House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Minister for Competition, Charities and Treasury, the Hon Dr Andrew Leigh MP)

Chapter 3: Treasury Laws Amendment (Multinational - Global and Domestic Minimum Tax) (Consequential) Bill 2024

Outline of chapter

3.1 This Chapter explains the operation of the Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Bill 2024 (Consequential Bill).

3.2 The Consequential Bill sets out the consequential and miscellaneous provisions necessary for the collection and recovery of Australian IIR/UTPR tax and Australian DMT tax. Both Australian IIR/UTPR tax and Australian DMT tax link into the existing machinery provisions in the TAA.

3.3 The Commissioner has general administration of the Assessment Bill. Giving the Commissioner general administration brings the Assessment Bill within the definition of taxation law and ensures that a liability to pay either Australian IIR/UTPR tax or Australian DMT tax is a tax- related liability.

3.4 The amendments provide for the lodgment of returns, assessments and collection for both Australian IIR/UTPR tax and Australian DMT tax. Shortfall interest charge, general interest charge and penalties can apply in respect of liabilities that arise under the Assessment Bill.

3.5 The amendments allow the Commissioner to issue rulings about the operation of the Assessment Bill, either as public rulings or as private rulings upon application and allows taxpayers to object and appeal against assessments.

3.6 The amendments provide obligations to keep records for Australian IIR/UTPR tax and Australian DMT tax.

Summary of new law

3.7 These consequential and miscellaneous amendments are necessary for the administration of Australian IIR/UTPR tax and Australian DMT tax.

3.8 To reduce the compliance burden on taxpayers, the amendments link into the existing administrative framework in the TAA with few modifications except as required to be consistent with the GloBE Rules.

Detailed explanation of new law

General Administration of the Assessment Bill

3.9 The Commissioner has general administration of the Assessment Bill. This brings the Assessment Bill within the definition of taxation law as defined in subsection 995-1(1) of the ITAA 1997 and consequently enlivens a number of provisions within the existing administrative framework used by the Commissioner in the administration of these taxation laws. [Schedule 1, item 57, subdivision 356-D in Schedule 1 to the TAA]

3.10 As the Assessment Bill is a taxation law, several existing provisions of the TAA apply in relation to the Assessment Bill, including provisions relating to information gathering and penalties.

3.11 The Commissioner's powers to obtain information and evidence in relation to a taxation law in Subdivision 353-A in Schedule 1 to the TAA apply in relation to the Assessment Bill. This includes the Commissioner's ability to exercise the powers in sections 353-10 and 353-15 to gather information for purposes connected with the Assessment Bill.

3.12 Information gathered for purposes related to the Assessment Bill is protected information as defined in section 355-30 in Schedule 1 to the TAA. This ensures this information is covered by the secrecy provisions in Division 355 in Schedule 1 to the TAA.

3.13 Administrative penalty provisions in Schedule 1 to the TAA which refer to a taxation law will apply in relation to the Assessment Bill. These include penalties for making a false and misleading statement under Subdivision 284-B and penalties for failing to lodge under Division 286.

3.14 Where an administrative penalty is imposed under Part 4-25 in Schedule 1 to the TAA in relation to the Assessment Bill, as part of the process of assessing the amount of the penalty, the Commissioner is required to determine if remission is appropriate under section 298-20 in Schedule 1 to the TAA. Where a penalty is imposed, the taxpayer has objection rights in certain circumstances, consistent with subsection 298-20(3) in Schedule 1 to the TAA.

3.15 Offences which refer to a taxation law also apply in relation to the Assessment Bill.

3.16 A liability raised under the Assessment Bill is a tax-related liability as defined in section 255-1 in Schedule 1 to the TAA. This ensures that:

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the Commissioner can recover debts arising from the non-payment of these liabilities;

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the Commissioner can issue an offshore information notice under section 353-25 in Schedule 1 to the TAA to collect information relevant to the assessment of Australian IIR/UTPR tax and Australian DMT tax;

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the penalties for failing to lodge a document necessary to determine a tax-related liability under subsection 284-75(3) in Schedule 1 to the TAA may apply; and

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the Commissioner may allocate an entity's liability for Australian IIR/UTPR tax and Australian DMT tax to the entity's running balance account under Part IIB of the TAA so that any available credit may offset these top-up tax liabilities.

3.17 The amendments include new Division 127 in Schedule 1 to the TAA providing rules for tax returns and tax assessments, and new Division 128 in Schedule 1 to the TAA providing rules imposing onto other entities the obligations and liabilities of various entities under the Minimum Tax law.

3.18 For top-up tax purposes, the Minimum Tax law recognises Permanent Establishments as Constituent Entities. For lodgment and payment obligations, those liabilities and obligations are placed on the Main Entity because the Permanent Establishment has no legal capacity. A Main Entity is a Group Entity. For this reason, Division 127 in Schedule 1 to the TAA refers to Group Entity. While the Minimum Tax law treats Permanent Establishments as Constituent Entities, this fiction is not carried through to the administrative provisions in the TAA. Ensuring these liabilities and obligations are always imposed on the Main Entity in respect of a Permanent Establishment ensures consistent treatment of such entities within the TAA.

3.19 The amendments insert new terms in the Dictionary definitions in Division 995 of the ITAA 1997. Many of these include terms beginning with "GloBE" to distinguish the term from a similar term in the tax law, for example GloBE Entity is a new term that is different from entity in the ITAA 1997. [Schedule 1, items 27, 28 and 29, subsection 995-1(1) of the ITAA 1997]

Returns

3.20 The Consequential Bill inserts Subdivision 127-A in Schedule 1 to the TAA to require the following returns to be given to the Commissioner:

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A GloBE Information Return – an obligation to lodge this standardised return with the Commissioner is consistent with the GloBE Rules.

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An Australian IIR/UTPR Tax Return – this return supplements the GloBE Information Return and contains information for the purposes of administering, assessing and collecting Australian IIR/UTPR tax.

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An Australian DMT Tax Return – this return supplements the GloBE Information Return and contains information for the purposes of administering, assessing and collecting Australian DMT tax. [Schedule 1, item 35, Division 127, sections 127-1 to 127-65 in Schedule 1 to the TAA]

3.21 The obligation to prepare a GloBE Information Return is separate from the requirement to declare information and pay taxes for the purposes of assessment under a tax return. That is, a GloBE Information Return is not a tax return giving rise to an assessment. The Australian IIR/UTPR Tax Return and Australian DMT Tax Return form the basis of the Commissioner's assessment of Australian IIR/UTPR tax and Australian DMT tax, respectively. [Schedule 1, item 35, subsections 127-5(1), 127-35(1) and (2) and 127-45(1) and (2) in Schedule 1 to the TAA]

3.22 A GloBE Information Return, Australian IIR/UTPR Tax Return and Australian DMT Tax Return must be lodged electronically and be in the approved form. As the Assessment Bill is a 'taxation law', an administrative penalty under section 286-75 in Schedule 1 to the TAA applies for each return not lodged. [Schedule 1, item 35, subsections 127-5(2), 127-35(3) and 127-45(3) in Schedule 1 to the TAA]

3.23 The due date for lodgment of the returns is harmonised. The Australian IIR/UTPR Tax Return and the Australian DMT Tax Return must be lodged within the time that is specified for the lodgment of the GloBE Information Return. This is consistent with the GloBE Rules, which stipulate lodgment to be within 15 months after the end of every Fiscal Year. However, an exception applies for the first Fiscal Year in which a jurisdiction's domestic law implementation of the GloBE Rules is applied by an MNE Group, where the return must be given within 18 months after the end of the Fiscal Year. [Schedule 1, item 35, subsections 127-60(1) and (2) in Schedule 1 to the TAA]

