The GIR MCAA is an international agreement developed by the Organisation for Economic Co-operation and Development (OECD) and Group of 20 (G20) Inclusive Framework to support the implementation of the Pillar Two rules. It facilitates the automatic exchange of the GIR, a standardised set of data that enables tax authorities, such as the Australian Taxation Office (ATO), to assess whether multinational enterprise (MNE) groups are subject to a global minimum tax rate of 15% in each jurisdiction.

With Australia becoming a signatory, an MNE Group would be able to simplify and reduce its lodgement obligations across the jurisdictions in which it operates in by filing a single, centralised GIR. This GIR would be automatically shared with other signatory jurisdictions under exchange-of-information arrangements in accordance with the MCAA and the agreed dissemination approach under the OECD Inclusive Framework, rather than requiring separate filings by a designated local entity in each jurisdiction.

As of 2 February 2025, 26 countries, including United Kingdom, New Zealand, Japan, France, and Germany, have signed up to the MCAA, with more expected to do so before the first lodgement due date of 30 June 2026 for MNE Groups with an income year ending 31 December 2024.

A full list of signatory countries to the MCAA can be tracked here. Under the Tax Administration Act 1953, the group entities can nominate one entity (i.e. designated local entity or designated foreign filing entity) in the MNE Group to lodge one single GIR. This nomination is lodged in the first year with the ATO through a foreign lodgement notification form.

Note that neither China nor the United States (US) has implemented Pillar Two. Refer to our previous coverage on the ‘Side-by-Side’ (SbS) arrangement for further details.

How SW can help

We can assist in undertaking country-by-country analysis of the obligations and consideration of the application of exemptions and safe harbour rules.

We can also support the implementation of SW’s CTS Pillar Two software to facilitate the lodgement of the GloBE Information Return and other lodgement obligations.

In addition, we can help MNE groups assess the impact of the SbS arrangement and anticipated Australian legislative changes, identify data and systems gaps, evaluate safe harbour eligibility, and develop practical compliance strategies to manage ongoing Pillar Two obligations and costs.

Contributors

Antony Cheung

The post Australia signs the information exchange for GloBE Information Return (GIR)  appeared first on SW Accountants & Advisors.

While the United States (US) is the first to qualify, other countries may also be included if they meet the criteria. It is crucial for affected MNEs to understand these changes, as Australia and other jurisdictions are expected to update their rules to align with the new framework. 

To recap, a SbS solution to exempt US-parented multinational groups from the Global Anti-Base Erosion (GloBE) Model Rules (i.e. Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR)) was first proposed between the United States and other G7 nations in July 2025 as part of an agreement for the US to drop the implementation of the Section 899 ‘Revenge Tax’ (see SW’s previous coverage).  

After months of intense negotiations, the OECD announced that the 147 members within the Inclusive Framework have now agreed to a package in the form of an administrative guidance to the GloBE Model Rules. The OECD document sets out a number of new safe harbours for the purpose of materially simplifying the compliance burden of the GloBE Model Rules and applying the SbS system. The existing transitional Country-by-Country Reporting (CbCR) Safe Harbour has also been extended for a year. The proposed measures are summarised in the table below:

Observations and what this means for Australia 

In order for the Australian equivalent rules to maintain their qualified status (in other words administering in a manner consistent with the GloBE Model rules), an amendment to the domestic rules to mirror the OECD changes is expected shortly. Practically, the extension of the transitional CbCR safe harbour for an additional one year would allow multinational groups to improve on their systems in extracting information to meet the Pillar Two compliance obligations.  

To avoid roll-back of legislations by jurisdictions that have already implemented the Pillar Two rules, the changes introduced under this SbS arrangement will only apply to income years commencing 1 January 2026. Whilst Australia and other jurisdictions may also seek to demonstrate that it qualifies for the SbS and UPE safe harbours, the registration process may be lengthy, and any further exceptions of jurisdictions (other than US) remain to be seen.

