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When and how the Pillar Two rules apply

Work out how the Pillar Two global and domestic minimum tax rules work and when and who they apply to.

Last updated 17 December 2025

The Australian Pillar Two rules

The Australian global and domestic minimum tax implements the Global Anti-Base Erosion Model RulesExternal Link (GloBE Rules) through primary and subordinate legislation, referred to together as the Minimum Tax law.

The primary legislation includes the:

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

The subordinate legislation includes the:

  • Federal Register of Legislation – Taxation (Multinational–Global and Domestic Minimum Tax) Rules 2024 (Australian Minimum Tax Rules)
  • Federal Register of Legislation - Taxation (Multinational–Global and Domestic Minimum Tax) (Qualified GloBE Taxes) Determination 2025

The Minimum Tax law is to be interpreted in a manner consistent with specific Organisation for Economic Co-operation and Development (OECD) guidance materials for GloBE. Such materials include the GloBE Model Rules, commentary, and agreed administrative guidance.

When the rules apply

The primary legislation provides that the:

  • Income Inclusion Rule (IIR) and the domestic minimum tax apply to fiscal years starting on or after 1 January 2024.
  • Undertaxed Profits Rule (UTPR) applies to fiscal years starting on or after 1 January 2025.

Who the rules apply to

The Australian global and domestic minimum tax applies to constituent entities that are members of a multinational enterprise group (MNE group) with annual revenue of 750 million Euros or more in the consolidated financial statements of the ultimate parent entity (UPE).

Broadly, constituent entities are members of an MNE group which are not classified as excluded entities under the Minimum Tax law. An MNE group is a group, in most cases determined under accounting consolidation principles, for which there is at least one entity or permanent establishment that is not located in the jurisdiction of the UPE.

  • An entity means any legal person (other than a natural person) or an arrangement that is required to prepare separate financial accounts, such as a partnership or trust.
  • The primary legislation defines the term permanent establishment for the purposes of the Australian global and domestic minimum tax (explained further below).

If the MNE group's annual revenue, as shown in the UPEs consolidated financial statements, meets or exceeds the revenue threshold in at least 2 of the 4 fiscal years preceding the test year, then the MNE group is in-scope.

The domestic minimum tax broadly applies to Australian constituent entities in MNE groups to which the global minimum tax applies.

Entities excluded from the rules

Certain entities of an MNE group are excluded from the operation of the Australian global and domestic minimum tax (known as GloBE excluded entities).

Some examples of excluded entities include government entities, international organisations, non-profit organisations, certain service entities and pension funds, as well as UPEs which are either an investment fund or a real estate investment vehicle.

The definition for GloBE excluded entities in the Minimum Tax law is based on the GloBE Rules. A subsidiary of a GloBE excluded entity is not automatically excluded and should be evaluated in its own respect.

Records must be kept that explain their determination as being an excluded entity.

Consequence of being a GloBE excluded entity

Broadly, if an entity in a MNE group is a GloBE excluded entity then it will:

  • not have an obligation to lodge returns for the purposes of the Australian global and domestic minimum tax
  • not be liable to top-up tax, since IIR, UTPR and the domestic minimum tax do not apply.

Where an MNE group is composed entirely of GloBE excluded entities, the group is excluded from the operation of the Australian global and domestic minimum tax completely.

Where an MNE group is not wholly comprised of GloBE excluded entities, some obligations may still apply in respect to excluded entities. For example:

  • revenue of GloBE excluded entities is included in ascertaining whether the 750 million Euro revenue threshold has been satisfied
  • certain disclosures in respect of GloBE excluded entities that are within a MNE group may be required in the GloBE Information ReturnExternal Link.

How the rules apply

The Australian global and domestic minimum tax is applied to an entity with an IIR, DMT or UTPR top-up tax amount. Broadly, the top-up tax amount is calculated via the following steps:

  1. Calculate the effective tax rate (ETR) of a jurisdiction: The net income of each constituent entity located in the jurisdiction is determined, followed by the taxes attributable to the net income (subject to reporting simplifications). The ETR is determined by dividing the total taxes by the total net income. The mechanisms for calculating net income and attributable taxes are located in the Australian Minimum Tax Rules and refers to financial accounting data with GloBE specific adjustments.
  2. Calculate the top-up tax for the jurisdiction: MNE groups with an ETR in a jurisdiction below 15% are charged top-up tax relating to the jurisdiction. The tax charged is based on the difference between the 15% minimum rate and the ETR in the jurisdiction. While this is the base case, there are other situations in which top-up tax may arise under the Australian Minimum Tax Rules.
  3. Determine the top-up tax liability for the entity: The jurisdiction's top-up tax is allocated among the relevant entities, determined by mechanisms located in the Australian Minimum Tax Rules. If the MNE group's ETR in Australia is below 15%, constituent entities located in Australia will be allocated and liable for a domestic top-up tax amount. If the MNE group's ETR in a foreign jurisdiction is below 15%, an IIR or UTPR top-up tax amount may be imposed on constituent entities located in Australia, depending on the MNE group's structure and ordering rules located in the Australian Minimum Tax Rules. In some situations, stateless constituent entities with an ETR below 15% can also be allocated domestic top-up tax amounts.

Further detail can also be found in the OECD's Pillar Two Model Rules Fact Sheets (PDF, 170KB)This link will download a file.

Top-up tax can also be applied to an MNE group in respect to certain joint arrangements.

Special rules apply when calculating the top-up tax amounts for certain entities, groups, and arrangements. These rules are intended to cater for different tax regimes and holding structures and can classify entities based on various characteristics, including how they might be treated for tax or accounting purposes.

These special rules can apply to entities, groups and arrangements such as a GloBE permanent establishment, flow-through entity, GloBE JV or GloBE JV subsidiary, GloBE investment entity, minority-owned entity and multi-parented group. They may adjust:

  • the jurisdiction the constituent entity is treated as being located in, or whether it is considered stateless (stateless entities are effectively each treated as being located in a separate fictional jurisdiction for the purposes of calculating top-up tax)
  • whether the ETR is calculated on a standalone basis separate from other constituent entities in the same jurisdiction
  • the income and taxes attributed to a certain jurisdiction
  • which entity is allocated and liable for the top-up tax.

Multinationals must thoroughly evaluate their group structure and how their entities are treated in each jurisdiction when determining how the rules apply.

GloBE location

Each constituent entity is treated as being in one jurisdiction only for a fiscal year, including where it changes its location. There are rules in Division 4 of Part 5 of the Minimum Tax Act to determine the location of entities and GloBE permanent establishments.

Where an entity changes its location, it is taken to be located in the jurisdiction in which it was located at the start of the fiscal year.

Most entities will be treated as being located in Australia if considered an Australian resident for tax purposes. If not an Australian resident, the location is generally the place of management or place of creation. Specifically, where an entity that is not a flow-through entity, is an Australian resident under section 6 of the Income Tax Assessment Act 1936, and is not, for the purposes of a tax treaty, deemed a resident solely of a foreign country under the treaty's tie-breaker rules, it is treated as being located in Australia.

Different rules may apply if the entity is considered a GloBE permanent establishment, fiscally transparent, or is dual located.

Dual located entities

If an entity is considered to be located in more than one jurisdiction (that is, dual located), section 10-60 of the Australian Minimum Tax Rules contains its own tie-breaker rules to determine location.

Where a tax treaty between the relevant jurisdictions contains a residency tie-breaker rule, and that rule deems an entity to be resident only of one of the jurisdictions for the purposes of the treaty, the entity will be located in that jurisdiction.

In other cases, the rules deem location broadly based on the amount of taxes paid or tangible fixed assets and payroll expenditure in each jurisdiction, or otherwise where the entity was created if the entity is the UPE.

Dual located parent entities

An override to the tie-breaker rules may apply if the overseas jurisdiction does not apply the IIR and the relevant entity is a parent entity.

Specifically, if an Australian resident parent entity is considered dual located, and section 10-60 of the Australian Minimum Tax Rules deems it as located in a jurisdiction that has not implemented the IIR, section 10-65 deems the parent entity as being located in Australia where Australia is not restricted from taxing the parent entity under the relevant tax treaty.

GloBE permanent establishments

The application of the rules to permanent establishments depends on whether the arrangement meets the definition of a GloBE permanent establishment. This concept is defined differently to how a permanent establishment is defined in other legislation, such as the Income Tax Assessment Act 1997.