3.24 A transitional provision for short Reporting Fiscal Years is explained from paragraph 3.139.

3.25 The Commissioner does not have discretion to defer time for lodgment of the GloBE Information Return or for providing notification that a GloBE information Return has been provided to a foreign government agency. This is consistent with the due date for filing under the GloBE Rules. The Commissioner may defer the time for lodgment of the Australian IIR/UTPR Tax Return and Australian DMT Tax Return. [Schedule 1, item 35, subsection 127-60(3) in Schedule 1 to the TAA]

3.26 If a Constituent Entity is a Permanent Establishment, the Main Entity in relation to that Permanent Establishment is required to give to the Commissioner a GloBE Information Return, an Australian IIR/UTPR Tax Return and an Australian DMT Tax Return in respect of that Permanent Establishment. [Schedule 1, item 35, section 127-65 in Schedule 1 to the TAA]

3.27 Where a GloBE Information Return is given to a foreign government agency, the obligation on a Group Entity located in Australia to provide the Commissioner with a GloBE Information Return is discharged when the UPE or a Designated Filing Entity files the GloBE Information Return with the tax administration of the foreign jurisdiction where it is located. That foreign jurisdiction must have a Qualifying Competent Authority Agreement with Australia. [Schedule 1, items 27 and 35, the definition of Designated Filing Entity in subsection 995-1(1) of the ITAA 1997, sections 127-20 and 127-25 in Schedule 1 to the TAA]

3.28 A Qualifying Competent Authority Agreement is an agreement between two competent authorities regarding the automatic exchange of GloBE Information Returns. At least one of the authorities must be a Competent Authority of Australia. [Schedule 1, items 29 and 35, the definition of Qualifying Competent Authority Agreement in subsection 995-1(1) of the ITAA 1997 and subsection 127-20(3) in Schedule 1 to the TAA]

3.29 In this way, the return filing obligations operate so that the UPE or a Designated Filing Entity of the MNE Group can file a single GloBE Information Return covering all Constituent Entities in the MNE Group, which can be provided to all tax administrations with at least one Constituent Entity located in their jurisdiction through appropriate information exchange mechanisms.

3.30 If a GloBE Information Return is given to a foreign government agency, the Commissioner must be notified within the time specified. The notification must be in the approved form and lodged electronically. It must state the identity and jurisdiction of the UPE or Designated Filing Entity that filed the GloBE Information Return. Each Group Entity of the MNE Group located in Australia is required to give such notice. However, where a Designated Local Entity gives the notice all other Group Entities that are located in Australia for that Fiscal year are taken to have given such notice. [Schedule 1, item 35, subsections 127-30(1), (2) and (3) in Schedule 1 to the TAA]

GloBE Information Return

3.31 The GloBE Information Return is a standardised form that provides each jurisdiction's tax administration with the information required to assess an entity's tax liability consistent with the GloBE Rules. It is in accordance with the standardised return developed in accordance with the GloBE Implementation Framework. Currently, that return is the standardised return published by the OECD on 17 July 2023. In this way, the GloBE Information Return is consistent for information reporting requirements across implementing jurisdictions. Where relevant, due consideration should be given to the Guidance to the GloBE Information Return, published by the OECD Inclusive Framework on 17 July 2023.

3.32 As set out in the GloBE Rules, the GloBE Information Return is intended to capture general information, corporate structure, the ETR computation, computation and allocation of top-up tax liabilities and any elections made for the relevant Fiscal Year, subject to the dissemination approach for the GloBE Information Return detailed in the standardised return published by the OECD on 17 July 2023, as amended from time to time. The dissemination approach refers to the approach agreed upon by the OECD Inclusive Framework for categorising information available to each implementing jurisdiction based on their GloBE taxing rights. These taxing rights depend on whether Constituent Entities are located in that jurisdiction and the rule order applying to the MNE Group structure. However, the dissemination approach does not preclude the GloBE Information Return from being lodged in an approved form.

Content requirements of the GloBE Information Return

3.33 Each Group Entity of an Applicable MNE Group that is located in Australia at the start of the Fiscal Year must lodge a GloBE Information Return that is in accordance with the GloBE Implementation Framework and includes the following information:

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identification number of the Constituent Entity;

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location of the Constituent Entity;

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status of the Constituent Entity under the GloBE Rules;

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information on the overall corporate structure of the group including controlling interests;

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all information relevant to the determination of the following in relation to the Applicable MNE Group:

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ETR for each jurisdiction

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top-up tax of each Constituent Entity

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top-up-tax of a member of the JV Group (under Chapter 6 of the GloBE Rules); and

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allocation of top-up-tax for each for the Fiscal Year (under Chapter 2 of the GloBE Rules);

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annual elections, five -year elections and other elections made under the relevant provisions; and

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other relevant information agreed as part of the GloBE Implementation Framework and is necessary to carry out the administration of the GloBE Rules. [Schedule 1, item 35, paragraph 127-5(3)(c) in Schedule 1 to the TAA]

Obligation to lodge a GloBE Information Return

3.34 A Group Entity is required to give a GloBE Information Return to the Commissioner even if the amount of Australian IIR/UTPR tax or Australian DMT tax that the Group Entity is liable to pay is nil. [Schedule 1, item 35, subsection 127-5(1) in Schedule 1 to the TAA]

3.35 The GloBE Information Return must be lodged electronically and must be in the approved form, which must reflect any amendments to the standardised form made by the GloBE Implementation Framework. [Schedule 1, item 35, subsections 127-5(2) and (3) in Schedule 1 to the TAA]

3.36 The Commissioner may, by legislative instrument, make a determination specifying requirements for a GloBE Information Return. If such a determination is made, the GloBE Information Return given to the Commissioner must be in accordance with those requirements. [Schedule 1, item 35, paragraph 127-5(3)(a) and subsection 127-5(4) in Schedule 1 to the TAA]

3.37 The power for the Commissioner to make a determination that specifies the requirements of the GloBE Information Return is an alternative to relying on the OECD's GloBE information return requirements that is incorporated as it is amended. The Commissioner's power is to ensure there is a level oversight within Australia, rather than relying on an international organisation. The Commissioner's determination will be consistent with the amended requirements in the GloBE Information Return which will ultimately maintain qualified status.

3.38 Entities that are excluded from applying the GloBE Rules generally have no administrative obligations, however, to the extent that such Excluded Entities form part of an MNE Group, those entities must be identified as part of the overall corporate structure of the Applicable MNE Group.

3.39 A Group Entity's obligation to lodge a GloBE Information Return is met if the Designated Filing Entity has lodged the GloBE Information Return on behalf of the Applicable MNE Group. The Group Entity is taken to give the GloBE Information Return to the Commissioner at the time the Designated Filing Entity gives it to the Commissioner. [Schedule 1, item 35, subsections 127-10 in Schedule 1 to the TAA]

3.40 A Group Entity's obligation to lodge a GloBE Information Return is met if the UPE or a Designated Filing Entity located in a foreign jurisdiction that has a Qualifying Competent Authority Agreement with Australia has lodged the GloBE Information Return in a jurisdiction within 15 months of the end of the Fiscal Year (or within 18 months of the end of the first Fiscal Year that the GloBE Rules apply for an Applicable MNE Group). If that return is lodged in a foreign jurisdiction after the due date specified in section 127-60 in Schedule 1 to the TAA, the Group Entity located in Australia will not have been taken to have met its Australian lodgment obligation. Penalties for failing to lodge the return under Subdivision 286-C in Schedule 1 to the TAA can apply in such scenarios. [Schedule 1, item 35, sections 127-20 and 127-60 in Schedule 1 to the TAA]

3.41 Where a GloBE Information Return is filed in a foreign jurisdiction, the Group Entity located in Australia with an obligation to lodge the return must notify the Commissioner of the identity of the UPE or Designated Filing Entity that has lodged the GloBE Information Return and the foreign jurisdiction in which that filing entity is located. The notification must be made in writing and electronically, in the approved form. It must be made by the due date for lodging the GloBE Information Return (i.e., 15 months after the end of the Fiscal Year, or within 18 months after the end of the Fiscal Year for the first Fiscal Year in which the GloBE Rules apply for the MNE Group) in respect of a jurisdiction. If the Designated Local Entity notifies the Commissioner of the identity of the UPE or Designated Filing Entity that gives the GloBE Information Return to the foreign government agency, the obligation of each Group Entity located in Australia to give the notification to the Commissioner is satisfied. [Schedule 1, items 27 and 35, the definition of Designated Local Entity in subsection 995-1(1) of the ITAA 1997 and sections 127-10 and 127-15 in Schedule 1 to the TAA]

