Australia Issues a Draft Instrument for IIR/UTPR/QDMTT Filing Exemptions

On August 27, 2025, the Australian Taxation Office issued a draft legislative instrument (the ‘Taxation Administration (Exemptions from Requirement to Lodge Australian IIR/UTPR tax return and Australian DMT tax return) Determination 2025’). This outlines situations when entities within the scope of the Pillar 2 GloBE rules do not need to file an Australian Domestic Minimum Tax (DMT) Return or a Tax Return under the Income Inclusion Rule (IIR Return) or Under-Taxed Profits Rule (UTPR Return) .

The Draft Instrument provides an IIR/UTPR/DMT filing exemption which is targeted at situations where no IIR/UTPR/DMT tax liability could arise.

Exemption from DMT Return filing  for members of consolidated groups and MEC groups

Section 6 of the Draft Instrument provides that a Group Entity of an Applicable MNE Group need not file an Australian DMT tax return for a Fiscal Year if it is a subsidiary member of a consolidated group or a Multiple Entry Consolidated Group (MEC group) to which subsection 2-40(2) of the Minimum Tax Rules applies for the Fiscal Year.

Sections 2-40/2-50 of the Rules apply a special rule for Australian tax consolidated groups. This applies to a Constituent Entity of an MNE Group that:

(a) is a subsidiary member of a consolidated group; and

(b) is not any of the following:

(i) an Investment Entity;

(ii) an Insurance Investment Entity;

(iii) a Securitisation Entity for the Fiscal Year.

If a low-taxed constituent entity has an amount of UTPR or DMTT, the head company will be liable to pay the Top-up Tax Amount. The low-taxed constituent entity will, therefore, not have any Top-up Tax liability, as the entire Top-up Tax Amount will be allocated to the head company. This also applies to Australian MECs.

Section 7 of the Draft Instrument also applies this exemption to file a DMT return to Joint Venture or a JV Subsidiary of an Applicable MNE Group if:

(a) it is a subsidiary member of a consolidated group or a MEC group to which subsection 2-40(2) of the Minimum Tax Rules applies for the Fiscal Year; or

(b) all of the following apply for the Fiscal Year:

(i)it is not GloBE located in Australia;

(ii)it is not a Flow-through Entity that was created in Australia;

(iii)it is not a GloBE Main Entity in respect of a GloBE Permanent Establishment that is GloBE located in Australia; and

(iv)it is not a GloBE Main Entity in respect of a GloBE Permanent Establishment, and that is a place of business (including a deemed place of business) in Australia.

Exemption from DMT return filing for certain Group Entities that are not GloBE located in Australia 

Section 8 of the Draft Instrument provides that a Group Entity of an Applicable MNE Group need not file an Australian DMT tax return for a Fiscal Year if the Group Entity is not GloBE located in Australia for the Fiscal Year.

This does not apply if the Group Entity is:

(a) a Stateless Constituent Entity that was created in Australia;

(b) a GloBE Main Entity in respect of a GloBE Permanent Establishment that is GloBE located in Australia; or

(c) a GloBE Main Entity in respect of a GloBE Permanent Establishment and that is a place of business (including a deemed place of business) in Australia.

Exemption from DMT return filing for certain GloBE Securitisation Entities 

Section 9 of the Draft Instrument exempts a GloBE Securitisation Entity from the requirement to file an Australian DMT tax return for a Fiscal Year. This exemption applies to Group Entities, GloBE Joint Ventures and GloBE JV Subsidiaries of GloBE Joint Ventures of Applicable MNE Groups if they are a Globe Securitisation Entity.

This does not apply if the only Constituent Entities of the MNE Group that are GloBE located in Australia are GloBE Securitisation Entities. In that case, GloBE Securitisation Entities can be allocated Top-up Tax and can have an Australian DMT tax amount greater than zero and would be required to file a DMT Return.

Exemption from DMT return filing for certain Flow-through Entities 

Section 10 of the Draft Instrument exempts Group Entities of Applicable MNE Groups that are Flow-through Entities from the requirement to file an Australian DMT tax return, except in cases where the Flow-through Entity could have an Australian DMT tax amount greater than zero. This exemption  is not available to GloBE Joint Ventures and GloBE JV Subsidiaries of an Applicable MNE Group.

The Group Entity must be a Flow-through Entity for the Fiscal Year, but not any of the following:

(a) a Reverse Hybrid Entity that is created in Australia

(b) a GloBE Main Entity in respect of a GloBE Permanent Establishment that is GloBE located in Australia

(c) a GloBE Main Entity in respect of a GloBE Permanent Establishment that is a place of business (including a deemed place of business) in Australia

(d) a GloBE UPE that is GloBE located in Australia (a Flow-through Entity created in Australia that is a GloBE UPE is GloBE located in Australia).

