Compliance
Navigating Pillar Two: what Australian multi-nationals need to know now
With the global minimum tax (Pillar Two) now part of Australian law, multinationals must adapt their reporting and risk strategies before compliance deadlines.
By NomadicTax Research Team • 5-8 min read • November 24, 2025
## What is Pillar Two and Its Implementation in Australia
Australia has implemented the **OECD/G20 Two-Pillar framework**, including the Global Anti-Base Erosion (GloBE) rules. The key components are:
- **Income Inclusion Rule (IIR)**: when a foreign jurisdiction taxes at a rate below 15%, the Australian parent company may face a **top-up tax**.
- **Undertaxed Profits Rule (UTPR)**: a back-stop allowing Australia to tax low-taxed profits of constituent entities not covered by IIR.
- **Domestic Minimum Tax (DMT)**: gives Australia primary rights to impose top-up tax over any low-taxed profits within Australia. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/in-detail/multinationals/global-and-domestic-minimum-tax?utm_source=openai))
The IIR and DMT apply to **fiscal years starting on or after 1 January 2024**, while the UTPR begins for fiscal years starting on or after **1 January 2025**. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/in-detail/multinationals/global-and-domestic-minimum-tax?utm_source=openai))
## What Multinationals Must Do: Compliance Checklist
1. **Assess whether you're in scope**:
- Has global revenue and operations triggered GloBE inclusion?
- Structure of foreign entities, tax residence, income allocation matter.
2. **Understand reporting obligations**:
- File *GloBE Information Return (GIR)*.
- Use updated **guidance** – ATO is developing both technical and administrative guidance. Consultation open on PCG 2025/D3. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/business-bulletins-newsroom/consultation-open-for-guidance-about-pillar-two?utm_source=openai))
3. **Soft-landing transitional period**:
- ATO has indicated reduced penalty risk in early years, if reasonable efforts are made to comply. ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/business-bulletins-newsroom/consultation-open-for-guidance-about-pillar-two?utm_source=openai))
4. **Systems and tax computations**:
- Need tools to calculate effective tax rates abroad.
- Ensure internal finance, transfer pricing, ARR of profits align with new rules.
## Example: Impact by Situation
| Company Type | Fiscal Year Start | UTPR Applies | Liability Exposure |
|---|---|---|---|
| Australian parent with foreign subsidiaries in low-tax jurisdictions | 1 Jan 2025 | Yes | Must check both IIR and UTPR implications; possible double taxation mitigation needed |
| Foreign headquartered group with Australian operations | 1 Jan 2024 | No (UTPR not yet) | IIR could apply to parent jurisdiction or Australia might use DMT if foreign jurisdiction rules permit |
## Strategies to Mitigate Risk
- **Tax treaty positioning**: examine how treaties interact with top-up taxes.
- **Effective tax planning**: shift profits legitimately where rates are higher or where foreign countries raise taxes.
- **Documentation and transparency**: keep records of foreign taxes paid, activities, structures, so audits are smoother.
## Bottom Line
For multinationals operating in or through Australia, Pillar Two is no longer future policy—it's already in force. Compliance preparation, filing of GIR, and strategic structuring needed to avoid surprise tax liabilities. Begin as soon as possible to leverage soft-landing provisions and avoid late penalties.