3.42 There could be a circumstance where the GloBE Information Return is not received from the foreign government agency within the time period specified in the Qualifying Competent Authority Agreement, notwithstanding the GloBE Information Return being filed by the UPE or a Designated Filing Entity. In this circumstance, the Commissioner may by written notice require a Group Entity to lodge the GloBE Information Return electronically and in the approved form within 21 days after the Commissioner provides such notice. Penalties for failing to lodge the return under Subdivision 286-C in Schedule 1 to the TAA can apply if the GloBE Information Return is not lodged by the Group Entity within the required time. [Schedule 1, item 35, subsections 127-20(4), (5) and (6) in Schedule 1 to the TAA]

Australian IIR/UTPR Tax Return

3.43 The Australian IIR/UTPR Tax Return is an Australian-specific tax return that forms the basis of the Commissioner's assessment of Australian IIR/UTPR tax. [Schedule 1, item 35, subsection 127-35(1) in Schedule 1 to the TAA]

3.44 A Group Entity of an Applicable MNE Group that is located in Australia is required to give an Australian IIR/UTPR tax return to the Commissioner within the time period required for lodging the GloBE Information Return. The return must be lodged electronically and be in the approved form. [Schedule 1, item 35, subsections 127-35(2) and (3) in Schedule 1 to the TAA]

3.45 A Group Entity of an Applicable MNE Group that is liable for top-up tax for a Fiscal Year, is required to give an Australian IIR/UTPR Tax Return to the Commissioner even if a nil amount of Australian IIR/UTPR tax is payable. [Schedule 1, item 35, subsection 127-35(2) in Schedule 1 to the TAA]

3.46 A Main Entity in respect of a Permanent Establishment has the obligation to give an Australian IIR/UTPR tax return to the Commissioner in respect of that Permanent Establishment. [Schedule 1, item 35, subsections 127-35(1) and (2) and 127-65(1) and (2) in Schedule 1 to the TAA]

3.47 A Group Entity's obligation to lodge an Australian IIR/UTPR Tax Return may be met by a Designated Local Entity. A Designated Local Entity of an Applicable MNE Group may be appointed by all Group Entities of an Applicable MNE Group to lodge the Australian IIR/UTPR tax return on behalf of each of those Group Entities who have an obligation to lodge, provided the Designated Local Entity is not a Permanent Establishment. Similar to GloBE Information Returns given by a Designated Local Entity, the appointment must be for all Group Entities with an obligation to lodge an Australian IIR/UTPR tax return and is a separate appointment that would operate in addition to that in respect of the GloBE Information Return. The Group Entity is taken to have given the return to the Commissioner at the time the Designated Local Entity gives the return to the Commissioner. [Schedule 1, item 35, subsection 127-40 in Schedule 1 to the TAA]

3.48 The Australian IIR/UTPR tax return must be lodged within the required period (15 months after the end of the Fiscal Year, or within 18 months after the end of the Fiscal Year for the first Fiscal Year in which the GloBE Rules apply for the Applicable MNE Group). [Schedule 1, item 35, section 127-60 in Schedule 1 to the TAA]

3.49 The Commissioner may, by legislative instrument, specify circumstances in which a Group Entity is exempt from giving an Australian IIR/UTPR tax return for a Fiscal Year to the Commissioner. Part IVC of the TAA applies to allow Group Entities to object to a decision by the Commissioner not to exempt a Group Entity. [Schedule 1, item 35, subsections 127-35(4) and (5) in Schedule 1 to the TAA]

Australian DMT Tax Return

3.50 The Australian DMT Tax Return is an Australian-specific return that forms the basis of the Commissioner's assessment of Australian DMT tax for Australian tax purposes. [Schedule 1, item 35, subsection 127-45(1) in Schedule 1 to the TAA]

3.51 A Group Entity of an Applicable MNE Group that is located in Australia is required to give an Australian DMT tax return to the Commissioner within the time period required for lodging the GloBE Information Return. The return must be lodged electronically and be in the approved form. [Schedule 1, item 35, subsections 127-45(2) and (3) in Schedule 1 to the TAA]

3.52 A Group Entity that is required to give an Australian DMT tax return to the Commissioner must give that return to the Commissioner within the required period even if a nil amount of Australian DMT tax is payable by the relevant Constituent Entity. [Schedule 1, item 35, subsection 127-45(2) and section 127-60 in Schedule 1 to the TAA]

3.53 A Group Entity's obligation to lodge an Australian DMT tax return may be met by a Designated Local Entity. A Designated Local Entity of an Applicable MNE Group is an Entity that is appointed by all Group Entities of an Applicable MNE Group to lodge the Australian DMT tax return on behalf of each of those Group Entities who have an obligation to lodge. The Designated Local Entity cannot be a Permanent Establishment. Similar to GloBE Information Returns given by a Designated Local Entity, the appointment to lodge the Australian DMT tax return must apply for all Group Entities that are required to lodge an Australian DMT tax return and is a separate appointment that would operate in addition to that in respect of the GloBE Information Return. A Group Entity that is required to lodge an Australian DMT tax return is taken to give the return to the Commissioner at the time the Designated Local Entity gives it to the Commissioner. [Schedule 1, item 35, section 127-50 in Schedule 1 to the TAA]

3.54 A Main Entity in respect of a Permanent Establishment has the obligation to give an Australian DMT tax return to the Commissioner in respect of that Permanent Establishment. [Schedule 1, item 35, section 127-65 in Schedule 1 to the TAA]

3.55 The Commissioner may, by legislative instrument, specify circumstances in which a Group Entity is exempt from giving an Australian DMT tax return for a Fiscal Year to the Commissioner. Part IVC of the TAA applies to allow Group Entities to object to a decision by the Commissioner not to exempt a Group Entity. [Schedule 1, item 35, subsections 127-45(4) and (5) in Schedule 1 to the TAA]

Lodgment for Joint Ventures

3.56 For the purposes of lodging an Australian DMT tax return, the lodgment obligations that apply in relation to a Group Entity of an Applicable MNE Group for a Fiscal Year apply in the same way to a JV of an Applicable MNE Group and its JV Subsidiaries for a Fiscal Year. For these purposes, the JV and its JV Subsidiaries are treated as Group Entities of a separate Applicable MNE Group for the Fiscal Year. The JV is treated as the UPE of that Applicable MNE Group. [Schedule 1, item 35, subsections 127-55(1), (2) and (3) in Schedule 1 to the TAA]

Assessments

Original assessments

3.57 The Consequential Bill inserts Subdivision 127-B in Schedule 1 to the TAA to provide for when Australian IIR/UTPR tax and Australian DMT tax and related charges are due and payable, and for the making of assessments. [Schedule 1, items 35, section 127-70 and 127-75 in Schedule 1 to the TAA]

3.58 An assessment will be deemed to have been made upon the lodgment of the relevant return – an Australian DMT tax return for a liability for an amount of Australian DMT tax and an Australian IIR/UTPR tax return for liability for an amount of Australian IIR/UTPR tax. [Schedule 1, item 37, items 6 and 7 of the table in subsection 155-15(1) in Schedule 1 to the TAA]

3.59 Where an Australian DMT tax return or Australian IIR/UTPR tax return is filed on behalf of other entities by a Designated Local Entity, an assessment of tax is deemed to have been made in respect of, and given to, each of those entities upon the lodgment of the return by the Designated Local Entity. [Schedule 1, item 35, section 127-10 in Schedule 1 to the TAA]

