A Review of Australia’s Draft Pillar Two Legislation

On March 21, 2024, the Australian Treasury issued draft GloBE legislation for consultation. This includes the:

–Taxation (Multinational—Global and Domestic Minimum Tax) Imposition Bill 2024 (the ‘imposition bill’) – a very short bill that  provides for the imposition of top-up tax (to comply with Article 55 of the Australian constitution)

-Taxation (Multinational—Global and Domestic  Minimum Tax) Bill 2024 (the ‘draft law’) – to provide the general framework for the application of the GloBE rules

-Taxation (Multinational—Global and Domestic Minimum Tax) Rules 2024 (the ‘draft rules’) – to provide the detailed rules for the application of the GloBE rules

-Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Bill 2024 (the ‘draft consequential law) – to provide for administrative provisions relating to the GloBE rules.

The draft legislation includes an income inclusion rule (IIR) and an under-taxed profits rule (UTPR).

The IIR is to apply to financial years beginning on or after January 1, 2024. The UTPR will apply to financial years beginning on or after January 1, 2025. The draft legislation does not yet include provisions for the determination and application of the UTPR rules.

Part 2(2) of the Draft Law provides that Australia will apply a domestic minimum top-up tax (intended to be a QDMTT) for financial years beginning on or after January 1, 2024.

Whilst many aspects of the OECD Administrative Guidance are reflected in the Draft Rules, there are a number of key omissions.