For Australian subsidiaries of large multinational enterprise (MNE) groups, the tax landscape is shifting rapidly. While the Pillar 2 global minimum tax rules were introduced a few years ago, 2026 will see the first filing requirements for groups with a year ending between December 2024 and June 2025.
Understanding these rules and upcoming filing obligations is essential for Australian subsidiaries to meet their obligations and avoid substantial penalties.
The Pillar 2 framework: ensuring a 15% minimum tax rate
Pillar 2 rules are designed to ensure that large MNE groups are subject to a minimum effective tax rate (ETR) of 15% in each jurisdiction where they operate. While the rules stem from an OECD initiative to reduce profit shifting, their practical application in Australia is now a reality.
Who is in scope?
An Australian entity is subject to these rules if it forms part of a large MNE group with annual global revenue of €750 million or more in at least two of the four fiscal years immediately preceding the test year. Notably, for Pillar 2 purposes, the revenue threshold is listed in Euros to eliminate early application of the rules in Australia arising due to foreign currency conversion, as was seen when the Country-by-Country rules were introduced in 2016.
Group mergers, de-mergers, acquisitions or disposals may complicate the Pillar 2 analysis and should be reviewed carefully to ensure that Australian filing obligations are met.
The recovery mechanism
There are three ways that top-up tax in respect of a low-taxed jurisdiction can be collected:
- Qualified Domestic Minimum Tax (DMT): Australia has introduced a DMT, giving it the primary right to collect top-up tax on low-taxed Australian constituent entities.
- Income Inclusion Rule (IIR): This applies by allocating a top-up tax amount to the ultimate parent entity (or an intermediate parent entity, depending on the group structure).
- Undertaxed Profits Rule (UTPR): This serves as a backstop, requiring top-up tax to be paid by other entities in the group if it has not been recovered under an IIR or a qualifying DMT.
Key lodgement obligations
Australian constituent entities in scope will need to make the following filings:
- GloBE Information Return (GIR) or Foreign Lodgement Notification
- Combined Global and Domestic Minimum Tax Return (CGDMTR)
For the first ‘transition year,’ these filings are due 18 months after the fiscal year ends. For subsequent years, this timing narrows to 15 months. For a 31 December 2024 year end, the lodgement due date is 30 June 2026, which has been extended to 31 July 2026 under a blanket concession provided for by the ATO.
Compliance for Australian subsidiaries is required even if no top-up tax is payable (a nil filing is required). It is possible to nominate a designated local entity to undertake filings for all Australian group entities.
The cost of delay
Because groups that are subject to the Pillar 2 rules fall under the significant global entity (SGE) regime, the penalties for late lodgement are severe, with penalties starting at A$165,000 per return filed late, increasing to A$825,000 where the filing remains outstanding for over 16 weeks. While the ATO has noted a ‘soft-landing’ approach for those acting in good faith during the transition period, there will be no blanket penalty concession.
Next steps
We recommend undertaking the following steps:
- Confirm with your ultimate parent entity (UPE) whether your MNE group falls within scope.
- Obtain confirmation as to whether any of the transitional CBC reporting safe harbours are applicable to the Australian group.
- Discuss and agree on the approach for filing the GIR and/or foreign lodgement notification and CGDMTR.
Contact your William Buck advisor today to discuss how these global tax shifts impact your Australian operations.