3.60 Section 155-5 in Schedule 1 to the TAA provides that the Commissioner can make an assessment of an assessable amount. Australian IIR/UTPR tax and Australian DMT tax is listed in this section giving the Commissioner the power to make an assessment of the Australian IIR/UTPR tax and Australian DMT tax in accordance with Australia's self-assessment regime. This ensures the Commissioner can also make a default assessment of these amounts in the case of entities failing to lodge their return or provide sufficient information in their return. [Schedule 1, item 36, paragraphs 155-5(2)(ia) and (ia) in Schedule 1 to the TAA]

3.61 An amount of Australian IIR/UTPR tax or an amount of Australian DMT tax is due and payable on the last day of the 15th month after the end of the Fiscal Year (this is the same day the return that gives rise to the assessment is due). [Schedule 1, item 35, subsection 127-70(1) in Schedule 1 to the TAA]

3.62 In the Transition Year, an amount is due and payable on the last day of the 18th month after the end of the Fiscal Year. [Schedule 1, item 35, subsection 127-70(2) in Schedule 1 to the TAA]

3.63 A transitional provision provides for short Reporting Fiscal Years, as explained from paragraph 3.140.

Amended assessments, objections and review

3.64 The existing provisions in Subdivision 155-B in Schedule 1 to the TAA, which gives the Commissioner the power to amend assessments, apply to assessments of Australian IIR/UTPR tax or Australian DMT tax, subject to the period of review. If the Commissioner amends an assessment, any extra amount is due and payable 21 days after the Commissioner gives the notice of amended assessment. [Schedule 1, item 35, subsection 127-70(3) in Schedule 1 to the TAA]

3.65 The existing provisions in Division 3 of Part IVC of the TAA concerning taxation objections apply in relation to assessments of Australian IIR/UTPR tax or Australian DMT tax. Section 155-90 in Schedule 1 to the TAA provides that a taxpayer may object to an assessment using the provisions of Part IVC of the TAA. Objections in relation to an assessment of an amount of Australian IIR/UTPR tax or Australian DMT tax need to be made within 60 days after the notice of assessment is issued. [Schedule 1, items 33 and 34, paragraphs 14ZW(1)(bg) and (bgb) in Schedule 1 to the TAA]

3.66 To facilitate assessments for Australian IIR/UTPR tax or Australian DMT tax, decisions made in the process leading up to those assessments will be excluded from review under the ADJR Act 1977 in line with the standard operation for decisions which can be challenged under Part IVC of the TAA. Currently, the ADJR Act 1977 does not apply to tax assessment decisions, and only applies to a limited number of other taxation decisions. [Schedule 1, items 1 and 2, paragraph (e) of Schedule 1 to the ADJR Act 1977]

3.67 Part IVC of the TAA contains the standard review process for taxation matters that ensures an internal and consistent review is completed before presenting the case externally. This is a comprehensive review scheme, which provides for both merits and judicial review, is accessible to applicants, and may achieve the same or better results in terms of remedies than the ADJR Act 1977. Applicants can make 'objections' to decisions via an internal review process, and subsequently apply for review in the Administrative Review Tribunal. Appeals from the Administrative Review Tribunal on questions of law are heard in the Federal Court. Alternatively, direct appeals can be made to the Federal Court. Given the existence of this scheme and the large volume of taxation litigation, this exemption from review under the ADJR Act 1977 due to the already established review system under Part IVC makes the system more efficient and effective overall both for taxpayers and the Commissioner.

3.68 In achieving consistent outcomes and ensuring decisions are subject to the same internal review process within the ATO, Part 3-18 of Schedule 1 of the TAA deals with administration and lodgment obligations for the Australian IIR/UTPR tax and Australian DMT tax. Exempting Part 3-18 in Schedule 1 to the TAA from the general judicial review process maintains alignment between the Australian DMT/IIR/UTPR tax with the exemption for decisions made under other Parts of the TAA and existing taxation laws. [Schedule 1, items 1 and 2, paragraph (e) of Schedule 1 to the ADJR Act 1977]

3.69 The period of review for an amount of Australian IIR/UTPR tax or Australian DMT tax is 4 years or as so extended by subsection 155-35 in Schedule 1 to the TAA. For Australian IIR/UTPR tax, the period of review commences from the later of when the GloBE Information Return or the Australian IIR/UTPR tax return is lodged with the Commissioner. For Australian DMT tax, the period of review commences from the later of when the GloBE Information Return or the Australian DMT tax return is lodged with the Commissioner. [Schedule 1, item 37, section 127-75 in Schedule 1 to the TAA]

3.70 A note is added at the end of the definition of period of review noting that the definition is modified by section 127-75 in Schedule 1 to the TAA. [Schedule 1, item 28, the definition of period of review in subsection 995-1(1) of the ITAA 1997]

Top-up tax collection mechanism

Additional liabilities of Entities in a Group or JV Group

3.71 Division 128 inserts provisions providing for joint and several liability of tax-related liabilities amongst Group Entities and JV Groups. These provisions are necessary to ensure the effective and efficient collection of top-up tax, and other tax-related liabilities. Otherwise, an Applicable MNE Group could locate its assets in jurisdictions beyond the reach of the Commissioner, frustrating the collection of these liabilities or making collection challenging and inefficient. The operation of these integrity provisions, which may involve the application of a number of these provisions sequentially, ensures that the Commissioner can collect on these tax-related debts in an efficient and timely manner. [Schedule 1, item 35, Division 128, sections 128-1 to 128-30 in Schedule 1 to the TAA]

3.72 All references in Division 127 and Division 128 to a Group Entity does not include an Excluded Entity within the meaning of the Minimum Tax Act. This ensures that no lodgment or payment obligations are imposed on Entities that are excluded from the imposition of top-up tax. [Schedule 1, item 35, sections 127-80 and 128-30 in Schedule 1 to the TAA]

Group Entities

3.73 Where a Group Entity of an Applicable MNE Group is liable to pay an amount under the Minimum Tax law, all Group Entities of the Applicable MNE Group are jointly and severally liable to pay that amount. [Schedule 1, item 35, subsection 128-5(1) in Schedule 1 to the TAA]

3.74 An exception to joint and several liability for tax-related liabilities applies for any Group Entity that is prohibited according to the effect of an Australian law from incurring a liability, such as a company in liquidation. [Schedule 1, item 35, subsection 128-5(2) in Schedule 1 to the TAA]

JV Groups

3.75 Where a JV of an Applicable MNE Group or its JV Subsidiary is liable to pay an amount under the Minimum Tax law, the JV, each of the JV Subsidiaries and a Group Entity of the Applicable MNE Group that holds a Direct Ownership Interest in the JV, is jointly and severally liable to pay that amount. [Schedule 1, item 35, subsections 128-10(1) and (2) in Schedule 1 to the TAA]

3.76 Similarly to the Group Entity provisions, an exception to joint and several liability for tax-related liabilities applies for any Entity that is prohibited according to the effect of an Australian law from incurring a liability. [Schedule 1, item 35, subsection 128-10(3) in Schedule 1 to the TAA]

Collection from specific entities

3.77 Targeted rules are designed to accommodate partnerships, JVs, trusts and other arrangements, to ensure obligations and liabilities imposed under the Minimum Tax law can be enforced and collected effectively and efficiently. These rules are necessary where such arrangements are treated as Entities under the Minimum Tax law but that legal fiction lacks legal capacity. These targeted rules identify the legal entity behind each of these deemed Entities, upon whom obligations can be enforced and against whom liabilities can be collected. Obligations and primary liabilities are imposed under the Minimum Tax law on the following types of Entities:

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trusts;

•

partnerships;

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JVs (which may be a company, trust or partnership);

•

JV subsidiaries (which may be a company, trust or partnership);

•

an Entity that prepares financial statements, in arrangements not covered by any of the types of Entities listed above.

