Implementation of Pillar Two in Australia

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The OECD two-pillar approach to address the digitalisation of the economy will significantly impact tax functions of multinational entities. These historic changes will affect effective tax rates, significantly increase compliance obligations, impact legal structures, change deal values, and force multinational enterprises to source data that might be difficult to obtain. This PwC update can help you prepare for the implementation of Pillar Two in Australia.

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23 October 2023

In Brief

The OECD two-pillar approach to address the digitalisation of the economy will significantly impact tax functions of multinational entities. These historic changes will affect effective tax rates (ETRs), significantly increase compliance obligations, impact legal structures, change deal values, and force multinational enterprises (MNEs) to source data that might be difficult to obtain.

With financial statement disclosure obligations already in effect, and the need to develop and implement new processes to meet extensive Pillar Two compliance obligations in coming years, it is critical that action plans are being set into motion as soon as possible to address the implementation of Pillar Two in Australia.

The key implementation focus areas and current action items will vary depending on whether the Ultimate Parent Entity (UPE) of the MNE group is located either in Australia or overseas with an Australian inbound investment. Further information on how to prepare for the implementation of Pillar Two and manage related financial reporting disclosure and compliance obligations for both of these scenarios is provided below.

In Detail

What is Pillar Two?

Under an OECD Inclusive Framework, more than 135 countries agreed to enact a two-pillar solution to address the challenges arising from the digitalisation of the economy. 

Pillar Two introduces a global minimum ETR via a system where MNE groups with consolidated revenue over EUR €750 million (~ AUD $1.2 billion) are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions. This threshold is different to the existing Significant Global Entity (SGE) concept (which broadly refers to a group with annual global income of AUD $1 billion or more).

Whilst designed to primarily assist governments as they consider moving forward with the implementation of Pillar Two, the recently released OECD publication, ‘Minimum Tax Implementation Handbook’, provides a helpful overview of the key provisions.

When does Pillar Two come into effect?

The OECD has recommended that the Pillar Two rules become effective in 2024, with the exception of the Undertaxed Profits Rule (UTPR), which is recommended to become effective in 2025. 

A number of jurisdictions around the world have either implemented or released draft legislation with effect from these start dates, with many more committing to do the same. MNE groups will therefore need to assess in what jurisdictions they may be subject to Pillar Two rules, and the applicable dates that those rules apply.

As part of the 2023-24 Federal Budget, the Australian Government announced the implementation of the Global Anti-Base Erosion (GloBE) Rules, a key component of the OECD’s Pillar Two framework, as follows:

  • The Income Inclusion Rule (IIR), effective for income years commencing on or after 1 January 2024, which will provide Australia with the ability to collect an allocation of top-up tax where the group’s UPE, or sometimes an intermediate parent entity, is located in Australia;
  • The UTPR, effective for income years commencing on or after 1 January 2025, which is intended to apply as a backstop if low-taxed income is not fully collected under the IIR and which can be applied in the jurisdictions of fellow group members. 

The Government has also announced that it will implement a domestic minimum tax of 15%, with effect for income years commencing on or after 1 January 2024. This tax will apply to Australian operations of MNE groups and will ensure that Australia retains taxing rights over undertaxed Australian profits. Unlike taxes collected under the IIR and UTPR, the domestic minimum tax is intended to give rise to franking credits, subject to OECD peer review.

To date, draft legislation to implement the Pillar Two rules in Australia has not yet been released.

Creating an action plan around Pillar Two

There are many ways to approach the Pillar Two challenge. The right approach needs to be unique to each MNE group, considering factors such as people, process and technology. The key focus areas fall into the following categories:

Focus areas for preparing for Pillar Two

These focus areas will help you execute compliance with confidence and assist in answering questions such as:

  • How should my company approach Pillar Two compliance? 
  • Is my team equipped to take this in-house? 
  • Do I need to outsource?