Furthermore, the commencement date of these new changes also mean compliance costs will still be significant, given MNE groups (including US-parented groups) are still required to meet their lodgement obligations in jurisdictions that have already implemented the GloBE Model equivalent rules for income years commencing 1 January 2024 and 2025.  

How SW can help 

We can assist in undertaking country-by-country analysis of the obligations and consideration of the application of exemptions and safe harbour rules.   

We can also support the implementation of SW’s CTS Pillar Two software to facilitate the lodgement of the GloBE Information Return and other lodgement obligations.  

In addition, we can help MNE groups assess the impact of the SbS arrangement and anticipated Australian legislative changes, identify data and systems gaps, evaluate safe harbour eligibility, and develop practical compliance strategies to manage ongoing Pillar Two obligations and costs.

Contributor

Antony Cheung

The post Pillar Two ‘Side-by-Side’ arrangement released by OECD   appeared first on SW Accountants & Advisors.

Just few weeks after the US Congress passed the One Big Beautiful Bill Act (the OBBBA), including the controversial Section 899 ‘revenge tax’, the Senate has implemented a number of changes to the OBBBA. The revised version of the OBBBA excludes this revenge tax. This change comes after a recommendation from US Treasury Secretary Scott Bessett to remove the tax as part of a deal with the G7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States). This removal follows widespread concern that the tax was expected to reduce foreign investment into the US costing US jobs.   

This version of the OBBBA narrowly passed in the US Senate on 1 July 2025 with Vice President Vance casting the tie breaking vote. Now the OBBBA needs to be reconsidered by Congress prior to the 4 July deadline self-imposed by President Trump. 

Arising from the deal with the G7 nations is the newly proposed ‘side-by-side’ solution, whereby US-parented multinational groups would be exempt from the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) under the Organisation for Economic Cooperation and Development’s (OECD) Pillar Two. This is on the basis that the US has its own domestic minimum tax rules.  

The removal of proposed Section 899 is great news for Australian entities with investments and/or business interests in the US. This is because there will not be an increase of 5% per annum, for up to an additional 15% beyond the existing reduced treaty rate. Furthermore, no change to the minimum tax of 10% imposed on large corporations per the base erosion and anti-abuse tax (BEAT) regime.  

Considering the US parent group exemption is struck between the US and G7 nations (which does not include Australia), the impact on Australia’s implementation of Pillar Two is currently unclear. This is a live issue for multinationals, given the IIR and DMT, and UTPR apply to income years starting 1 January 2024 and 2025, respectively.   

G7 statement on global minimum taxes 

Following the signing of executive order in January this year by President Trump to ‘defend US tax sovereignty’ and outlining concerns regarding the Pillar Two rules agreed by the OECD/G20 Inclusive Framework (representing over 140 countries), the US and G7 nations came to a joint understanding in their recent summit addressing global minimum tax and tackling tax planning and avoidance. The ‘side-by-side’ arrangement is based on the following principles: 

• Multinationals with a US parent will be fully exempted from the application of UTPR and IIR (i.e. 15% minimum corporate tax) with regard to domestic and foreign profits 

• commitment to identifying substantial risks, including base erosion and level-playing concerns 

• simplifying Pillar Two administration and compliance framework

• considering changes to Pillar Two treatment of substance-based non-refundable tax credits aligning with treatment of refundable tax credits.  

In return for the US parented group exemption, the proposed section 899 ‘revenge tax’ has been removed from the Senate bill, which was passed overnight.

What this means to Australia (and Pillar Two)

The removal of section 899 will be welcomed by Australian groups that invest and conduct business in the US. This is particularly relevant for superannuation funds taxed at 15% in Australia, where the additional US tax could not be credited and would have directly and immediately impacted investment returns.

This G7 announcement also represents a landmark change to the international tax environment as Pillar Two was developed due to global concerns over the digital economy and base erosion, which worsened in the past two decades.  

Noting the Australian domestic minimum tax and IIR, and UTPR affect income years commencing 1 January 2024 and 2025, many practical issues remain unsolved: 

• As this is a G7 agreement, would it be approved under the broader OECD inclusive framework, representing more than 140 countries?