Trusts

3.78 Obligations imposed on a trust under the Minimum Tax law are imposed on each trustee of the trust at the time the obligation arises, as well as any future trustee until the obligation has been discharged. The obligation may be discharged by any of these trustees. Trustees of a trust will be jointly and severally liable to pay an amount of Australian IIR/UTPR tax, Australian DMT tax or interest in respect of such taxes imposed on the trust under the Minimum Tax law, regardless of whether or not the trustee is a member of the MNE Group. This joint and several liability extends to the trustee of a trust at the end of the Fiscal Year for which such liability arises, as well as a trustee of the trust after that time until the tax or interest is paid. [Schedule 1, item 35, subsections 128-15(1) and (2) in Schedule 1 to the TAA]

3.79 To ensure payment by a trustee, the Commissioner has the same remedies against the property of the trust as the Commissioner would have against the property of the trustee. A trustee that pays such a liability is entitled to be indemnified out of the assets of the trust for the liability. [Schedule 1, item 35, subsections 128-15(3) and (4) in Schedule 1 to the TAA]

3.80 Any offence against the Minimum Tax law that is committed by a trust is taken to have been committed by each of the trustees of that trust. It is a defence to the prosecution of a trustee for such an offence, if the trustee proves that it had no involvement in or knowledge of the relevant act or omission that constitutes the offence. These defences provide a safeguard for trustees in circumstances where an act or omission by another trustee results in the offence being committed by the trust. [Schedule 1, item 35, subsections 128-15(5) and (6) in Schedule 1 to the TAA]

GloBE Partnerships

3.81 Obligations imposed on a GloBE partnership (that is not a JV or JV Subsidiary) under the Minimum Tax law are imposed on each partner in that partnership. The obligation may be discharged by any of these partners. A GloBE Partnership is a partnership within the meaning of paragraph 13(1)(b) of the Minimum Tax Act. The term partnership in that Act takes its ordinary meaning. The term 'GloBE partnership' is distinguished from references to 'partnership' in Schedule 1 to the TAA, which is defined in subsection 995-1(1) of the ITAA 1997. Subsection 128-20(6) clarifies, for the avoidance of doubt, that section 94K of the ITAA 1936 does not apply, which means references to GloBE partnership include corporate limited partnerships. [Schedule 1, item 35, subsections 128-20(1), (2), (6) and (7) in Schedule 1 to the TAA]

3.82 The liability for top-up tax is imposed on the GloBE partnership and the partners in that partnership are jointly and severally liable for this primary liability. The partners are jointly and severally liable to pay the amount of that liability, regardless of whether or not the partner is a member of the Applicable MNE Group. In contrast, for GLoBE partnerships that are JVs or JV Subsidiaries, only partners that are Group Entities of the Applicable MNE Group are jointly and severally liable to pay the amount of that liability. [Schedule 1, item 35, subsection 128-20(3) and table items 1 and 3 in subsection 128-25(5) in Schedule 1 to the TAA]

3.83 Any offence against the Minimum Tax law that is committed by the GloBE partnership is taken to have been committed by each partner of the GloBE partnership. It is a defence to the prosecution of a partner for such an offence, if the partner proves that it had no involvement in or knowledge of the relevant act or omission that constitutes the offence. Similar to the corresponding trust provisions, these defences provide a safeguard for partners in circumstances where an act or omission by another partner results in the offence being committed by the GloBE partnership. [Schedule 1, item 35, subsections 128-20(4) and (5) in Schedule 1 to the TAA]

Joint Ventures

3.84 Where an unincorporated JV of an Applicable MNE Group is a GloBE partnership and liable to pay an amount under the Minimum Tax law, each partner of that JV is jointly and severally liable to pay that amount provided the partner is a Group Entity of the Applicable MNE Group. [Schedule 1, item 35, subsections 128-25(1) and (2) and item 1 of the table in subsection 128-25(5) in Schedule 1 to the TAA]

3.85 Similarly, where an unincorporated JV Subsidiary of a JV of an Applicable MNE Group, is a GloBE partnership and liable to pay an amount under the Minimum Tax law, each partner of that JV Subsidiary that is the JV, another JV Subsidiary or a Group Entity of the Applicable MNE Group, is jointly and severally liable to pay that amount. [Schedule 1, item 35, subsection 128-25(1) and (2) and table item 3 in subsection 128-25(5) in Schedule 1 to the TAA]

3.86 For unincorporated JVs and JV Subsidiaries that are neither trusts nor GloBE partnerships, and that are liable to pay an amount under the Minimum Tax law, similar rules apply to impose joint and several liability to pay that amount on each Group Entity that holds a Direct Ownership Interest in that JV or that JV Subsidiary. The JV will also be jointly and severally liable to the amount a JV Subsidiary is liable to pay under the Minimum Tax law. [Schedule 1, item 35, subsection 128-25(1) and (2) and table items 2 and 4 in subsection 128-25(5) in Schedule 1 to the TAA]

3.87 Any offence against the Minimum Tax law that is committed by a JV or JV Subsidiary is taken to have been committed by the same entities on whom joint and several liability to pay an amount is conferred. It is a defence to the prosecution of each such entity, if the entity proves that it had no involvement in or knowledge of the relevant act or omission that constitutes the offence. Similar to the corresponding trust and GloBE partnership provisions, these defences provide a safeguard for entities in circumstances where an act or omission by another entity results in the offence being committed by the JV or JV Subsidiary. [Schedule 1, item 35, subsections 128-25(3), (4) and (5) in Schedule 1 to the TAA]

Other entities

3.88 For any other unincorporated Group Entity of an Applicable MNE Group, such as an arrangement that is not a GloBE partnership, trust or JV, that is liable to pay an amount under the Minimum Tax law, joint and several liability to pay that amount is imposed on each Group Entity of the Applicable MNE Group who either includes a portion of that unincorporated Group Entity's assets, income, expenses, cashflows and liabilities in its CFS under the proportional consolidated method, or is a member of the committee of management of that unincorporated Group Entity. [Schedule 1, item 35, subsection 128-25(1)and (2) and table item 5 in subsection 128-25(5) in Schedule 1 to the TAA]

3.89 Each Group Entity that is made jointly and severally liable to pay such amount, will also be taken to have committed any offence that the unincorporated Group Entity commits against the Minimum Tax law. Similar to the corresponding provisions for other such Entities, it is a defence for the Group Entity if it proves that it had no involvement in or knowledge of the act or omission that constitutes the offence. [Schedule 1, item 35, subsections 128-25(3) and (4) and table item 5 in subsection 128-25(5) in Schedule 1 to the TAA]

Consequential changes

3.90 Consequential changes are made to existing partnership and trust liability provisions in the TAA to exclude obligations imposed and amounts payable under, and offences against, the Minimum Tax law. This ensures that these existing liability provisions and the Minimum Tax law liability provisions work in a complimentary manner. [Schedule 1, items 61 to 64, subsections 444-5(4), 444-30(5) and 444-120(1) and (2) in Schedule 1 to the TAA)

Keeping of records

3.91 The Consequential Bill inserts Subdivision 382-C in Schedule 1 to the TAA to provide record keeping requirements in respect of the Minimum Tax law. Record keeping requirements apply to Group Entities, JVs and JV Subsidiaries. . [Schedule 1, item 60, subsections 382-20(1), (5) and (6) in Schedule 1 to the TAA]

3.92 A Group Entity of an Applicable MNE Group is required to keep records that fully explain whether the Group Entity has complied with the Minimum Tax law. The requirement to keep records applies to Group Entities located in Australia notwithstanding that the GloBE Information Return may be lodged in a foreign jurisdiction and then exchanged with the Commissioner. [Schedule 1, item 60, subsection 382-20(1) in Schedule 1 to the TAA]

3.93 This obligation to keep records relates to records in respect of the operation and application of the provisions of the Minimum Tax law. Records must be kept in writing in English, or so as to enable the records to be readily accessible and convertible to English and must enable the Group Entity's liability to top-up tax to be readily ascertainable. A Group Entity includes an Excluded Entity and despite these Entities being excluded from the scope of the Minimum Tax law and not having obligations to lodge a GloBE Information Return, Australian IIR/UTPR tax return or Australian DMT tax return, Excluded Entities are required to keep records to explain their determination as being an Excluded Entity, which excludes them from having to compute top-up tax. [Schedule 1, item, 60, section 382-20 in Schedule 1 to the TAA]

3.94 For the purposes of whether a Group Entity has complied with the Minimum Tax law, such records that must be kept include (but are not limited to) all records that explain and show the basis of every disclosure in the GloBE Information Return lodged or exchanged with the Commissioner.