GloBE permanent establishments are treated as constituent entities and subject to top-up tax. Any liabilities and obligations are placed on the main entity. A main entity:

  • is the entity that includes the financial accounting net income or loss of the GloBE permanent establishment in its financial accounts, and
  • must be located in a separate jurisdiction.

Section 19 of the Minimum Tax Act defines a GloBE permanent establishment to include the following simplified scenarios:

  1. Where an entity has a place of business in a jurisdiction, that constitutes a permanent establishment in accordance with an applicable tax treaty, if the income attributable to it is taxed by that jurisdiction in accordance with a provision similar to Article 7 of the OECD Model Tax Convention.
  2. Where there is no tax treaty, but the entity has a place of business in a jurisdiction and the income attributable to that place of business is taxed under the local income tax laws on a net basis similar to how its residents are taxed.
  3. Where a jurisdiction has no corporate income tax system, but the entity has a place of business in the jurisdiction that would have been treated as a permanent establishment under the OECD Model Tax Convention and had the right to tax in accordance with Article 7 of that Convention.
  4. Where scenarios 1–3 do not apply, a place of business through which an entity's operations are conducted outside the jurisdiction in which the entity is located, if the income attributable to it is exempt from taxation in the entity's jurisdiction.

Any top-up tax that would otherwise be allocated to a permanent establishment is imposed on the main entity. The allocation of income and taxes between the main entity and permanent establishment depends on the scenario type of the GloBE permanent establishment. For scenarios 1–3, it follows the attribution of income and expenses under the tax treaty, local tax laws where the permanent establishment is located, or the amounts that would have been attributed in accordance with Article 7 under the OECD Model Tax Convention.

The location of the GloBE permanent establishments falling under scenario 1–3 is where the place of business was determined to be. A GloBE permanent establishment falling under scenario 4 is considered stateless.

Flow-through entities

Broadly, under Chapter 10 of the Australian Minimum Tax Rules, an entity is a flow-through entity to the extent that it is fiscally transparent with respect to its income, expenditure, profit or loss in the jurisdiction the entity was created. A constituent entity is treated as fiscally transparent when the income, expenditure, profit or loss of that entity is treated as if it were derived or incurred by the direct owner in proportion to its ownership interest.

The Australian Minimum Tax Rules also have different classifications of an entity depending on whether it is fiscally transparent in its creation jurisdiction, its owner's jurisdiction or both. Flow-through entities will be a:

  • tax transparent entity if its owners treat it as fiscally transparent
  • reverse hybrid entity if the owners treat it as opaque.

These classifications impact the allocation of income and taxes between the constituent entity and its owners, noting there are special rules that apply to flow-through entities that are UPEs.

A flow-through entity that is a UPE or required to apply a qualified IIR will be treated as located where it was created. A flow-through entity that is neither a UPE nor required to apply a qualified IIR will be considered stateless.

Joint arrangements

The Australian global and domestic minimum tax may apply to certain types of arrangements. This may include arrangements classified as joint arrangements under accounting standards.

The first consideration is whether the arrangement falls within the definition of entity under section 13 of the Minimum Tax Act (or gives rise to a GloBE permanent establishment of a main entity). Joint arrangements can be unincorporated and so must prepare separate financial accounts to be an entity. An unincorporated arrangement that is not a legal person and which is not required to prepare separate financial accounts, is not an entity for this purpose.

If the arrangement meets the definition of entity, its treatment depends on how the arrangement is classified under the global and domestic minimum tax framework, including whether it is a GloBE JV or a constituent entity. If an arrangement does not meet an applicable classification (and it is not GloBE permanent establishment of an in-scope entity) it is not directly recognised under the Australian global and domestic minimum tax and will not be subject to separate top-up tax or reporting obligations.

Classifications of joint arrangements

This table is a guide only. It provides examples of the classification of an arrangement, once it is determined to be an entity, in certain fact patterns. Every arrangement must be evaluated based on their particular facts and circumstances.

Type

Conditions

Treatment

GloBE JV

Equity-accounted UPE holds ≥ 50% ownership interest percentage.

Not excluded under subsection 26(2).

Top-up tax calculated separately for a deemed JV group, which consists of the GloBE JV and its subsidiaries.

  • DMT top-up tax directly imposed on GloBE JV and GloBE JV subsidiaries.
  • IIR and UTPR top-up tax imposed on the MNE group in respect of the GloBE JV.

