Pillar Two Collateral - Dec 25

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Pillar Two Updates: Australian PublicCountry-by-Country Global & Domestic Minimum Taxation reporting exemptions

Overview

Key Aspects of PCG 2025/4

Australia has implemented a 15% Global and Domestic

Practical Compliance Guideline PCG 2025/4, issued on

Minimum Tax (Minimum Tax) as part of the OECD/G20

26 November 2025, sets out the ATO's approach in

Pillar Two initiative. This measure ensures large

relation to the Minimum Tax lodgment obligations of

multinational enterprises pay a minimum level of tax in

MNE groups during the Transition Period, covering fiscal

each jurisdiction where they operate, reducing profit

years starting on or before 31 December 2026 and

shifting to low-tax jurisdictions and promoting global tax

ending on or before 30 June 2028. The Guideline states

fairness.

that the ATO’s practical administrative approach aims to balance the need to support taxpayers in understanding

The Minimum Tax adopts the OECD’s Global Anti-Base

and complying with their Minimum Tax obligations with

Erosion (GloBE) Rules, which are central to Pillar Two of

the need to administer the legislation in a manner

the Two-Pillar Solution addressing tax challenges from

consistent with the OECD’s GloBE Rules.

digitalisation. These rules apply to Multinational Enterprise (MNE) groups with annual consolidated

The ATO is taking what it terms a ‘soft-landing’ approach

revenue of EUR 750 million or more (A$1.3 billion at the

to penalties if taxpayers can demonstrate that they have

time of writing) in at least two of the four preceding fiscal

acted in good faith and taken reasonable measures to

years.

understand and comply with their new lodgment obligations. According to the ATO, reasonable measures

Australia’s framework introduces additional lodgment

include:

obligations, inserted into the Taxation Administration

undertaking steps to prepare lodgment of returns on

Act 1953 by the Treasury Laws Amendment

time;

(Multinational—Global and Domestic Minimum Tax) Act

maintaining adequate records of positions taken;

2024 (Minimum Tax Rules).

proactively engaging with the ATO if lodgment delays are anticipated; and remedying mistakes or errors promptly, including proactively contacting the ATO.

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Key Lodgment Obligations

Penalty Application

The Treasury Laws Amendment (Multinational—Global

The existing administrative penalty regime applies to

and Domestic Minimum Tax) (Consequential) Act 2024

Pillar Two obligations. Under the legislation, failure to

introduces four lodgment obligations in respect of the

lodge penalties may apply to each Australian Group

Minimum Tax:

Entity. Base Penalty Amounts (BPA) are aligned with

1. GloBE Information Return (GIR) 2. Foreign Lodgment Notification 3. Australian Income Inclusion Rule/Undertaxed Profits Rule Tax Return (AIUTR) 4. Domestic Minimum Tax (DMT) Return

Significant Global Entity penalties: Failure to lodge penalty (FTL): BPA = 1 penalty unit BPA x 500 False and misleading statement penalty: BPA = 25% shortfall amount

The Foreign Lodgment Notification, AIUTR, and DMT

BPA x 2

Return are consolidated into the Combined Global and Domestic Minimum Tax Return. Additionally, Group

If the Designated Filing Entity (DFE) or DLE lodges late,

Entities may appoint one Australian Group Entity as the

each group entity that nominated the DFE/DLE will be

Designated Local Entity (DLE) to lodge the returns on a

considered as having lodged late, in addition to the

‘one-in, all-in’ basis.

DFE/DLE itself.

Transition Period

First Fiscal Year-end

Lodgment Due Date

Fiscal years ending before 31 December 2024 (fiscal years less than 12 months)

30 June 2026

31 December 2024

30 June 2026

Fiscal Years commencing on or before 31 December

31 January 2025

31 July 2026

2026 and ending on or before 30 June 2028.

28 February 2025

31 August 2026

31 March 2025

30 September 2026

Each entity with a lodgment obligation can be liable to a

30 April 2025

31 October 2026

separate FTL penalty for each separate obligation.

31 May 2025

30 November 2026

During the Transition Period, in circumstances where the

The Transition Period to which PCG 2025/4 applies is defined in the OECD common understanding as the

ATO does impose FTL penalties, provided there have All forms must be lodged within 18 months after the

been reasonable measures taken to comply, they may

MNE’s first fiscal year-end and within 15 months after

reduce them as follows:

the MNE’s subsequent fiscal year-ends.

One FTL penalty in total for the MNE Group in respect of the lodgment obligations contained in the

The Commissioner has discretion to extend the

Combined Global and Domestic Minimum Tax

lodgment date for domestic tax returns, but not for the

Return.

GIR or the Foreign Lodgment Notification.

One FTL penalty in total in respect of the MNE Group’s GIR lodgment obligations.

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The PCG 2025/4 also sets out the ATO’s practical administrative approach to penalties for false or misleading statements in the Minimum Tax context during the Transition Period. It states that during the Transition Period: The ATO will not typically impose penalties for mistakes or errors that were the result of unfamiliarity with the rules during the Transition Period, or for isolated mathematical or transposition errors, provided these errors did not result in a reduction of a Minimum Tax liability in the current or future year.