3.95 Records must be kept until the end of 8 years after those records were prepared or obtained, or the completion of the transactions or acts to which those records relate, whichever is the later. The length of this record keeping retention period is necessary given the extended period of time the treatment and calculations under the Assessment Bill operate, as well as the relatively long timeframes for lodgment and exchange of the GloBE Information Return. [Schedule 1, item 60, subsection 382-20(1)(b) in Schedule 1 to the TAA]

3.96 The retention period is extended where the underlying period of review is extended. The records must be kept until the later of the original 8-year period or the end of the period of review as extended. [Schedule 1, item 60, subparagraph 328-20(1)(b)(iii) in Schedule 1 to the TAA]

3.97 Failure to meet the obligations to keep records is an offence of strict liability, with the penalty being 30 penalty units. [Schedule 1, item 60, subsections 382-20(3) and (4) in Schedule 1 to the TAA]

3.98 As the Assessment Bill is a 'taxation law', the existing administrative penalty for a failure to keep or retain records, in section 288-25 of Schedule 1 to TAA may apply in respect of this record-keeping requirement. The current penalty is 20 penalty units. Further, the existing record-keeping offences in sections 8L, 8Q and 8T of the TAA may apply where the relevant elements are met.

Penalties

3.99 As the Assessment Bill is a taxation law in respect of which the administrative penalties regime may apply, the Consequential Bill amends the TAA to ensure these administrative penalties extend to the Minimum Tax law. Amendments are made to ensure liability to penalties for making a false and misleading statement, for taking a position that is not reasonably arguable and for failing to lodge a return (including provisions for the calculation of shortfall amounts and base penalty amount) operate as intended. [Schedule 1, items 38 to 52, the table in subsection 250-10(2), subsections 280-1, 280-50, 280-102E, 280-110(1), 284-75(2), 284-80(1), the table in subsection 284-90(1), subsections 284-90(1C), (3A) and (4) and paragraph 284-220(1)(d) in Schedule 1 to the TAA]

3.100 For the purpose of Division 284 in Schedule 1 to the TAA, if a Group Entity of an Applicable MNE Group is taken to give a GloBE Information Return, Australian IIR/UTPR tax return or Australian DMT tax return to the Commissioner because a Designated Filing Entity, UPE or Designated Local Entity gives the return to the Commissioner or foreign government agency, statements made in or related to that return are taken to be made by the filing entity as an agent of the Group Entity. This ensures that administrative penalties may apply for the Group Entity or the filing entity in respect of statements made in those returns. [Schedule 1, item 43, section 284-27 in Schedule 1 to the TAA]

3.101 Statements made in or related to a GloBE Information Return lodged in a foreign jurisdiction in respect of a MNE Group and exchanged with Australia under a Qualified Competent Authority Agreement are taken to be statements made to the Commissioner by each Group Entity located in Australia of that same Applicable MNE Group. [Schedule 1, item 43, subsections 284-27(1) and (2) in Schedule 1 to the TAA]

3.102 Administrative penalties that apply to a Group Entity of an Applicable MNE Group in respect of false and misleading statements about Australian IIR/UTPR tax or Australian DMT tax liabilities of the MNE Group are doubled. Administrative penalties that apply for failing to lodge a return, notice or other document in relation to Australian IIR/UTPR tax or Australian DMT tax liabilities are 500 times the base penalty amount to align with the administrative penalties that apply to significant global entities. [Schedule 1, items 49, 53, and 54, subsection 284-90(1C), paragraph 286-80(1)(b) and subsection 286-80(4C) in Schedule 1 to the TAA]

3.103 The OECD published the Safe Harbour Rules on 20 December 2022, which outlined a common understanding on transitional penalty relief for implementing jurisdictions. This included that tax administrations should consider not applying penalties or sanctions in connection with the filing of the GloBE Information Return during a Transition Period where a tax administration considers that an MNE Group has taken "reasonable measures" to ensure the correct application of the GloBE Rules. The approach also contemplated that in many cases jurisdictions already provide, as a matter of law or administrative practice, for penalty relief in accordance with the common understanding.

Further machinery provisions

3.104 The amendments ensure that entities will be able to seek rulings on the application of the Assessment Bill. [Schedule 1, item 58, subsections 357-55(fg) and (fh) in Schedule 1 to the TAA]

3.105 The Commissioner has discretion to decline to rule where it is not reasonable to comply with the application for a private binding ruling. Paragraph 359-35(2)(c) provides additional grounds for the Commissioner to decline to provide rulings. The provision is broad. There may be a number of circumstances where the Commissioner would consider it would not be reasonable to comply with the application for a ruling and decline to rule. [Schedule 1, item 59, subsection 359-35(2) in Schedule 1 to the TAA]

3.106 Below are some examples of when the Commissioner might decide it is not reasonable to comply with the application for a private binding ruling:

•

where the OECD Inclusive Framework has published new Administrative Guidance which Australia is planning on incorporating into domestic law but has not yet done so;

•

where the OECD Inclusive Framework has identified an issue which requires Administrative Guidance, or is drafting Administrative Guidance on a GloBE or DMT issue, and has yet to publish an agreed version of that Administrative Guidance; or

•

where issuing a ruling would require assumptions to be made on how other jurisdictions apply their respective domestic rules implementing the GloBE Rules and DMT.

Example 3.1 Where OECD is deliberating about information required for GloBE Information Return

MNE Group A is an Applicable MNE Group and required to file a GloBE Information return. In the lead up to MNE Group A filing the GloBE Information Return, several media sources start reporting that the OECD Inclusive Framework is deliberating on a particular matter that is relevant to MNE Group's A disclosures in the GloBE Information Return and that additional Administrative Guidance could be imminent. This is confirmed by an OECD Secretariat staff member during a presentation to stakeholders.

MNE Group A lodges a private binding ruling application relating to this matter. The Commissioner considers that it is not reasonable to comply with the application in the circumstances and declines to provide a ruling to MNE Group A.

3.107 The amendments ensure that general interest charge applies to the late payment of any tax-related liability that arises under the Assessment Bill. [Schedule 1, item 32, the table in subsection 8AAB(4) of the TAA]

3.108 The amendments ensure that shortfall interest charge applies to any shortfall that arises as a result of amendments made by the Commissioner. [Schedule 1, items 39 to 42, sections 280-1, 280-50 and 280-102E and subsection 280-110(1) in Schedule 1 to the TAA]

Franking credits

3.109 As Australian DMT tax is an Australian domestic tax, the payment of Australian DMT tax will give rise to franking credits in the entity's franking account. An entity pays Australian DMT tax, for the purposes of the imputation regime, if the entity has a liability to pay the tax and either makes a payment of that tax (in whole or part) or a credit or RBA surplus is applied to discharge or reduce that liability. [Schedule 1, items 10 to 12, item 9 of the table in subsection 205-15(1), the heading to section 205-20 and subsection 205-20(3B) of the ITAA 1997]

3.110 Similarly, a refund of an Australian DMT tax will result in a debit to the entity's franking account. An entity receives a refund of Australian DMT tax if either the entity receives a refund amount, or a credit or RBA surplus is applied against liabilities of the entity, representing the refund of the Australian DMT tax paid. [Schedule 1, items 13 to 16, item 14 of the table in subsection 205-30(1), the heading to section 205-35 and subsections 205-35(1B) and (2) of the ITAA 1997]

3.111 As Foreign GloBE tax is a top-up tax for low taxation in countries outside Australia, it is an international form of tax and will not give rise to franking credits.

