Australia Issues Rules for the Detailed Application of the Global Minimum Tax

On December 23, 2024, Australia issued the Taxation (Multinational—Global and Domestic Minimum Tax) Rules 2024 to provide for the detailed application of the Pillar 2 GloBE rules in Australia. The Rules apply from 1 January 2024.

This follows the following primary legislation that was gazetted on December 10, 2024:

Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Act 2024

Taxation (Multinational—Global and Domestic Minimum Tax) Act 2024

Taxation (Multinational—Global and Domestic Minimum Tax) Imposition Act 2024

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 QDMTT) for financial years beginning on or after January 1, 2024.

The Rules provide for the detailed application of the GloBE rules including:

-The design of the DMTT

-Currency conversion adjustments

-GloBE income and adjusted covered taxes adjustments

-Corporate restructurings and holding structures 

-Tax neutrality and distribution regimes

-Transition rules

-Safe Harbours

Domestic Minimum Top-up Tax (DMTT)

The DMTT applies to:

-Constituent Entities located in Australia; 

-Stateless Constituent Entities created in Australia; 

-A Main Entity not located in Australia with a Permanent Establishment located in Australia; or

• JVs, or JV Subsidiaries located in Australia

Note that it also applies the provisions of the June 2024 OECD Administrative Guidance so that a Securitisation Entity will only have a DMTT liability if all the entities located in Australia are Securitisation Entities.

It also includes the pushdown restriction for PEs/CFCs/Hybrid entities (which also includes reverse hybrid entities) and distributions (aside from Australian withholding tax).

Safe Harbours

Part 8-2 of the rules includes the Transitional CbCR Safe Harbour. The application of the Safe Harbour rules align with the OECD Safe Harbour guidance.

The rules also include a number of aspects from the December 2023 OECD Administrative Guidance that include additional provisions for the Transitional CbCR Safe Harbour, including:

-Purchase Accounting Adjustments (the consistent reporting condition, goodwill impairment adjustment)

-Same Financial Statements/Local Financial Statements for Statutory Reporting

-Using different accounting standards

-Adjustments to Qualified Financial Statements/Dividend Mismatches

-MNEs not required to file CbC Reports

-Hybrid Arbitrage adjustments

Section 8-200-220 of the rules provide for the QDMTT Safe Harbour. It provides that the Minister will issue a legislative notice to determine jurisdictions that have QDMTT Safe Harbour status. Section 8-220 also provides for the application of the Switch-Off rule. This applies to:

-Flow-through Entities – UPEs not required to apply a QDMTT

-Flow-through Entities – Constituent Entities not required to apply a QDMTT

-OECD Securitisation Entities not required to apply a QDMTT

-JV entities not required to apply a QDMTT

-Investment Entities not required to apply a QDMTT

-Initial phase of international activity exemption (where it applies with no limitation)

Section 8-155-195 of the rules provide for the Simplified Calculations Safe Harbour with this applying to Non-Material Constituent Entities under Section 8-175 of the draft rules.

The Transitional UTPR Safe Harbour is included in Section 8-225.

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 Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Bill 2024 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.