Where the mistakes or errors result in a reduction of a Minimum Tax liability, the ATO will examine the circumstances that led up to that error before considering if a penalty should be applied.

Where the mistakes or errors can be attributed to a lack of clarity in the Minimum Tax Rules and the MNE Group has taken the appropriate steps to arrive at the correct interpretation, the ATO will typically not impose penalties.

The ATO expects that as MNE groups progress through successive fiscal years under the Minimum Tax regime, their familiarity with the rules and systems will improve.

By the third year, groups should have established processes and knowledge that significantly reduce the likelihood of errors compared to their first year.

Safe Harbours There are four Safe Harbours within the Australian Minimum Tax legislation: 1. Transitional Country-by-Country (CbC) Reporting Safe Harbour.

2. Transitional Undertaxed Profit Rule (UTPR) Safe Harbour.

3. Qualified Domestic Minimum Top-up Tax (QDMTT) Safe Harbour.

4. Non-material Constituent Entity (NMCE) Simplified Calculation Safe Harbour.

Safe Harbour One The Transitional CbC Reporting Safe Harbour allows an MNE Group to use CbC reporting and financial accounting data as the basis for the safe harbour calculation, eliminating the need to undertake detailed GloBE calculations. This safe harbour only applies during the Transition Period. An MNE Group may elect to use the safe harbour if it can demonstrate, based on its Qualified CbC Reports and Qualified Financial Statements, that it meets one of the following: de minimis test, simplified effective tax rate test, or routine profits test. The effect of applying this safe harbour is that the MNE Group's jurisdictional top-up tax for that jurisdiction for the fiscal year is taken to be zero.

Safe Harbour Two The Transitional UTPR Safe Harbour allows an MNE to reduce their UTPR top-up tax amount in respect of the Ultimate Parent Entity (UPE) jurisdiction to nil during the Transition Period if the UPE jurisdiction has a nominal corporate income tax rate of at least 20%. This safe harbour applies to fiscal years beginning on or before 31 December 2025 and ending before 31 December 2026.

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Safe Harbour Three An MNE Group may elect to apply the permanent QDMTT Safe Harbour. This permanent safe harbour eliminates the top-up tax in a jurisdiction, setting it to zero. This is for the purpose of applying an Income Inclusion Rule (IIR) or UTPR in Australia in respect of the jurisdiction,

Tax Consolidated Groups Tax Consolidated Groups (TCGs) for Pillar Two purposes are as defined in Section 703-5 of the ITAA1997, and Multiple-Entry Consolidated (MEC) Groups are as defined in Section 719-5 of the ITAA1997.

where that jurisdiction has a QDMTT enacted within its domestic law and has QDMTT Safe Harbour status. This provides a practical compliance solution that avoids the need to perform both QDMTT and IIR or UTPR calculations for a given jurisdiction.

Safe Harbour Four MNE groups may elect to use the NMCE Simplified Calculation Safe Harbour, which includes a simplified method for determining the GloBE income or loss, GloBE revenue and adjusted covered taxes of an NMCE. Broadly, an NMCE is a constituent entity that has not

Special Allocation Provisions: Subsidiaries of TCGs and MEC groups in Australia may not have any DMT or UTPR top-up tax liability under Sections 2-40 and 2-50 of the Minimum Tax Rules.

Australian Lodgment Obligations: Under the draft legislative instrument LI 2025/D17, subsidiaries of TCGs and MEC groups may be exempt from the DMT Return and/or AIUTR lodgments if subsections 2-40(2), 2-50(2) and (4) of the Minimum Tax Rules apply. The GIR and foreign lodgment notifications cannot be exempt.

been consolidated in the UPE's consolidated financial statements solely due to size or materiality.

There are three elective simplifications available: 1. Consolidated Accounting Treatment: This top-up

This permanent safe harbour allows MNE groups to use simplified calculations for NMCEs to determine whether the de minimis test, the routine profits test, or the effective tax rate test has been met for a jurisdiction under the safe harbour.

tax calculation election is set out in Section 3-200 of the Minimum Tax Rules and allows constituent entities within a TCG to eliminate amounts from intra-group transactions between subsidiary members of a TCG when calculating top-up tax.

2. Aggregated Reporting Election: This GIR reporting

Where an MNE Group meets one of the Simplified Calculation Safe Harbour tests, the top-up tax for the jurisdiction is deemed to be zero, subject to some limited exceptions. Simplified calculations are currently only available for NMCEs. Constituent entities other than NMCEs have to apply the usual GloBE computational rules as part of the Simplified Calculation Safe Harbour.

simplification election, under Section 3.2.4 of the GIR, allows constituent entities within a TCG to report information at the TCG level.

3. Transitional Simplified Reporting Election: This GIR reporting simplification election, also under Section 3.2.4, allows all constituent entities within an MNE group located in a jurisdiction to report information at the jurisdictional level. This election is available for years beginning on or before 31 December 2028, not including any fiscal

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year that ends after 30 June 3030.