No deduction for Australian IIR/UTPR tax or Australian DMT tax

3.112 The amendments prevent taxpayers from deducting payments of Australian IIR/UTPR tax and Australian DMT tax. This is to avoid doubt that these payments would be deductible in the absence of a specific deduction denial provision. [Schedule 1, items 6 and 9, sections 12-5 and 26-99C of the ITAA 1997]

3.113 Outgoings incurred in managing Australian GloBE tax affairs and complying with the obligations relating to Australian GloBE tax affairs, other than the payments of those tax liabilities, will be deductible. This includes expenditure incurred to seek advice on whether an entity is a Constituent Entity of an MNE Group. [Schedule 1, item 7, paragraphs 25-5(1)(e) and (f) of the ITAA 1997]

3.114 Expenditure is not capital expenditure merely because the Australian GloBE tax affairs concerned relate to matters of a capital nature. [Schedule 1, item 8, subsection 25-5(4) of the ITAA 1997]

Confidentiality of taxpayer information

3.115 The Consequential Bill amends the tax secrecy provisions under Division 355 in Schedule 1 to the TAA to ensure that taxation officers do not commit an offence where they disclose protected information in the course of administering the Minimum Tax law. [Schedule 1, items 55 and 56, paragraph 355-25(1)(b)(ii) and subsection 355-25(3) in Schedule 1 to the TAA]

3.116 The exemption allows taxation officers to disclose protected information about one Group Entity (the primary entity) to another Group Entity (the covered entity) of the same Applicable MNE Group where the protected information relates to the Australian GloBE tax affairs of any entity that has been a Group Entity of that Applicable MNE Group. [Schedule 1, item 56, paragraph 355-25(3)(a) in Schedule 1 to the TAA]

3.117 The amendments also allow taxation officers to disclose protected information about a JV or JV Subsidiary (the primary entity) to another entity within the same JV Group, or to a Group Entity of the Applicable MNE Group that holds the relevant interest in that JV or JV subsidiary (each a covered entity). The protected information must relate to the Australian GloBE tax affairs of the JV or JV subsidiary. [Schedule 1, item 56, paragraphs 355-25(3)(b), (c) and (d) in Schedule 1 to the TAA]

3.118 The exemption also extends to disclosing such protected information to a registered tax agent or legal practitioner of the covered entity. [Schedule 1, item 56, paragraphs 355-25(3)(e) and (f) in Schedule 1 to the TAA]

Compatibility with tax treaties

3.119 The Consequential Bill amends the International Tax Agreements Act 1953 to ensure that integrity provisions, that exclude or reduce an obligation for Australia to provide a FITO in relation to foreign GloBE tax paid, prevail over any obligation under that Act to provide double taxation relief. [Schedule 1, item 30, subsection 4(3) of the International Tax Agreements Act 1953]

3.120 Subsection 5(3) of the International Tax Agreements Act 1953 already provides that laws imposing taxes, other than Australian tax, prevail over the provisions of the International Tax Agreements Act in the event of any inconsistency between them. The Minimum Tax law does not fall within the definition of 'Australian tax' under that Act and therefore the provisions of Australia's bilateral tax treaties do not prevent the operation of the Minimum Tax law. Tax treaties that are given the force of law under provisions other than subsection 5(1) of the International Tax Agreements Act 1953, will also not prevent the operation of the Minimum Tax law, as those treaties are given the force of law so far as the provisions of those treaties affect 'Australian tax'.

3.121 Given this, the Consequential Bill inserts a Ministerial legislative instrument making power into the International Tax Agreements Act 1953 to ensure provisions, such as the Exchange of Information Article in Australia's tax treaties can be determined to prevail over other laws in the event of any inconsistency. This power ensures Australia can, via the Ministerial legislative instrument, access administrative provisions of its tax treaties to assist in the collection of top-up tax and the exchange of information relevant to the Minimum Tax law. This approach is consistent with the OECD Inclusive Framework's intention for GloBE tax to be compatible with international tax agreements based on the OECD Model Tax Convention. [Schedule 1, item 31, subsections 5(4) and (5) of the International Tax Agreements Act 1953]

Cross-border tax interactions: Hybrids, CFCs and FITOs

Hybrids

3.122 Amendments are made to Division 830 and 832 of the ITAA 1997 to ensure that the operation of the Australian hybrid rules and targeted integrity rule, remain unaffected by foreign GloBE tax. New terms in the Dictionary definitions in Division 995 of the ITAA 1997 are inserted to support these amendments. Many of these include terms beginning with "foreign" to distinguish the term from a similar term in the tax law, for example foreign GloBE tax is a new term that is different from Australian GloBE tax in the ITAA 1997. [Schedule 1, item 27 subsection 995-1(1) of the ITAA 1997]

3.123 The list of foreign taxes to be disregarded for the purposes of Division 832 is extended to include foreign DMT tax, foreign IIR tax, foreign UTPR tax and other foreign minimum tax. Foreign minimum tax includes a tax specified in the Regulations. This ensure that foreign GloBE tax is disregarded for the purposes of testing whether the payment is subject to foreign income tax in the targeted integrity rule in section 832-725 of the ITAA 1997. However, the application of such tax may still be a relevant fact and circumstance to be considered in applying the principal purpose test under paragraph 832-725(1)(h). [Schedule 1, items 25 and 26, subsections 832-130(7) and (8) ITAA 1997]

3.124 Australia's foreign hybrid rules in Division 830 of the ITAA 1997 ensure that an entity that qualifies as a 'foreign hybrid' is treated as a partnership (rather than a company) for Australian tax purposes. A requirement of a 'foreign hybrid' is that foreign income tax is imposed on the partners/shareholders instead of the foreign hybrid itself. The amendments provide that references to 'foreign income tax' in section 830-10 and 830-15 do not include foreign GloBE tax and other foreign minimum tax. This ensures that tax continues to be appropriately imposed on the relevant partners of the foreign hybrid as the mere imposition of such taxes on the foreign hybrid, instead of on its partners, should not change the operation of Australia's foreign hybrid rules. [Schedule 1, items 21 to 24, sections 830-10, 830-15 and 830-17 of the ITAA 1997]

Controlled Foreign Companies (CFC)

3.125 The amendments ensure that a notional allowable deduction will only be allowed under section 393 of the ITAA 1936 for foreign DMT tax, not for foreign IIR tax, foreign UTPR tax or a tax specified in the Regulations. The amendments to section 393 operate in tandem with Division 770 of the ITAA 1997 to allow a FITO to be claimed in respect of foreign DMT tax paid by a CFC. [Schedule 1, item 5 17, and 19 subsection 393(2), paragraph 717-10(1)(c) and subsection 770-135(3A) of the ITAA 1936]

Foreign income tax offset (FITO)

3.126 The amendments ensure that a FITO can only be claimed in respect of a foreign DMT tax (and not in respect of a foreign IIR tax or foreign UPTR tax). [Schedule 1, items 18 and 20, subsection 770-10(6) and section 770-150 of the ITAA 1997]

3.127 However, where a Group Entity, JV or JV Subsidiary of the Applicable MNE Group has paid an amount of foreign DMT tax and is entitled to a benefit in a foreign jurisdiction (effectively compensating or reversing the economic effect of that foreign DMT tax), the amount of foreign DMT tax which the entity is treated as having paid is reduced by the amount of any of the following benefits in respect of the entity:

•

the amount of a refundable tax credit that is refunded to an entity because the credit exceeds income tax liability;

•

consideration received for the transfer of a transferable tax credit to which the entity was entitled in respect of a foreign income tax of that jurisdiction;

•

cash or cash equivalent amounts recognised as government grants under International Accounting Standard 20 (or a comparable accounting standard applicable under a foreign law); and

•

a benefit of a kind specified by the Minister in respect of a specified jurisdiction. [Schedule 1, item 20, section 770-145 of the ITAA 1997]

3.128 The Minister may, by legislative instrument, make a determination specifying a benefit in respect of a specified foreign country. In making the determination, the Minister must have regard to the following:

•

the extent (if any) to which the benefit has been designed to be available to Applicable MNE Groups;

•

the extent (if any) to which the benefit could increase the amount of foreign DMT tax payable in the foreign country;

•

the extent (if any) to which the benefit could increase the amount of a tax offset under this Division;

•

the nature of any other benefit specified in the determination. [Schedule 1, item 20, subsection 770-145(3) and (4) of the ITAA 1997]

3.129 Broadly, the benefits seek to capture amounts of cash or cash equivalent received by the entity (or another entity in respect of the first entity) from the government by way of refunds from refundable tax credits, sale proceeds from the disposal of transferable tax credits and government grants.

