Milestone multinational tax changes pass Parliament
The legislation to implement the Pillar Two tax reforms for multinationals has been passed through Parliament but there is still some uncertainty surrounding the new measures, tax experts have said.
Last week the government passed three bills to introduce global and domestic minimum taxes in Australia for multinational groups after the House of Representatives agreed to amendments made by the Senate for two of the bills.
The bills implement the Pillar Two reforms which ensure that multinational enterprises pay a minimum level of tax on the income arising in each of the jurisdictions in which they operate.
While the bills should receive royal assent soon, most of the Pillar Two rules are contained in a separate legislative instrument – the Taxation (Multinational – Global and Domestic Minimum Tax) Rules 2024 (Subordinate Legislation).
The Subordinate Legislation has not been registered or introduced into Parliament.
BDO tax partner Denise Brotherton said the passage of the bills is particularly important for taxpayers who need to consider the impact of disclosures required for the new Pillar Two regime as part of their financial reporting obligations for the 31 December 2024 year-end.
"The ultimate position is dependent on whether the Pillar Two legislation and rules meet the “substantively enacted” threshold in accordance with the Australian Accounting Standards Board’s guidelines," Brotherton said.
"Although the three enabling bills have been passed by Parliament, we understand the substantive enacted status of the Australian Pillar Two law is dependent on when the legislative instruments containing the subordinate legislation is registered on the Federal Register of Legislation under the Legislation Act 2003."
If the substantively enacted threshold is met before 31 December 2024, Brotherton warned that groups preparing accounts for the year ending 31 December 2024 would be required to consider their Pillar Two related disclosure obligations – with very tight reporting deadlines.
"As the bills are linked to a legislative instrument containing the detailed rules, which is yet to be registered, some uncertainty remains as to whether these will be registered such that substantive enactment status is achieved before 31 December 2024," she said.
"Groups with a 31 December 2024 year-end reporting obligation need to be well prepared to address Pillar Two disclosure requirements if substantive enactment status is achieved before 31 December 2024 and if not before 31 December 2024, then early in the new year."
BDO said groups that might be impacted by the measures should consider all financial disclosure requirements, determine whether the group is captured by the measures and, if so, identify the entities captured.
Groups would also need to evaluate their eligibility for the transitional safe harbour and simplified calculation methodologies.
BDO also urged groups to start planning the organisation's approach to reporting including decisions around whether to prepare and lodge internally, outsource or a hybrid approach.
Groups should also review existing finance infrastructure, any interrelated systems and the quality of data contained within those systems.
If organisational change is required, groups should manage any impacted stakeholders and plan the change process well in advance, BDO added.
RSM Australia corporate tax partner Damian Sellitti said it was a frustrating few months for multinational groups watching the Pillar Two legislation stall in the Senate and that the passage of the bills had provided some clarity.
Sellitti said there continues to be some confusion around the Qualified Domestic Minimum Top-Up Tax (QDMTT) safe harbour and how it would operate, or whether the ATO will introduce guidance to clarify its operation concerning Australia’s domestic minimum tax.
He also said there was still a false sense of security among some MNEs regarding the automatic application of the transitional country-by-country safe harbour (CbCR TSH) rules when the process to determine eligibility was not straightforward.
“For those looking to adopt the CbCR TSH provisions, they need to be acting now to ensure they have documented their eligibility, including what rules they can rely on, and also starting to turn their minds to their obligations once these transitional provisions cease in three years,” Sellitti said.
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