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Joint Arrangements A joint arrangement is one in which two or more parties share control over an economic activity. Many joint arrangements are structured as partnerships, trusts, or other contractual arrangements.

Question 2: If an MNE Group operates in a jurisdiction that is not subject to an IIR or DMT in the 2024 fiscal year, and as such is not subject to the Transitional CbC Reporting Safe Harbour in the 2024 fiscal year, can the CbC Reporting Safe Harbour still be relied on for that jurisdiction in the 2025 fiscal year, or does the ‘once out always out’ rule apply in

Joint arrangements may qualify as an entity that falls within Pillar Two if: 1. The joint arrangement meets the definition of an entity under Section 13 of the Minimum Tax Act. 2. The entity is classified and treated as a GloBE Joint Venture or a Constituent Entity under the Accounting Standard AASB 11.

this scenario?

Answer: If a jurisdiction does not have to calculate its effective tax rate, including under the Transitional CbC Reporting Safe Harbour in 2024, because no jurisdiction has taxing rights under an IIR in respect of that jurisdiction, then the Transitional CbC Reporting Safe Harbour can still be relied on in 2025.

Question 3: If Australia has IIR taxing rights over a foreign jurisdiction, should the Transitional CbC Reporting Safe Harbour calculation be undertaken only in respect of the profit before tax, income tax expense, etc. of entities in that foreign jurisdiction that the Australian Parent Entity holds Ownership Interests in, or should it include all entities located in that foreign jurisdiction?

Answer: The Transitional CbC Reporting Safe Harbour calculations are undertaken at a jurisdictional level, and so they should include all entities located in that foreign

Frequently Asked Questions Question 1: If an MNE Group operates in a jurisdiction that is not subject to the IIR or DMT in the 2024 fiscal year, do Transitional CbC Reporting Safe Harbour calculations still have to be undertaken for that jurisdiction and included in the GIR? Answer: No.

jurisdiction.

Question 4: If GIR and/or DMT are completed centrally offshore, can foreign tax practitioners lodge the combined returns through ATO systems? Does the return need to be lodged by the taxpayer or via a local registered tax agent?

Answer: No, non-Australian registered tax agents cannot lodge the combined form for Australian constituent entities.

The GIR can be filed offshore with a designated filing entity.

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Next Steps

Further Resources

To prepare for the implementation of the Minimum Tax

Australian Taxation Office:

Rules in Australia, we recommend the following: 1. Prepare an impact assessment, considering and documenting: a. Whether you fall within the scope of the new rules. b. Whether you and any MNE group entities in Australia will qualify for a safe harbour. c. Whether any top-up tax is expected in a

Global and Domestic Minimum Tax New Legislation Transitional CbC Reporting Safe Harbour Pillar Two Global and Domestic Minimum Tax Working Group Combined Global and Domestic Minimum Tax Return Group Entity (Sample) Combined Global and Domestic Minimum Tax Return Designated Local Entity (Sample)

jurisdiction.

2. Ensure your CbC reporting meets the temporary safe

Legislation:

harbour requirements for data sources, so that you

Taxation (Multinational—Global and Domestic Minimum

can utilise concessions in the short term.

Tax) Bill 2024

3. Determine the information required to prepare the

Taxation (Multinational—Global and Domestic Minimum

safe harbour and Pillar Two calculations, as well as

Tax) Imposition Bill 2024

the income tax returns.

Treasury Laws Amendment (Multinational—Global and

4. If you prepare financial statements for Australia, monitor the status of the draft legislation and consider any disclosures that may be required once it is substantively enacted. Engage with your auditors as needed.

Domestic Minimum Tax) (Consequential) Bill 2024 Taxation (Multinational—Global and Domestic Minimum Tax) Rules 2024 Taxation (Multinational—Global and Domestic Minimum Tax) (Qualified GloBE Taxes) Determination 2025 Legislative Instrument 2025/D17 Practical Compliance Guideline 2025/4

Consult your Pitcher Partners tax specialists if you have

Taxation Ruling 2006/11A6 - Addendum

any questions or would like to begin assessing the impact on your organisation.

OECD: CbC Reporting - BEPS Action 13 GloBE Model Rules GloBE Information Return OECD Illustrative Examples Pillar Two Model Rules Fact Sheets Safe Harbours and Penalty Relief

Taxpayers can refer queries to ATO specialists and receive informal guidance by contacting: Pillar2Project@ato.gov.au. pitcher.com.au

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Appendix A: Top-Up Tax Calculation and Allocation Flow Chart Summary

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Appendix B: Transitional CbC Reporting Safe Harbour Flow Chart

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Let’s Talk If you would like to further discuss the Pillar Two obligations and how they might affect you, please get in touch with our team.

Simon Chun Partner p +61 7 3222 8447 e schun@pitcherpartners.com.au

Murugesh Sheekar Tax Director p +61 7 3222 8332 e msheekar@pitcherpartners.com.au

Adelaide | Brisbane | Melbourne | Newcastle | Perth | Sydney

Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539.

Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities.

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