What is the simplified ETR test
The simplified effective tax rate (ETR) test is one of the 3 tests that can be used to determine if the transitional country-by-country (CBC) reporting safe harbour applies to a jurisdiction for a fiscal year.
The simplified ETR test uses income tax amounts from qualified financial statements and profit amounts from qualified CBC reports to determine whether the simplified ETR for a jurisdiction is above prescribed thresholds.
The simplified ETR is only used to determine whether the group meets the test for the transitional CBC reporting safe harbour and not to calculate any top-up tax liabilities for jurisdictions where the safe harbour does not apply.
The test is set out in Subdivision C of Division 2 of Part 8-2 of the Taxation (Multinational–Global and Domestic Minimum Tax) Rules 2024 (Australian Minimum Tax Rules).
Simplified ETR formula
A multinational enterprise group (MNE group) satisfies the simplified ETR test if its simplified ETR for the jurisdiction for the fiscal year is equal to or greater than the transition rate for that fiscal year.
An MNE group’s simplified ETR for a jurisdiction is its: simplified covered taxes ÷ profit (loss) before income tax.
Transition rates
The transition rates for fiscal years starting in the following years are as follows:
|
Year |
Rate |
|---|---|
|
2024 |
15% |
|
2025 |
16% |
|
2026 |
17% |
Where the simplified ETR is equal to or greater than the applicable transition rate, the transitional CBC reporting safe harbour will apply.