In brief
The Australian Taxation Office (ATO) has released draft Practical Compliance Guideline PCG 2025/D3, outlining its transitional approach to the enforcement of penalties in relation to lodgment obligations arising under Australia’s new global and domestic minimum tax (Pillar Two or Minimum Tax) rules. These rules, based on the OECD’s Global Anti-Base Erosion (GloBE) Model Rules, introduce significant new reporting and tax payment requirements for certain large multinational enterprise (MNE) groups operating in Australia. The ATO’s draft guidance provides clarity on what is expected of affected taxpayers during the initial years of implementation, including how penalties will be applied and when relief may be available.
The ATO has also released a draft update to TR 2006/11, which deals with private rulings, to provide the Commissioner’s views on when he will ‘decline to rule’ in the context of the new Pillar Two regime.
In detail
The GloBE Rules are part of the OECD/G20’s global initiative to address tax challenges arising from the digitalisation of the economy. They are designed to ensure that large multinational groups pay a minimum effective tax rate of 15% in every jurisdiction in which they operate.
Australia’s Minimum Tax regime applies to MNE groups with annual consolidated revenue of at least EUR 750 million in at least two of the four preceding fiscal years. The rules introduce both a global minimum tax (i.e. the Income Inclusion Rule (IRR) and Undertaxed Profits Rule (UTPR)) and a domestic minimum tax (DMT). The IIR and DMT are effective for fiscal years starting on or after 1 January 2024 while the UTPR applies to fiscal years starting on or after 1 January 2025. For further details, refer to our earlier Tax Alert.
Lodgment obligations under Australia’s Minimum Tax rules
The new regime introduces several lodgment obligations for in-scope MNE groups:
| Form or Return | Description |
| GloBE Information Return (GIR) | An OECD standardised form that must be lodged electronically, providing detailed information required to calculate the group’s minimum tax liability. Each Australian group entity (or a nominated Designated Local Entity (DLE)) must lodge the GIR for each relevant fiscal year. The GIR can also be lodged in a foreign jurisdiction with which Australia has a Qualifying Competent Authority Agreement. |
| Foreign Notification Form (FNF) | Required to be lodged with the ATO when the GIR is lodged in a foreign jurisdiction. The FNF notifies the ATO of the foreign lodgment and the jurisdiction involved. |
| Australian IIR/UTPR Tax Return (AIUTR) | An Australian-specific return that forms the basis of assessment of the group’s IIR and UTPR tax liabilities, including nil amounts. |
| Australian DMT Return (DMTR) | An Australian-specific return that forms the basis of assessment of the group’s DMT liability, including nil amounts. |
The draft PCG indicates that for administrative ease, the ATO will combine the FNF, AIUTR, and DMTR into a single ‘Combined Global and Domestic Minimum Tax Return’ (CGDMTR). At the time of writing, the format of this return has not been released by the ATO.
The due date for all of these lodgment obligations is 18 months after the end of the group’s first year, and 15 months after the end of subsequent fiscal years. Similar deadlines apply to the payment of any Australian tax imposed under the IIR, UTPR and DMT. The law provides the Commissioner of Taxation with the power to defer the due date for the AIUTR and DMTR but does not have the power to defer the due date for the GIR or the FNF.
Application of penalties and the ATO’s compliance approach
The ATO’s draft guidance sets out how penalties will apply to these new lodgment obligations, with a focus on supporting taxpayers during the Transition Period covering fiscal years commencing on or before 31 December 2026 and ending on or before 30 June 2028.
The penalty regime in the Taxation Administration Act will apply to the Minimum Tax obligations, and broadly falls into three categories:
- failure to lodge on time penalties
- penalties for making a false or misleading statement, making a statement that is not reasonably arguable or failing to give a return, notice or document leading to a default assessment by the Commissioner, and
- penalties for failure to keep records.
Penalties relating to Minimum Tax obligations can be significant since they are aligned with the higher penalties that apply to significant global entities.
Although the ATO will not be providing a blanket penalty concession to all MNE Groups during the Transition Period, the draft PCG indicates that the ATO will generally take a ‘soft-landing’ approach, remitting penalties in full where taxpayers can demonstrate they have acted in good faith and taken reasonable measures to understand and comply with their lodgment obligations. This is broadly in line with the OECD’s common understanding on transitional penalty relief. Accordingly, the onus is on MNE groups to demonstrate they have taken reasonable measures.