3.130 Subparagraph 770-145(1)(d)(i) ensures that where a refundable tax credit reduces the entity's income tax liability to an amount above nil, but without resulting in a refund (and the entity is not entitled to any other benefit described in paragraph 770-145(1)(d)), any FITO in respect of foreign DMT tax paid is not reduced. [Schedule 1, item 20, section 770-145 of the ITAA 1997]

3.131 The foreign income tax paid and the reciprocal benefits recognised in Australia must be in relation to the same foreign tax period (as defined in the ITAA 1997). In determining when the same foreign tax period applies, the timing of the entitlement to the benefit should be considered. [Schedule 1, item 20, paragraph 770-145(1)(e) of the ITAA 1997]

Example 3.2 Reduce FITO by amount of any benefit, capped at foreign DMT tax paid

Entity A (a Constituent Entity located in Jurisdiction A) is a CFC, wholly owned by Aus Co, which is part of the same MNE Group.

Entity A:

•

pays $10 of corporate income tax in Jurisdiction A,

•

pays $5 of foreign DMT tax in Jurisdiction A; and

•

receives a $6 government grant.

Assuming the relevant conditions in Division 770 are satisfied, the amount of FITO that could have been available for Aus Co is $15, disregarding section 770-145.

However, under section 770-145, the FITO is reduced by the government grant ($6), capped at the amount of foreign DMT tax paid ($5). Therefore, the FITO is $15 - $5 = $10.

Assuming the relevant conditions in Division 770 are satisfied, Aus Co's total entitlement to a FITO is $10, comprising of $10 in respect of corporate income tax and $0 in respect of foreign DMT tax.

Example 3.3 Refundable tax credits

Foreign Co (a Constituent Entity located in Jurisdiction A) is a CFC, wholly owned by Aus Co, which is part of the same MNE Group. The laws of Jurisdiction A allow refundable tax credits to be utilised for reducing corporate income tax payable and any excess is refunded as cash or cash equivalent.

Foreign Co has a corporate income tax liability in Jurisdiction A of $15. The liability is reduced to nil and a refund of $5 is given due to Foreign Co being entitled to a refundable tax credit of $20.

Foreign Co has also paid $12 of foreign DMT tax in Jurisdiction A.

The $5 refund is a relevant benefit as it represents the amount of the refundable tax credit of $20, that is in excess of Entity A's income tax liability of $15.

Foreign Co is treated as having paid $7 of foreign DMT tax ($12 - $5).

Assuming the relevant conditions in Division 770 are satisfied, Aus Co's total entitlement to a FITO is $7, comprising nil in respect of corporate income tax and $7 in respect of foreign DMT tax.

Example 3.4 Some refundable tax credits are not benefits

Foreign Co (a Constituent Entity located in Jurisdiction A) is a CFC, wholly owned by Aus Co, which is part of the same MNE Group. The laws of jurisdiction A allow Foreign Co to utilise a tax credit to reduce corporate income tax liability and any excess is refunded in cash or cash equivalent.

Foreign Co has a corporate income tax liability in Jurisdiction A of $15. Foreign Co is entitled to a refundable tax credit of $12. After utilising the tax credit, Foreign Co pays $3 of corporate income tax.

Foreign Co also received a government grant of $5 in Jurisdiction A for investing in certain clean energy initiatives.

Foreign Co has also paid $12 of foreign DMT tax in Jurisdiction A.

None of the $12 refundable tax credit is a benefit per subparagraph 770-145(1)(e)(i) as the whole credit of $12 has been utilised to reduce corporate income tax liability, and there is no excess of the refundable tax credit ($12) over Foreign Co's income tax liability of $15. The government grant of $5 is a relevant benefit per subparagraph 770-145(1)(e)(iii). As such, Foreign Co is treated as having paid $7 of foreign DMT tax ($12 reduced by $5). Assuming the relevant conditions in Division 770 are satisfied, Aus Co's total entitlement to a FITO is $10, comprising of $3 in respect of corporate income tax plus $7 in respect of foreign DMT tax.

Commencement, application, and transitional provisions

Commencement

3.132 The Consequential Bill commences at the same time as the Assessment Bill. [Table item # of the Consequential Bill]

3.133 However, if the Assessment Bill does not receive Royal Assent, then the Consequential Bill does not commence at all.

Application provisions

3.134 The items in the Consequential Bill, have various application provisions, where the amendments to the TAA, generally apply to fiscal years commencing on or after 1 January 2024. The amendments to the ITAA 1997 and ITAA 1936 generally apply to income years ending on or after 1 January 2024. [Schedule 1, item 65, 66 and 68 of the Consequential Bill]

3.135 Other TAA amendments that have different application dates include:

•

the disclosure of protected information applies after 1 January 2024; and

•

the Commissioner's general administration of the Act and the keeping of records applies after commencement. [Schedule 1, item 65 of the Consequential Bill]

3.136 Other ITAA 1997 provisions that have different application dates include:

•

the deductibility of managing Australian GloBE tax affairs and the application of a FITO in relation to expenditure incurred or foreign income tax paid, respectively, applies after 1 January 2024; and

•

ancillary definitional terms in relation to another amendment apply from the same time as the primary amendment. [Schedule 1, item 66 of the Consequential Bill]

3.137 The amendments inserting the Ministerial legislative instrument making power into the International Tax Agreements Act 1953 apply in relation to taxes payable on or after the commencement of the Consequential Bill. [Schedule 1, item 67 of the Consequential Bill]

3.138 The amendment to ensure that integrity provisions, that exclude or reduce an obligation for Australia to provide a FITO in relation to foreign GloBE tax paid in the International Tax Agreements Act 1953 prevail over any obligation under that Act to provide double taxation relief applies in relation to taxes payable on or after 1 January 2024. [Schedule 1, item 67 of the Consequential Bill]

Transitional

3.139 A transitional provision provides for short Reporting Fiscal Years. Where any of the three returns are required to be given to the Commissioner at a time before 30 June 2026, such returns are instead required to be given to the Commissioner no later than 30 June 2026. The transitional provision also provides for an amount of Australian IIR/UTPR tax, Australian DMT tax (including such extra tax resulting from the amendment of an assessment), or any shortfall interest charge that is due and payable before 30 June 2026 to be due and payable on 30 June 2026. [Schedule 1, item 69 of the Consequential Bill]

3.140 A transitional provision provides for short Reporting Fiscal Years. Where any amount of Australian IIR/UTPR tax or Australian DMT tax (including extra such tax resulting from the amendment of an assessment) is required to be paid to the Commissioner no later than a particular time before 30 June 2026, the amount is due and payable on 30 June 2026. That is, the deadline for payment is extended to 30 June 2026. [Schedule 1, item 69 of the Consequential Bill]

Definitions

3.141 Additional commentary on the defined terms in the Bills is set out in table 3.1. Relevant provisions of the Assessment Bill and the Consequential Bill that define certain terms include:

•

section 34 of the Assessment Bill;

•

subsection 995-1(1) of the ITAA 1997; and

•

Schedule 1 to the TAA.

Table 3.1