It is also required that the Group Entity’s FANIL must have been reduced to zero by applying the method outlined in subsection 3-255(1) of the Minimum Tax Rules, or would have been reduced to zero if that subsection had applied to the Group Entity for the Fiscal Year.

Section 10 of the Draft Instrument also specifically requires that the Group Entity does not have a Domestic Top-up Tax Amount greater than zero for the Fiscal Year.

In addition the DMT filing exemption would not apply where the Group Entity would have been the GloBE Ultimate Parent Entity of the Applicable MNE Group if any Controlling Interest in the Group Entity held by a GloBE Excluded Entity had been disregarded.

Exemption from the requirement to file an Australian IIR/UTPR tax return

Section 11 of the Draft Instrument provides an exemption for IIR/UTPR filing under specific circumstances where neither of these liabilities could arise.

It provides that a Group Entity of an Applicable MNE Group need not file an Australian IIR tax return for a Fiscal Year if, for the Fiscal Year:

(a) the Group Entity is:

(i) not a Parent Entity that is GloBE located in Australia for the Fiscal Year;

(ii) a Parent Entity that is GloBE located in Australia for the Fiscal Year and all the Constituent Entities, GloBE Joint Ventures and GloBE JV Subsidiaries of the Applicable MNE Group in which it holds a Direct Ownership Interest or an Indirect Ownership Interest are GloBE located in Australia for the Fiscal Year; or

(iii) a Parent Entity that is GloBE located in Australia for the Fiscal Year and to which the top-down ordering rule applies, such that it does not have an IIR Top-up Tax Amount for the Fiscal Year; and

(b) any of the following apply:

(i) the Group Entity is a subsidiary member of a consolidated group or MEC group to which subsection 2-50(2) of the Minimum Tax Rules applies for the Fiscal Year;

(ii) the Group Entity is not GloBE located in Australia for the Fiscal Year and it is not a GloBE Main Entity in respect of a GloBE Permanent Establishment that is GloBE located in Australia for the Fiscal Year;

(iii) the Group Entity is a GloBE Investment Entity or Insurance Investment Entity for the Fiscal Year;

(iv) the Group Entity is a GloBE Securitisation Entity; or

(v) any of the circumstances specified below apply in respect of the Applicable MNE Group for the Fiscal Year:

Circumstance 1 – the Total UTPR Top-up Tax Amount of the Applicable MNE Group would be reduced to zero for the Fiscal Year under section 2-55 of the Minimum Tax Rules if the assumptions below were made (ie due to the application of one or more QIIRs switching off Australia’s UTPR taxing rights) ; or

Circumstance 2 – The filing Constituent Entity has made, or could have made, a Transitional UTPR Safe Harbour election and the following amounts would be reduced to zero if the assumptions below were made:

(i) the Top-up Tax of each LTCE of the Applicable MNE Group, other than a Constituent Entity that is GloBE located in the GloBE UPE jurisdiction; and

(ii) the GloBE UPE’s Allocable Share of the Top-up Tax of each GloBE Joint Venture, and of each of its GloBE JV Subsidiaries, of the Applicable MNE Group, other than a GloBE Joint Venture or GloBE JV Subsidiary that is GloBE located in the GloBE UPE jurisdiction..

This effectively applies where there is one or more QIIRs switching off Australia’s UTPR taxing rights, in combination with the Applicable MNE Group’s eligibility for the Transitional UTPR Safe Harbour to the jurisdiction of the GloBE UPE.

The assumptions for the purposes of the above are that:

Assumption 1 – each Constituent Entity, GloBE Joint Venture and GloBE JV Subsidiary of the Applicable MNE Group, other than a Constituent Entity, GloBE Joint Venture or GloBE JV Subsidiary to which subsections 2-25(1) or (5) of the Minimum Tax Rules would apply, has an amount of Top-up Tax for the Fiscal Year greater than zero before any adjustments under section 2-55 of the Minimum Tax Rules;

Assumption 2 – each Constituent Entity of the Applicable MNE Group to which paragraph (a) applies is a Low-Taxed Constituent Entity for the Fiscal Year; and

Assumption 3 – each Constituent Entity, GloBE Joint Venture or GloBE JV Subsidiary of the Applicable MNE Group to which paragraph (a) applies has an amount of GloBE Income for the Fiscal Year greater than zero for the purposes of working out a Parent Entity’s Allocable Share of the Top-up Tax of the Constituent Entity, GloBE Joint Venture or GloBE JV Subsidiary.