Pillar Two finally law in Australia in time for 31 December 2024 year end
Finally, after 5 months from when these bills were introduced into parliament, the following bills received royal assent on 10 December 2024 to become law:
- Taxation (Multinational – Global and Domestic Minimum Tax) Imposition Bill 2024 (Imposition Bill), which imposes a top-up tax, namely Australian Domestic Minimum Tax (DMT) and Australian Income Inclusion Rule (IIR) tax with effect for income years commencing on or after 1 January 2024, and the Australian Undertaxed Profits Rule (UTPR) tax with effect for income years commencing on or after 1 January 2025;
- Taxation (Multinational – Global and Domestic Minimum Tax) Bill 2024 (the Assessment Bill), which implements the framework for imposition of the top-up tax for the IIR, UTPR and DMT consistent with the OECD’s Pillar Two Global Anti-Base Erosion (GloBE) Rules; and
- Treasury Laws Amendment (Multinational – Global and Domestic Minimum Tax)(Consequential) Bill 2024 (the Consequential Bill), which contains consequential and miscellaneous provisions necessary for the administration of the top-up tax, consistent with the existing administrative framework under Australian tax law and the GloBE Rules.
Financial reporting implications
As a first step for in scope multinationals, Australian taxpayers need to consider the impact Pillar II will have on its financial statements. The Australian Accounting Standards Board issued AASB 2023-2 Amendments to Australian Accounting Standards – International Tax Reform – Pillar Two Model Rules (June 2023) which amended AASB 112 Income Taxes to introduce:
- a mandatory temporary exception to accounting for deferred taxes arising from the implementation of the Pillar Two model rules published by the OECD; and
- targeted disclosure requirements to help financial statement users better understand an entity’s exposure to income taxes arising from the reform, including separate disclosure of its current income tax expense related to Pillar Two income taxes when Pillar Two legislation is effective.
When applying the temporary exception outlined at (a) for financial reporting purposes, Australian taxpayers need to disclose that they have applied the exception to recognising and disclosing information about the impact of Pillar Two on deferred tax assets and liabilities.
However, taxpayers will still need to disclose separately the impact of Pillar Two on its current income tax expense under (b).
In addition, the taxpayer shall need to disclose qualitative and quantitative information about its exposure to Pillar Two income taxes at the end of the reporting period as outlined below -
- Qualitative information – information about how the taxpayer is affected by Pillar Two legislation and the main jurisdictions in which it is exposed to Pillar Two taxes;
- Quantitative information –
- an indication of the proportion of the taxpayer’s profits that may be subject to Pillar Two income taxes and the average effective tax rate applicable to those profits; or
- an indication of how the taxpayer’s average effective tax rate has changed as a result of Pillar Two.
Australian GloBE Rules and OECD Model Rules
Given Pillar Two has been implemented on a global scale, it is important for multinationals to understand how Australia’s implementation of Pillar Two aligns with the OECD Model Rules (Model Rules). The Australian GloBE Rules were recently introduced by a Legislative Instrument. While the Australian GloBE Rules broadly follow the Model Rules, they are not a strict replication of the Model Rules, and generally include additional detail and some reordering. In some instances, the additional detail is drawn from the OECD Model Commentary and/or OECD Administrative Guidance. Definitions have been incorporated into the sections to which they relate, rather than contained in a separate chapter.
Some of the key differences between the Australian GloBE Rules and the Model Rules are set out below –
| Australian GloBE Rules | Model Rules |
| The DMT imposes 100% of the Top-up Tax calculated for Australian Constituent Entities (CEs), rather than limiting the Top-up Tax by the percentage held by the UPE eg where an Australian CE is held 50% by the Ultimate Parent Entity (UPE), the rules will impose 100% of the Top-up tax on the undertaxed profits compared to 50% under the Model Rules. | Mandatory variation in Model Rules to limit the Top-up Tax by the percentage held by the UPE. |
| Australia’s DMT does not apply to wholly domestic groups or apply a lower revenue threshold, such that the DMT will only currently apply to MNE Groups with annual consolidated revenue of €750 million in two out of the past four income years. | Optional variation in the Model Rules to apply to wholly domestic groups or apply a lower revenue threshold. |
| The monetary threshold in Australia’s DMT rules and GloBE Rules, broadly are denominated in EUR to avoid the annual rebasing calculations and to minimise the difference between the Australian threshold and thresholds set by other jurisdictions. | No requirement to have monetary thresholds in EUR, with specific rules operating that apply to determine the appropriate rates that should be used to translate the EUR thresholds into local currency for the purposes of applying the rules |
Next steps
- Confirm if the multinational group has met the €750 million revenue threshold for at least two of the past four years;
- Discuss with your auditors and group what disclosures and evidence they need for the preparation of the 31 December 2024 financial statements;
- Check if the transitional and permanent Safe Harbour Rules can be applied and whether group has received an assessment that it has a qualified Country-by-Country (CbC) report and qualified financial statements, which it can subsequently use to assess eligibility for availing the Safe Harbour Rules;
- Australian advisors and tax teams should confirm to their group that there is no requirement in Australia to register or provide a notification to the Australian Taxation Office that it is subject to Pillar Two; and
- Prepare for the domestic compliance obligation – this will need to be prepared by local advisors/tax agents with the first reporting obligation due in June 2026.
To discuss how Pillar Two will impact Australian business and next steps, please contact your usual Forvis Mazars advisor or our tax specialists below:
| Brisbane – Jamie Towers | Melbourne – Robert James | Sydney – Lauren Hill |
| +61 7 3218 3900 | +61 3 9252 0800 | +61 2 9922 1166 |
Published: 27 February 2025
Authors: Deepra Sen and Lauren Hill
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.
All rights reserved. This publication in whole or in part may not be reproduced, distributed or used in any manner whatsoever without the express prior and written consent of the Forvis Mazars, except for the use of brief quotations in the press, in social media or in another communication tool, as long as Forvis Mazars and the source of the publication are duly mentioned. In all cases, Forvis Mazars’ intellectual property rights are protected and the Forvis Mazars Group shall not be liable for any use of this publication by third parties, either with or without Forvis Mazars’ prior authorisation. Also please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.