed Administrative Guidance. There are some differences, but the Explanatory Statement to the subordinated legislation includes conversions tables which help identify the Australian legislative reference to OECD Model Rules and vice versa. The OECD has recently confirmed the qualified status of Australia’s legislation on a transitional basis and will complete a full legislative review of implementing jurisdictions in or after 2026.
In a nutshell, the global and domestic minimum tax comprises of:
- a global minimum tax, which consists of 2 interlocking rules:
- the Income Inclusion Rule (IIR), which acts as the primary rule which allows Australia to apply a top-up tax on MNE parent entities located in Australia if the group's effective tax rate in another jurisdiction is below 15%; and
- the Undertaxed Profits Rule (UTPR), which acts as a backstop rule allowing Australia to apply a top-up tax on constituent entities of MNEs located in Australia 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
- a domestic minimum tax (DMT), which provides Australia the ability to claim primary rights to impose top-up tax over any low-taxed profits in Australia, in priority over the IIR and UTPR
The IIR and DMT will apply for tax years starting on or after 1 January 2024, and the UTPR will apply for tax years starting on or after 1 January 2025 (Effective Dates).
The timing of the passing of the legislation and the Effective Dates noted above gives rise to implications for MNEs with an Australian presence that need to prepare financial statements for the year ended 31 December 2024. This can be a difficult task, especially in circumstances where the Australian Taxation Office (ATO) itself is even still considering the need for guidance products to support the new measure, along with whether there is a need to update existing guidance and have been engaging in ongoing consultation with relevant stakeholders.
However, due to the amendments made to the Australian Accounting Standard AASB 112 Income Taxes with respect of the Pillar Two rules, it is necessary for MNEs and their constituents (Group) to consider (along with their auditors):
- whether the Australian GloBE rules apply to the Group and, if so, whether any transitional safe harbour provisions apply;
- If the Australian GloBE rules apply and no safe harbour provisions, then it is necessary to calculate any top-up tax liability as a result of the IIR and/or the DMT; and
- If there are any qualitative disclosures that may assist the users of financial statements in understanding the Group’s exposure to the Australian GloBE rules, including but not limited to key low-tax jurisdictions and description of transactions or commercial circumstances resulting in top-up tax liability.
Impacted MNEs should seek advice from qualified advisors who can assist them to engage with the ATO for advice or clarification of the administration or operations of the Australian GloBE rules. In certain circumstances, a private ruling application may be sought from the ATO regarding the application of a relevant provision of a tax law relating to the global and domestic minimum tax.
Reference / Citation
ATO websites:
- Global and domestic minimum tax | Australian Taxation Office
- Implementation of a global minimum tax and a domestic minimum tax | Australian Taxation Office
Tax legislation:
Taxation (Multinational—Global and Domestic Minimum Tax) Act 2024
Taxation (Multinational—Global and Domestic Minimum Tax) Imposition Act 2024
Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Act 2024
Australian Accounting Standards:
AASB 2023-2 Amendments to Australian Accounting Standards – International Tax Reform – Pillar Two Model Rules
