Entity Setup
Entity Setup in Light of Australia’s Global Minimum Tax Rules
What entities need to know before starting business operations in Australia under the new Pillar Two rules.
By NomadicTax Research Team • 5-8 min read • March 20, 2026
## What are the Global & Domestic Minimum Tax Rules?
Australia has implemented the **OECD/G20 Two-Pillar Solution**, including the **Global Anti-Base Erosion (GloBE) Model Rules** and a **Domestic Minimum Tax (DMT)**. For multinational enterprise (MNE) groups operating in Australia, these rules ensure a **minimum 15% tax** in jurisdictions where they operate. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/private-wealth-international-program/new-international-tax-measures-affecting-private-groups?utm_source=openai))
These measures apply from **1 January 2024** for the Income Inclusion Rule and Domestic Minimum Tax and from **1 January 2025** for the Undertaxed Profits Rule. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/private-wealth-international-program/new-international-tax-measures-affecting-private-groups?utm_source=openai))
## Implications for New Entities
- **Foreign-controlled or large private groups** with significant outbound operations must assess whether their structure will enter scope.
- Entities expecting to be part of MNE groups with consolidated revenue above thresholds must prepare for disclosure obligations, top-up taxes, and form filings (GIR, IIR/UTPR, DMT). ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/private-wealth-international-program/new-international-tax-measures-affecting-private-groups?utm_source=openai))
## Set-Up Considerations Before Establishing Structure
- Review **debt financing arrangements**: Thin capitalisation and debt deduction creation rules are now law for income years starting 1 July 2023 or 2024 depending on component. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/private-wealth-international-program/new-international-tax-measures-affecting-private-groups?utm_source=openai))
- Avoid funding acquisitions or returns of capital from related parties in a way that creates debt deductions inconsistently with the rules. Denied deductions may be carried forward under fixed ratio test but not under group or third-party debt test. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/private-wealth-international-program/new-international-tax-measures-affecting-private-groups?utm_source=openai))
- Consider whether the entity should opt into group ratio or third-party debt test if available—the default method is fixed ratio. Evaluate which gives more sustainable tax outcome. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/private-wealth-international-program/new-international-tax-measures-affecting-private-groups?utm_source=openai))
## Practical Steps for Compliance & Tax Efficiency
- **Maintain clear documentation** for inbound/outbound related-party debt valuations and interest rates to meet arm’s length standards under transfer pricing provisions.
- **Forecast global minimum tax liabilities**: Tax agents should model whether the entity will pay top-up tax or be subject to Undertaxed Profits Rule. Adjust entity structure if possible.
- **Software readiness**: The government and ATO are developing forms, API portals (e.g. for GIR) and systems—ensure you or your advisors can use approved channels. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/private-wealth-international-program/new-international-tax-measures-affecting-private-groups?utm_source=openai))
- **Seek advance guidance**: The ATO is publishing Practical Compliance Guidelines (PCGs) and is consulting on new rulings (e.g. thin capitalisation and debt deduction creation rules). Early feedback or advisory rulings to ensure certainty. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/private-wealth-international-program/new-international-tax-measures-affecting-private-groups?utm_source=openai))
## Example
An Australian company controlled by foreign parent enters into a related-party loan to fund purchase of real estate. Under new rules:
- That related party interest may be denied under the fixed ratio test if net debt/EBITDA limits exceeded.
- If using third party test, related party debt deductions may be disallowed in full under the debt deduction creation rules.
- The corporation might face a top-up tax if the foreign parent company does not bring income into Australia taxed at minimum rates.
**Bottom line**: When setting up or restructuring entities, global minimum tax rules, thin capitalisation limits, and debt deduction constraints must be integrated into planning from day one to avoid being caught off guard.