To address these focus areas, Pillar Two engagements are typically structured across a series of interrelated phases. For example:

  • Transitional safe harbour assessment - The transitional Country-by-Country Report (CbCR) safe harbour provides a potentially significant compliance savings approach to Pillar Two calculations in the early years of the GloBE Rules. Confirming the availability of the safe harbour and modelling its potential application should be considered early in the Pillar Two planning process.
  • Targeted jurisdictional analysis - Following the safe harbour analysis, and subject to the outcomes of that assessment, identify the most useful pilot jurisdiction(s) to perform a more detailed Pillar Two calculation utilising currently available data. This will involve a preliminary calculation of the ETR for each jurisdiction, identifying potential outcomes under Pillar Two, and enabling the following analysis to be performed:
    • Data gap analysis - Assessment of the Pillar Two data requirements and a current state data gap analysis utilising PwC’s Pillar Two Data Input Catalog, including identifying whether the required data can be collected using existing systems.
    • Process design analysis - Assessment of gaps in existing processes and identification of the improvements needed regarding controls around Pillar Two calculations, including the extent to which existing systems and processes can be best utilised.
  • Technology implementation and process improvement - As businesses transition into a full scope assessment of the rules, analysis is undertaken to confirm the impact of Pillar Two, including forecasting potential top-up tax liabilities and modelling the impact on the MNE group, confirming all relevant compliance obligations (both global and local) and required financial reporting disclosures. These requirements will then drive consideration of the following:
    • Technology solution assessment - Identify options for reporting and compliance from a technology perspective.
    • Process improvement - Development of Pillar Two reporting and compliance processes leveraging existing technology and systems where possible.

Undertaking this analysis will allow impacted taxpayers to adequately prepare for the related compliance obligations that will be required under Pillar Two, as set out below.

Compliance obligations

The implementation of Pillar Two will see a significant increase in tax compliance obligations for MNE groups that are within the scope of the rules, including the requirement to prepare and lodge the following:

  • GloBE Information Return (GIR) - To be lodged by the UPE of the MNE group requiring extensive disclosures regarding the structure of the MNE group, the liability for top-up tax and detailed calculation information. 
  • Domestic Pillar Two tax return(s) - The ATO has confirmed that, as the GIR is an information form, separate tax returns will be developed by the ATO to enable the assessment of any top-up tax liability for GloBE or domestic minimum tax attributable to Australia, having regard to the information elements of the GloBE computations that will be contained in the GIR.

The ATO is currently undertaking targeted public consultation with selected taxpayers, likely to be in scope of the proposed measures and their advisors, with a focus on potential administration, compliance and systems impacts. The ATO has also recently contacted self-declared SGEs to advise them of potential obligations under Pillar Two and alert them to the potential need to consider additional resources, systems and processes to meet any Pillar Two GloBE obligations arising both in Australia and in other jurisdictions. As previously noted, the revenue threshold for being considered an SGE (AUD $1 billion) is lower than the threshold for being within scope of the Pillar Two rules (~ AUD $1.2 billion).

Additional financial statement reporting obligations may arise for in-scope MNE groups, with amendments recently being made to IAS 12/AASB 112 and AASB 1060 to incorporate specific Pillar Two disclosure requirements in financial statements.

In-scope MNE groups will need to take a holistic approach to determine how data will be sourced, processed, calculated and reported for Pillar Two compliance purposes. Every company will be unique in the challenges they will face and thus, there is no one-size-fits-all solution that can address the Pillar Two challenges and complexities. 

In-scope MNE groups will need to customise an approach, centred around foundational building blocks – resources, data requirements, existing enterprise systems, and other technology (e.g. tax provision software). A connected end-to-end process needs to be designed to support the Pillar Two operating model and compliance process, ideally leveraging as much from the current data and technology ecosystem as possible.  

Focus areas for your business - Outbound vs Inbound

Current action items relating to the implementation of Pillar Two in Australia will vary to some degree, depending on whether a MNE group is headquartered in Australia and invests overseas or whether it is an inbound investment of an overseas parent entity.