Constituent entity

Consolidated line-by-line in the UPE’s financial statements (i.e. be a group entity).

Not a GloBE excluded entity.

Top-up tax calculated at the jurisdictional level pooling all constituent entities in that jurisdiction that are part of the same ETR calculation.

If your arrangement does not constitute an entity or a GloBE permanent establishment, or does not fall into either of the above classifications, it will not be subject to separate top-up tax and reporting obligations. However, in some cases the accounting results or income from such arrangements may still be included in an MNE group’s top-up tax calculations, where the investor in the arrangement is a constituent entity or GloBE JV. For example:

  • where the arrangement constitutes an entity but not a constituent entity or GloBE JV, the investor may still be required to include distributions from the entity in its GloBE income or loss under rules applying to certain portfolio shareholdings
  • where an unincorporated arrangement does not constitute an entity because it is not required to prepare separate financial accounts, its investors would generally include their share of its financial results in their top-up tax calculations.

Careful consideration of the classification of joint arrangements is required to determine how top-up tax is calculated and whether obligations apply to the arrangement itself or to the parties involved.

GloBE joint ventures

The Australian global and domestic minimum tax can apply in respect of certain entities which are not themselves constituent entities of an MNE group. An entity that is not considered a separate constituent entity under section 16 of the Minimum Tax Act on the basis that their accounting results are not consolidated on a line-by-line basis in the consolidated financial statements of the UPE, may still be classified as a GloBE JV and be subject to special deeming rules.

An entity is classified as a GloBE JV if it meets the definition in section 26. This section requires:

  1. the entity’s financial results are reported under the equity method in the consolidated financial statements of the UPE of the MNE group for the fiscal year
  2. the UPE’s ownership interest percentage in the entity is at least 50%.

Subsidiaries of a GloBE JV which are, or would be, consolidated by the GloBE JV on a line-by-line basis under applicable accounting standards may also be in scope and are referred to as GloBE JV subsidiaries.

GloBE joint venture exclusions

An entity is not a GloBE JV if any of the exceptions in subsection 26(2) apply:

  • It is the UPE of an applicable MNE group.
  • It is a GloBE excluded entity that is a governmental entity, international organisation, non-profit organisation, pension fund, or an investment fund or real estate investment vehicle that is a UPE.
  • The group entities that hold direct ownership interests in it are GloBE excluded entities of the type referred to above, where either the entity
    • exclusively or almost exclusively holds assets or invests funds for the benefit of its direct owners
    • only carries out ancillary activities related to the functions of the excluded entity owners.
  • The MNE group is comprised exclusively of GloBE excluded entities.
How the rules apply to GloBE joint ventures

Special deeming rules apply to arrangements that qualify as a GloBE JV or GloBE JV subsidiary of an MNE group. The special rules apply by deeming the arrangements as constituent entities of a separate MNE group.

Broadly, top-up tax for these entities is calculated separately from the MNE group whose UPE owns 50% or more ownership interest in the GloBE JV. The GloBE JV and its GloBE JV subsidiaries are treated as constituent entities of a separate deemed group, and the GloBE JV as the UPE of the deemed separate MNE group.

Stakeholders have raised questions about how Part 7-1 of the Australian Minimum Tax Rules applies where a GloBE JV, treated as the UPE of a separate MNE group, is a flow-through entity. We consider that Part 7-1 applies to the GloBE JV as a deemed UPE in these cases.

About which entity is allocated and liable for top-up tax:

  • GloBE JV and GloBE JV subsidiaries are not themselves liable for IIR or UTPR top-up tax.
  • Any liability for IIR or UTPR top-up tax in respect of a GloBE JV or GloBE JV subsidiary is imposed on members of the MNE group (not on the GloBE JV or GloBE JV subsidiary) in proportion to the MNE group's share of the top-up tax.
  • Domestic minimum tax is imposed directly on the GloBE JVs and GloBE JV subsidiaries.

Interactions with accounting standards

Accounting standards generally divide joint arrangements into 2 types:

  1. Joint venture (equity accounting)
  2. Joint operation (proportional consolidation on a line-by-line basis).

Accounting joint ventures will not ordinarily be constituent entities of an MNE group under the Minimum Tax Act as their accounting results are equity accounted in the consolidated financial statements of the UPE. Otherwise, they may be a GloBE JV or GloBE JV subsidiary of an MNE group, depending on the facts and circumstances. However, not all arrangements that are classified as joint ventures under accounting standards will be a GloBE JV or GloBE JV subsidiary and vice versa.

