Entity Setup
How Global Minimum Tax (Pillar Two) Affects Your Multinational Entity Setup
The global minimum tax rules under Pillar Two have become law in Australia; learn how multinational entities should adapt their structure, reporting, and strategies for compliance.
By NomadicTax Research Team • 6 min read • November 21, 2025
## What is Pillar Two and Why It Matters
Australia has enacted key components of the OECD/G20 Global Anti-Base Erosion (GloBE) rules—often referred to as **Pillar Two**. These become effective for:
- The **Income Inclusion Rule** from fiscal years starting on or after **1 January 2024**. ([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))
- The **Undertaxed Profits Rule** from fiscal years starting on or after **1 January 2025**. ([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))
- A **15% domestic minimum tax** for relevant Australian entities from income years on or after **1 January 2024**. ([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))
These changes are **now law**, and large multinational enterprise (MNE) groups with global turnover of **€750 million or more** are in scope. ([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))
## Structuring Impact: From Entity Setup to Ongoing Reporting
When setting up or re-evaluating entity structures under this regime, consider the following actions:
- **Reassess whether every subsidiary/entity should be Australian resident or operate via branch**—because of how income inclusion and top-up taxes apply. A non-resident subsidiary with an Australian branch might trigger unexpected liabilities.
- **Transfer Pricing and Intangibles Strategy:** Payments for royalties or usages of IP will be under stricter scrutiny. With the expanded general anti-avoidance rule (GAAR), arrangements that reduce withholding tax or take a foreign-country tax benefit may attract penalties. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/tax-integrity-expanding-the-general-anti-avoidance-rule-in-the-income-tax-law?utm_source=openai))
- **Review financing arrangements and debt-interest positions**, particularly under thin capitalisation and interest limitation rules. Entities that lean heavily on debt funding should ensure their interest-to-earnings ratios withstand the new benchmarks. (See article on Making Multinationals Pay Their Fair Share—Schedule 2). ([ato.gov.au](https://www.ato.gov.au/law/view/document?DocNum=0000081369&FullDocument=true&PiT=99991231235958&utm_source=openai))
## Reporting Obligations and Compliance
MNEs should now plan for new reporting and registration tasks:
| Obligation | Due Date | What to Prepare |
|---|---|---|
| GloBE Information Return (GIR) | First lodgment expected by **30 June 2026** for fiscal years starting >= 1 Jan 2024. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) | Accurate breakdowns of foreign and Australian taxes paid, revenue, and profits. System integration needed. |
| Domestic Minimum Tax and Undertaxed Profits Rule | As above | Ensure internal accounting captures bottom-line effective tax rates across jurisdictions. |
ATO has also established working groups with digital service providers (DSPs) to design forms, APIs, and system workflows needed for these filings. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/Pillar2_20250305?utm_source=openai))
## Practical Examples
- **Example 1:** A software company based in Germany with an Australian subsidiary earns profits taxed at 10% overseas. Under Pillar Two, Australia may impose a *top-up tax* to bring that portion to 15%.
- **Example 2:** An MNE group shifts its IP rights to a low-tax jurisdiction and charges royalties. That may trigger both the minimum tax and GAAR-based penalties under Australia's royalties measure. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/new-royalty-penalty-and-withdrawal-of-intangibles-measure?utm_source=openai))
## Actionable Insights
- **Start reviewing entity structures now.** Even if the first filing is in 2026, getting your structure compliant takes time.
- **Invest in accounting systems** that clearly separate jurisdictional profits, taxes, and related-party transactions.
- **Engage advisors early**—especially on transfer pricing, GAAR risks, and local tax interpretations.
- **Monitor public guidance from the ATO**, especially draft rulings and practical compliance guidelines which clarify application.
## Conclusion
Pillar Two is a paradigm shift for multinational taxation in Australia. The rules are now in effect. Entities need to act now—redesign structures, ensure robust reporting, and understand compliance risks. Getting ahead will reduce unexpected tax exposure and strengthen global and domestic tax integrity.