Entity Setup
Entity Setup: Choosing the Right Structure as Global Minimum Tax Rules Bite
With Australia implementing Global and Domestic Minimum Tax, entity choice and group structure matter more than ever—this guide helps MNEs and smaller firms plan ahead.
By NomadicTax Research Team • 5-8 min read • August 29, 2026
## What Are Australia’s Global & Domestic Minimum Tax (Pillar Two) Rules?
Australia has enacted legislation implementing the **GloBE Rules** and a **Domestic Minimum Tax (DMT)**. The rules apply to multinational enterprise (MNE) groups with global revenue above EUR 750 million. ([ato.gov.au](https://www.ato.gov.au/api/public/content/0-19a11d5f-5a98-4cff-ba03-5aea1b50aaf2?utm_source=openai))
- **Income Inclusion Rule** (IIR): Applies from fiscal years starting **1 January 2024**.
- **Undertaxed Profits Rule** (UTPR): Applies from years starting **1 January 2025**.
- **Domestic Minimum Tax** also applies from **1 January 2024**. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/Pillar2?utm_source=openai))
## Why It Matters in Structuring Entities
For large global groups, Greenland law no longer permits profit shifting without consequence. Top-up tax is assessed where the effective tax rate (ETR) in a jurisdiction falls below **15%**. Planning around entity setup, fund accounting, choice of holding jurisdictions, and intercompany flows becomes critical.
## Key Considerations in Entity Setup
- **Assess group revenue thresholds**: Only groups with consolidated revenue surpassing the EUR 750 million threshold are in scope. Smaller entities or mid-size enterprises may fall outside Pillar Two entirely.
- **Jurisdictional tax rates**: If your current setup involves low-tax jurisdictions, they could trigger foreign top-up tax or subject to UTPR.
- **Structure of holding company and local entities**: Who is the Designated Local Entity (DLE), how group entities are grouped for lodgment, and where profits are booked can meaningfully impact liabilities.
## Example Scenario
A company “GlobalTech AU” operates in Australia, the Philippines, and Singapore. The group global revenue is well above EUR 750 million. Australia taxable income is taxed at 30%, Singapore at 17%. Because Singapore’s effective tax is below 15%, other jurisdictions in the group (including Australia) may have obligations to collect **top-up tax** under UTPR. Proper structure (where profits are booked, intercompany transactions) matters to reduce leakage.
## Actionable Steps & Best Practices
- Conduct a **Pillar Two readiness audit**: review global revenue, country-by-country reporting capacity, assess ETRs in each jurisdiction involved.
- Set up reporting systems early: identify who will lodge the Global Information Return (GIR), Combined Returns etc. Use the ATO’s API for the Global and Domestic Minimum Tax product to submit returns and notifications. ([apiportal.ato.gov.au](https://apiportal.ato.gov.au/api-products/global-and-domestic-minimum-tax?utm_source=openai))
- Update intercompany agreements: ensure pricing, cross-border payments, royalties, etc., are supported by robust documentation.
- Monitor guidance: The ATO will release more with respect to transitional rules and compliance thresholds.
## Risks & Trade-offs
- Increased **administrative burden and cost** to produce GIR, monitor ETRs, submit group returns.
- If your setup has jurisdictions with small or absent tax, you may face **higher top-up tax liabilities**.
- Complexity in aligning tax law across countries.
## Example Structure Decisions
| Option | Pros | Cons |
|---------|------|------|
| Centralised DLE in high-tax jurisdiction | Reduces UTPR exposure and simplifies lodgment | Might result in fewer tax incentives available locally |
| Decentralised entities in each country | Easier compliance and local adaptation | Need detailed tracking of profits, risk for low ETR jurisdictions |
| Using hybrid structure with trusts or partnerships | Flexibility in income allocation and flow through | Transparency issues under GloBE; may lose benefits if ETR thresholds triggered |
**Take-away:** Pillar Two implementation means entity structure isn’t just about local tax—they're part of a global tax ecosystem. Proactive planning can avoid unexpected liabilities and streamline compliance.