Lack of progress with Pillar Two reforms ‘disappointing’, says RSM
The absence of any legislation about the implementation of a global minimum tax rate and other Pillar Two measures is creating complacency in the market, warns RSM Australia.
A lack of any details, consultation or draft legislation about the government’s plans to implement key aspects of Pillar Two of the OECD Two-Pillar solution has made preparing for the measures incredibly difficult for taxpayers and practitioners, says RSM Australia national tax technical director Liam Telford.
Despite the government previously announcing the measures would commence 1 January 2024, it is yet to release any detail about the reforms with just weeks left until the end of the year.
The measures, which were announced as part of the 2023–24 federal budget, include the introduction of a global minimum tax of 15 per cent for large multinational enterprises with Income Inclusion Rules to apply on or after 1 January 2024. The Undertaxed Profits Rule will apply to income years starting on or after 1 January 2025.
The global minimum tax rules allow Australia to apply a top-up tax on a resident multinational parent or subsidiary company where the group’s income is taxed below 15 per cent overseas.
The government has also committed to implementing a 15 per cent domestic minimum tax for income years starting on or after 1 January 2024.
The domestic minimum tax gives Australia the first claim on top-up tax for any low-taxed domestic income.
“We’re now in November and we still don’t have any legislation. While we can presumably refer to the OECD model rules and guidance on the income inclusion rule and subsequently the undertaxed profit rule, there seems to be some discretion in how different jurisdictions are implementing the qualified domestic minimum top tax rules,” said Mr Telford.
“Whilst I acknowledge that this is an area of significant complexity, the delay is quite disappointing in my view and it’s creating complacency in the market.”
Mr Telford said that many companies are waiting for the legislation to be released before they decide how to act.
“So I’m a bit concerned about the level of readiness in Australia given the monumental change that the introduction of Pillar Two will bring.”
Mr Telford said this was not the only set of measures where legislation had been delayed, with the multinational tax integrity package also causing difficulties for taxpayers and practitioners.
There has also been no further progress towards legislating the country-by-country reporting measure since the government’s consultation earlier this year.
“While the measure was deferred by an extra year in June this year we’re yet to see an exposure draft. Again, it’s frustrating that there hasn’t been much action taken,” he said.
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