Accounting joint operations are consolidated on a line-by-line basis using proportional consolidation method by the parent entity. Accordingly, they may be constituent entities. However, to be considered a constituent entity, a joint operation must first qualify as an entity under the Minimum Tax Act, either as a separate legal person, or as an arrangement required to prepare separate financial accounts. A joint operation that does not meet that condition may still be treated as a constituent entity if it gives rise to a GloBE permanent establishment of another constituent entity or GloBE JV.

Accounting joint operations

There is no concept of a joint operation under the Australian global and domestic minimum tax. An MNE group that has an accounting joint operation may need to consider if the arrangement constitutes a separate constituent entity under the Minimum Tax Act.

If a joint operation is a constituent entity, then the MNE group could have separate calculation, reporting and liability requirements in relation to it. For information on reporting and liability requirements, see Lodging, paying and other obligations for Pillar Two.

How the rules apply to joint operations

If a joint operation is:

  • a constituent entity, top-up tax will be calculated in respect of the joint operation based on amounts included in the consolidated financial statements of the UPE;
    • it may also be classified as a flow-through entity or a GloBE permanent establishment depending on the facts and circumstances
    • the classification of the joint arrangement will affect how income and tax is allocated between the constituent entity and its owners
  • a constituent entity and a flow-through entity, its owners that are constituent entities will generally be required to include their share of the joint operations' amounts in their top-up tax calculations
  • not a constituent entity because it does not meet the definition of an entity, its owners that are constituent entities will generally include their share of its financial results in their top-up tax calculations.

Safe harbours

The Minimum Tax law reflects the safe harbours developed by the OECD. Broadly, there are 4 safe harbours available.

  1. Transitional country-by-country (CBC) reporting safe harbour

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. Thereby eliminating the need to undertake detailed GloBE calculations.

This safe harbour applies to fiscal years beginning on or before 31 December 2026 but not including a fiscal year that ends after 30 June 2028. An MNE group may elect to use the safe harbour if it can demonstrate, based on their qualified CBC reports and qualified financial statements, that it meets one of the following tests for a jurisdiction:

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.

For more information on how the CBC reporting safe harbour applies, see Transitional CBC reporting safe harbour.

  1. Qualified Domestic Minimum Top-Up Tax (QDMTT) safe harbour

An MNE group may elect to apply the permanent QDMTT safe harbour. The permanent QDMTT safe harbour reduces the top-up tax of a jurisdiction to zero. This is for the purpose of applying an IIR or UTPR in Australia in respect of the jurisdiction, where that jurisdiction applies a QDMTT that has QDMTT safe harbour status. This provides a practical compliance solution to avoid needing to carry out both QDMTT and IIR or UTPR calculations in respect of a jurisdiction.

  1. Non-Material Constituent Entity (NMCE) simplified calculations safe harbour

MNE groups may elect to use the simplified calculations safe harbour, which includes a simplified method in determining the GloBE income or loss, GloBE revenue and adjusted covered taxes of a NMCE.

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

Broadly, an NMCE is a constituent entity that has not been consolidated in the UPE's consolidated financial statements solely due to size or materiality.

Where an MNE group meets one of the simplified calculations safe harbour tests, the top-up tax for the jurisdiction is taken to be zero, with 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 calculations safe harbour.

  1. Transitional UTPR safe harbour

The transitional UTPR safe harbour allows an MNE to reduce their UTPR top-up tax amount in respect of the UPE jurisdiction (only) to nil during the transitional 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.

The consolidated commentaryExternal Link provides further information on the safe harbours available and applicable tests where relevant. For details, download the OECD Commentary to the GloBE Rules and refer to Annex A – Safe Harbours: Global Anti-Base Erosion Rules (Pillar Two).

The Australian Minimum Tax Rules also include its own de minimis exclusion in Part 5-5 that can apply for particular jurisdictions.

Additional simplifications

To ensure qualification of Australia's global and domestic minimum tax, we are unable to provide concessions, simplifications or safe harbours that are inconsistent with the outcomes provided for in the GloBE Model Rules and administrative guidance.

More information

For more information, see:

 

QC103566