Pillar Two safe harbours
The Minimum Tax law contains 4 safe harbours. These safe harbours provide different degrees of simplification to multinational enterprise groups (MNE groups) in working out whether they have an Australian top-up tax liability. One of these safe harbours is the transitional country-by-country (CBC) reporting safe harbour.
The transitional CBC reporting safe harbour provisions are:
- contained in Chapter 8 of the Taxation (Multinational–Global and Domestic Minimum Tax) Rules 2024External Link (Australian Minimum Tax Rules)
- supported by OECD materials and the broader legislative framework established by the primary legislation.
What is the transitional CBC reporting safe harbour
The transitional CBC reporting safe harbour can relieve a MNE group from having to undertake detailed top-up tax calculations for a jurisdiction, if the MNE group can demonstrate, based on CBC reporting and financial accounting data, that it meets one of 3 tests for that jurisdiction. It is only available during a transitional period.
An eligible MNE group can elect to apply the transitional CBC reporting safe harbour from the first fiscal year the MNE group becomes subject to the global and domestic minimum tax for a jurisdiction. Where it applies, it deems jurisdictional top-up tax to be zero for that fiscal year. Even where the CBC reporting safe harbour applies, an Australian IIR/UTPR return and Australian DMT return showing Australian IIR, UTPR and DMT tax amounts of zero must still be lodged unless exempted under the draft legislative instrument.
Election to use the transitional CBC reporting safe harbour
An MNE group must make an election for the transitional CBC reporting safe harbour to apply.
Subject to the conditions below, an MNE group can elect to apply the transitional CBC reporting safe harbour for a jurisdiction for a fiscal year.
The election is made annually by a filing constituent entity in Section 2 of the GloBE Information ReturnExternal Link (GIR). The filing constituent entity must specify in that section the particular jurisdiction and fiscal year to which the transitional CBC reporting safe harbour applies.
An election covers ordinary constituent entities and minority-owned constituent entities located in that jurisdiction. However, it will not cover an investment entity or insurance investment entity located in that jurisdiction unless that entity meets certain conditions.
As the transitional CBC reporting safe harbour is tested and applied separately to joint ventures of an MNE group from constituent entities located in the same jurisdiction, a separate transitional CBC reporting safe harbour election must be made in respect of each joint venture group. This election can also be made in Section 2 of the GIR by specifying the joint venture subgroup, jurisdiction and fiscal year.
If you elect to apply the transitional CBC reporting safe harbour, we may ask you to provide information to confirm your eligibility as part of our client engagement approach for Pillar Two. This includes providing information confirming that amounts used for the relevant computations are sourced from qualified CBC reports or directly from qualified financial statements.
Conditions
An MNE group will be eligible for the transitional CBC reporting safe harbour in respect of a jurisdiction for a fiscal year where the relevant conditions are met:
Transitional CBC reporting safe harbour exclusions
The jurisdiction must not be subject to any specific transitional CBC reporting safe harbour exclusions. The following jurisdictions are excluded:
- A jurisdiction in which a stateless constituent entity is taken to be located.
- A jurisdiction with an eligible distribution tax system, in respect of which the MNE group has made a deemed distribution tax election.
- Any jurisdiction of a multi-parented MNE group that does not file a single CBC report that includes all the information for the combined groups.
- A jurisdiction in respect of which the MNE group did not apply the transitional CBC reporting safe harbour in the previous fiscal year (once out, always out), unless the current year is the first fiscal year within the transition period that the MNE group has a constituent entity in the jurisdiction.
- The jurisdiction in which a constituent entity, that is both a flow-through entity and a UPE of the MNE group, is located, unless all ownership interests in the UPE are held by qualified persons.
MNE has a qualified CBC report
Generally, the MNE group must use information from a qualified CBC report prepared and filed using qualified financial statements for the transitional CBC reporting safe harbour. In some cases where a MNE group is not required by a jurisdiction to file a CBC report, it can be treated as having a qualified CBC report for this purpose.
Pass a transitional CBC reporting safe harbour test
The MNE group must satisfy at least one of the 3 transitional CBC reporting safe harbour tests for the jurisdiction and the fiscal year to which the election applies:
The test must be satisfied using the prescribed transitional CBC reporting safe harbour data. There are certain entities which may have restrictions or required adjustments, including certain investment entities, joint ventures, and flow-through UPEs.
Effect of transitional CBC reporting safe harbour
The effect of applying the transitional CBC reporting safe harbour is that the MNE group's jurisdictional top-up tax for that jurisdiction for the fiscal year is deemed to be zero.
An exception to this applies for any investment entities or insurance investment entities located in that jurisdiction. The top-up tax of such an entity is not deemed to be zero unless it meets certain conditions. Non-qualifying investment entities or insurance investment entities must apply the full top-up tax computation rules.
The transitional CBC reporting safe harbour must also be tested, elected and applied separately to joint venture groups.
You do not need to apply the full top-up tax computational rules for the jurisdiction in which the safe harbour applies. You are still obligated to satisfy any filing obligations in Australia, such as the GIR, Australian IIR/UTPR tax return and the Australian DMT tax return. This includes disclosing any Australian IIR, UTPR and DMT tax amounts of zero.
For jurisdictions not covered by the transitional CBC reporting safe harbour for a fiscal year, MNE groups will need to consider the application of the full top-up tax computational rules or other safe harbour, as applicable.
The election to use the transitional CBC reporting safe harbour may impact top-up tax calculations in later fiscal years. This includes certain rules dealing with tax attributes upon MNE groups entering the first year being in-scope of the global and domestic minimum tax.
Transitional period
The transitional CBC reporting safe harbour only applies to a fiscal year within the transition period, being a fiscal year that:
- begins on or before 31 December 2026
- ends on or before 30 June 2028.
For example:
|
Fiscal year start |
Fiscal year end |
Within transition period |
|---|---|---|
|
1 January 2024 |
31 December 2024 |
Yes |
|
1 January 2026 |
30 June 2026 |
Yes |
|
31 December 2026 |
30 June 2028 |
Yes |
|
1 January 2027 |
31 December 2027 |
No |
More information
The application of the transitional CBC reporting safe harbour relies on specific definitions and data requirements. For more detailed information, refer to Chapter 8 of the Australian Minimum Tax Rules.External Link