Outbound organisations

As the IIR primarily applies to the UPE of an MNE group, or another intermediate parent entity if the UPE is not located in a jurisdiction that has or will implement an IIR, for an Australian headquartered MNE group it will be the Australian UPE that will be responsible for undertaking the Pillar Two calculations for the MNE group and paying top-up tax, applying Australia’s IIR. Based on the Federal Government’s previous announcements, this will apply for income years commencing on or after 1 January 2024. 

Australian UPEs should look to undertake the steps outlined above with respect to creating an action plan around Pillar Two, commencing with an assessment of the availability of the transitional CbCR safe harbour and/or undertaking modelling of the potential impact of Pillar Two on the MNE group. 

These steps will assist with potentially imminent financial statement reporting obligations (including satisfying any required auditing procedures supporting these disclosures), broader stakeholder management, as well as setting the MNE group up to address the required submission of the GIR and potentially a domestic minimum tax return in the coming years.

Inbound organisations

As the Pillar Two rules primarily apply to the UPE of the MNE group, it may be the case that the primary responsibility for Pillar Two readiness and compliance rests with the offshore UPE. . However, Pillar Two compliance requires a globally coordinated approach. In this regard, significant involvement by the tax (and other) teams of local subsidiaries may still be required. 

For Australian inbound organisations, it will be necessary for local teams to consider the impact of a domestic minimum tax in Australia, gather and assess the extensive information required to complete Pillar Two calculations and, as noted above, manage the local financial statement disclosure requirements and compliance obligations that will apply in Australia. These obligations can also extend further where the UPE (or other intermediate parent entities) of the group is located in a jurisdiction that has not yet chosen to implement the Pillar Two rules, or will be implementing but with a commencement date that is later than the start date of the rules in Australia.

To prepare for the implementation of Pillar Two, we recommend that inbound organisations undertake the following steps.

  • Confirm responsibility for Pillar Two - It is important to identify and understand who within the MNE group is responsible for Pillar Two readiness and whether this role will be undertaken by the UPE and/or whether local teams will be required to separately implement systems and processes for managing Pillar Two.
  • Confirm the intended approach being taken by the group to the calculations – Has an assessment been completed as yet with respect to the availability of safe harbours and will this be relied upon by the group? If so, will the Australian entities satisfy one of the safe harbour tests or will full calculations be required to be completed from the commencement of the rules? These questions  will be important to resolve as they will directly impact the approach to be taken for the purposes of financial statement disclosure preparation, tax provisioning and compliance more broadly.
  • Undertake a data gap analysis - Subject to the satisfaction of safe harbour rules, undertake an assessment of the Pillar Two data requirements and a current state data gap analysis utilising PwC’s Pillar Two Data Input Catalog, including identifying whether the required data can be collected using existing systems. Where required, this will assist in preparing the information that may be required to be reported to the global parent entity and assist with the preparation of domestic tax returns (for their lodgement in years to come).
key takeaways

Key takeaways

The complexity, novelty and uncertainty that Pillar Two presents compounds the existing global compliance and regulatory challenges for MNE groups. Pillar Two’s global adoption, including the anticipated divergence in local rules, poses additional complexities that cannot be underestimated. To prepare for Pillar Two, MNE groups will need to focus on data, systems, technology and processes as the foundation for global and statutory compliance.

Contact us

If you would like to further discuss this alert, reach out to our team or your PwC adviser.

Chris Stewart

Partner, Tax, Brisbane, PwC Australia

+61 407 005 521


Angela Danieletto

Partner, Sydney, PwC Australia

+61 410 510 089


Helen Fazzino

Partner, Tax, Melbourne, PwC Australia

+61 438 388 819


Jonathan Malone

Partner, Global Tax, Sydney, PwC Australia

+61 408 828 997


Michael Bona

Global Tax Leader, Brisbane, PwC Australia

+61 405 136 010


Mike Taylor

Partner, Tax, Melbourne, PwC Australia

613 8603 4091



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