The draft PCG indicates that reasonable measures include, but are not limited to:
- undertaking steps to prepare lodgment of returns in a timely manner
- maintaining adequate records of positions being taken
- proactively engaging with the ATO where delays in lodging are anticipated, and
- remedying mistakes or errors in a timely manner, including proactively contacting the ATO when the MNE Group identifies errors which require amendments to the GIR or CGDMTR.
It is stated that MNE Groups can demonstrate that reasonable measures have been taken where, for example, they can provide evidence of some, or all, of the following:
- internal policy or procedure documents, or advice obtained, setting out the Minimum Tax reporting requirements and how these requirements will be met
- a documented plan being in place that incorporates funding and resourcing needs to support implementation
- senior-level approval being sought or obtained for the implementation plan
- new processes and updates to existing processes are documented
- a gap analysis has been undertaken to review existing tax and financial systems to identify shortcomings that need to be addressed to meet the Minimum Tax compliance obligations
- advice has been obtained from external service providers to assist with implementation, if necessary
- modifications to the roles and responsibilities of staff involved in the Minimum Tax compliance process to reflect new responsibilities and required capabilities
- updated internal control testing plans to incorporate key controls
- evidence that relevant information from offshore MNEs has been sought, and
- records of positions taken, including lodgment exclusions, if applicable.
This approach effectively incentivises MNE Groups to bring forward the decision making on their preferred operating model for addressing Pillar Two compliance and move early to implement the related Pillar Two compliance systems and processes.
The ATO notes that where delays in lodgment are anticipated, early engagement is important, and it expects the relevant entities or nominated DLE to contact the ATO before the lodgment due date.
Deferrals may be granted for lodgment of the AIUTR and DMTR however, as noted above, the ATO cannot defer the due date for the GIR or FNF. It may, however, suspend enforcement action for a period if, during the Transitional Period, a group requests it and provides evidence of reasonable measures.
Although each entity and each obligation could attract separate penalties, the ATO will generally remit these down to one penalty per MNE Group per lodgment type during the Transition Period (i.e. the GIR and the CGDMTR), provided reasonable measures have been taken.
As part of the ATO’s transitional compliance approach, penalties for errors or mistakes in returns will generally not be imposed during the Transition Period if the errors are due to unfamiliarity with the rules, are isolated, and do not result in a tax shortfall. Where errors result in a tax shortfall, the ATO will consider the circumstances before applying penalties. Where the mistakes or errors can be attributed to a lack of clarity in the Minimum Tax rules and the MNE Group has taken the appropriate steps to arrive at the correct interpretation (such as contacting the ATO, referring to ATO publications or other authoritative statements, or obtaining advice from a tax agent), the ATO will typically not impose penalties.
The ATO expects that taxpayers will become increasingly more familiar with the rules and their obligations, and systems and processes will be developed to a stage to ensure a much lower likelihood of errors as well as better on-time lodgment results. Accordingly, the ATO’s intended approach will be to progressively grant shorter extension periods over the Transition Period to reflect the expected improvements.
Comments on the ATO’s transitional compliance approach can be made until 29 August 2025.
Seeking a private ruling on Australia’s Minimum Tax rules
The ATO’s draft update to its private rulings guidance, TR 2006/11DC, specifically caters for the new Minimum Tax regime. The proposed update deals with the discretion provided to the Commissioner of Taxation to decline to issue a private ruling in relation to the IIR, UTPR, or DMT. This discretion may be exercised where it would not be reasonable to comply with the application, such as when relevant OECD/G20 guidance is pending, under development, or not yet incorporated into Australian law, or where a ruling would require the Commissioner to consider the application of foreign tax laws. These new grounds reflect the complexity and evolving nature of the Minimum Tax framework and are designed to ensure that the ATO’s administrative resources are focused on matters where clear and settled guidance is available.
Comments on the draft update can also be made until 29 August 2025.
The takeaway
With the first Pillar Two lodgment obligations in Australia due in less than 12 months by 30 June 2026, the ATO’s draft guidance is timely as it provides welcome clarity and a pragmatic compliance approach for MNE groups currently navigating the new global and domestic minimum tax rules.
During the Transition Period, the ATO will focus on education, support, and penalty relief for groups that act in good faith and take reasonable steps to comply. However, the onus is on taxpayers to demonstrate their efforts and to engage proactively with the ATO if issues arise. MNE groups should review their systems, processes, and governance frameworks now to ensure they are well positioned to meet these new obligations and to benefit from the ATO’s transitional compliance approach, as well as implementing a workplan to ensure they are able to meet the ATO’s increased expectations of taxpayers over time.
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