Entity Setup
Entity Setup Considerations in Australia Post-Pillar Two Implementation
Australia’s implementation of the global minimum tax reshapes entity structuring—multinationals must evaluate where to locate profits, MDAs, and execution risks.
By NomadicTax Research Team • 5-8 min read • March 8, 2026
## The Global and Domestic Minimum Tax Regime in Australia
Australia has passed the **Taxation (Multinational—Global and Domestic Minimum Tax) Act 2024**, implementing OECD Pillar Two rules. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/international/implementation-of-a-global-minimum-tax-and-a-domestic-minimum-tax?utm_source=openai)) Key features:
- **Global minimum tax rate of 15%** for multinational enterprises (MNEs) with global revenue ≥ EUR750 million.
- **Income Inclusion Rule** applicable to fiscal years starting **on or after 1 January 2024**, and the **Undertaxed Profits Rule** from **1 January 2025**.
- **Domestic minimum tax** ensures Australia can collect top-up tax where overseas income is taxed below 15%. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/international/implementation-of-a-global-minimum-tax-and-a-domestic-minimum-tax?utm_source=openai))
## Entity Structuring Implications
- **Holding vs. operating entities**: Holding companies solely owning investment assets may face low effective rates abroad—therefore, top-up tax obligations arise. Structuring incentives should align with substance, operations, and local tax positions.
- **Profit allocation and location**: Distributing operations or creating IP development hubs in Australia may alter effective tax jurisdiction and intercompany pricing. Depending on tax treaty outcomes, moving certain functions may reduce global top-up exposure.
- **Transitional safe harbors**: Australia allows **TCbCR safe harbour provisions** for certain accounting periods (before end-FY 2026, excluding years ending after 30 June 2028) to ease compliance for entities with routine profits or de minimis low risks. ([ato.gov.au](https://www.ato.gov.au/about-ato/consultation/in-detail/special-purpose-working-groups-key-messages/pillar-two-global-and-domestic-minimum-tax-working-group/pillar-two-global-and-domestic-minimum-tax-working-group-key-messages-3-april-2025?utm_source=openai))
## Practical Examples
- **TechCo**, a foreign-headquartered MNE, has substantial software royalty income taxed in a low-tax jurisdiction. Under Pillar Two, it may owe top-up tax in Australia. Structuring royalty licensing through entities with sufficient economic substance in qualifying jurisdictions could reduce implications.
- **ManufactureCo**, with IP and manufacturing split across jurisdictions: Shifting some IP functions to Australia could create higher taxed income locally, reducing exposure. But tax treaty rules and PE (Permanent Establishment) risks must be carefully examined.
## Actionable Insights for Entities
- Conduct a **Pillar Two Impact Assessment**: compute potential top-up under different entity structures, treaty impacts, and foreign jurisdictions’ effective rates.
- Update **transfer pricing policies** to reflect actual functions, risks, and assets aligned with substance.
- Plan for **compliance systems**: preparing and filing GIR (GloBE Information Return) in Australia is due starting **30 June 2026** for many entities. Ensure internal teams, auditors, and systems are ready. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai))
## Key Takeaways
The imposition of global minimum and domestic minimum tax rules redefines how MNEs should set up entities and locate profits. Businesses must integrate strategic tax structuring, compliance systems, and treaty analyses—good planning now avoids large top-up liabilities later.