Australia Enacts Pillar 2 Global Minimum Tax Laws

General

On December 10, 2024, the Australian GloBE legislation received Royal Assent. This includes:

• Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Act 2024 (the ‘Consequential Law) – to provide for administrative provisions relating to the GloBE rules and consequential amendments to other legislation.

• Taxation (Multinational—Global and Domestic Minimum Tax) Act 2024 (the ‘Law’) – to provide the general framework for the application of the GloBE rules.

• Taxation (Multinational—Global and Domestic Minimum Tax) Imposition Act 2024 (the ‘Imposition Law) – a very short act that provides for the imposition of top-up tax (to comply with Article 55 of the Australian Constitution).

On March 21, 2024, the Australian Treasury issued the Taxation (Multinational—Global and Domestic Minimum Tax) Rules 2024 (the ‘Draft Rules’) – to provide the detailed rules for the application of the GloBE rules. This secondary legislation has not yet been issued in its final form.

The 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.

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

Application of the GloBE Provisions

Whilst the Laws include a number of key definitions and they provides for the general framework of the GloBE rules (including the administrative provisions for filing and payment), the majority of the detailed provisions are provided in the Draft Rules. Whilst many aspects of the OECD Administrative Guidance are reflected in the Draft Rules, there are a number of key omissions.

The Draft Rules include details on:

-computing and allocating income;

-computing and allocating adjusted covered taxes;

-safe harbours;

-adjustments for the DMT;

-application of the rules to investment and tax transparent entities; and

-transitional provisions for MNE Groups.

The Draft Rules are proposed to apply retrospectively from January 1, 2024.

The Explanatory notes to the Draft Rules state that the power to make Rules governing GloBE application was included in the legislation to ensure that any OECD Administrative Guidance can be incorporated efficiently and in a timely manner, while still retaining an appropriate level of parliamentary oversight. It will also allow the swift correction of any unforeseen consequences that arise from the implementation of the draft law.

It also clarifies that the Rules may, via reference, incorporate extrinsic materials in force at the time they are made or at another fixed point in time. Therefore, it may be that the OECD guidance could in future be directly transposed into the Rules.

In the current Law, Section 3 provides that the provisions of the Law and Rules are to be interpreted in a manner consistent with:

-the GloBE Rules;

-the Commentary;

-Agreed Administrative Guidance;

–Safe Harbours and Penalty Relief Guidance; and

-any other document prescribed by the Rules.

The definition of the Administrative Guidance includes all four sets of Administrative Guidance issued by the OECD, including:

-The February 2023 OECD Administrative Guidance;

-The July 2023 OECD Administrative Guidance;

-The December 2023 OECD Administrative Guidance; and

-The June 2024 OECD Administrative Guidance;

On August 22, 2024, the Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Bill 2024 was amended during the legislative process to exclude “GloBE Securitisation Entities” from joint and several liability under the GloBE Rules.

Filing

The Consequential Law inserts Division 127 in Schedule 1 to the Taxation Administration Act 1953 to require the following returns to be filed:

-A GloBE Information Return (GIR) – as provided in the GloBE Rules. Sections 127-10/15 provide that a Designated Local Entity can be appointed to file the GIR on behalf of other in-scope entities of the MNE group in Australia. In addition, the obligation to file a GIR in Australian can be discharged if the GIR is filed by:

• The Ultimate Parent Entity, or

• A Designated Filing Entity

in a foreign country that has a Qualifying Competent Authority Agreement in effect with Australia for the Fiscal Year.

Where the GIR is being filed by either the Ultimate Parent Entity, a Designated Local Entity or the Designated Filing Entity, the Constituent Entity, must file a notification with the Tax Authority by the GIR filing deadline.

-An Australian GloBE Tax Return – this return supplements the GloBE Information Return and contains information for the purposes of administering the GloBE Rules to assess and collect IIR top-up tax and UTPR top-up tax.

-A DMT Return – this return supplements the GloBE Information Return and contains information for the purposes of administering the GloBE Rules to assess and collect Domestic top-up tax

The Australian GloBE Tax Return and the DMT Return are required to be lodged within the time that is specified for the filing of the GIR. This is consistent with the GloBE Rules, which requires filing within 15 months after the end of every Fiscal Year, except for the first Fiscal Year in which a jurisdiction’s domestic implementation of the GloBE Rules are applied by an Applicable MNE Group, where the return must be given within 18 months after the end of the Fiscal Year.

A Group Entity that could be liable for top-up tax is required to file an Australian GloBE and DMT Tax Return even if no GloBE top-up tax is payable.

Payment

GloBE top-up tax or Domestic top-up tax is due by the GIR filing deadline.
Subdivision 128-A of the Consequential Act provides that all group entities (aside from Excluded Entities and GloBE securitisation entities) are jointly and severally liable for any other group entity’s top-up tax liability.