• How would the US entity exclusion play out at the global and Australian domestic level, and will there be roll-back of the legislation, given the intention of these laws is predominantly to target US multinationals? 

• What is the adverse impact on Australian multinationals since the exclusion provides a structural tax advantage to US multinationals?

• Would there be any side deals between Australia and other jurisdictions?

• How would the Commissioner (and the ATO) administer the law in the interim while negotiations take place, given a full year has passed since the legislation came into effect?

How SW can help

The ever-evolving nature of US and global tax policies require continued vigilance from Australian entities and their advisors. 

SW will monitor and keep you informed as developments happen.  

Reach out to your SW contact or our specialist tax contacts listed in this alert for advice.  

Contributors

Antony Cheung

Jarrod Newell 

The post Updates on the Big Beautiful Section 899 & Pillar Two  appeared first on SW Accountants & Advisors.

In the 2023-24 Budget, the Government announced the implementation of a 15 per cent global minimum tax and domestic minimum tax, key aspects of Pillar Two of the OECD/G20 Two-Pillar Solution to address the tax challenges arising from the digitalisation of the economy.

The Two-Pillar Solution will ensure that multinational enterprises (MNEs) will be subject to a minimum effective tax rate of 15%, and will re-allocate profit of the largest and most profitable MNEs to countries worldwide. Under the OECD, 136 countries and jurisdictions have agreed to implement the new framework and proposed reforms.

After years of joint development, members of the G20/Organization for Economic Co-operation and Development (OECD) Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS) (the Inclusive Framework) agreed on the Two-Pillar Solution to address the Tax challenges arising from the Digitalization of the Economy. Two detailed blueprints were published in October 2022 on the tax reforms for addressing the Nexus and profit allocation challenges (Pillar One) and for Global Minimum Tax (GMT) rules (Pillar Two).

Who is affected?

Pillar One: will impact multinationals with revenues that exceed EUR 20b (~AUD 30b) per annum and have profit margins in ‘excess’ of 10%.

• Exclusions apply for extractives and regulated financial services
• Treasury currently estimates that no Australian headquartered multinationals would be impacted.  However Australian subsidiaries of foreign headquartered multinational groups may need to take into account any profits allocated to them in Australia.

Pillar Two: will have a far wider impact and applies to multinational groups with a global revenue of EUR 750m (~AUD 1.2b) per annum. 

• The OECD Framework excludes Government entities, international organisations (e.g. World Trade Organisation), non-profit organisations, pension funds or investment funds that are ultimate parent entities of an MNE Group or any holding vehicles used by such entities, organisations or funds from the scope of Pillar Two
• The OECD Framework includes de-minimis exemptions based on the revenue and profits within particular jurisdictions
• Further breakdown on each pillar can be found below.

When does it come into effect?

There is currently no draft legislation and no specified start date. However, it is expected that:

• Pillar One: the start date is to be announced.
• Pillar Two:
  • The Income Inclusion Rule which will apply for income years starting on or after 1 January 2024. This rule will apply to Australian multinationals and Australian entities which are subsidiaries of a foreign-headquartered multinational located in a jurisdiction that has not implemented this rule.
  • The Undertaxed Profits Rule which will apply for income years starting on or after 1 January 2025. Where no Income Inclusion Rule applies, the Undertaxed Profits Rule will apply to foreign multinationals that operate in Australia

How can SW help?

SW can help your business prepare for the international corporate tax reform, by assisting with the following: 

• Review of current corporate structure to determine if Pillar One and/or Pillar Two will apply
• Implement systems to assist with compliance with the new rules. 
• Formulate tax procedures and control framework to comply with the new rules.

If either, or both, Pillar One and Pillar Two are found to apply, we can provide the following services:

• Review bilateral tax treaties to determine if the STTR applies
• Model the impact of the rules
• Review transfer pricing agreements to determine risks and advise on changes to mitigate risks
• Determine where any remaining risks areas are and propose actions items to mitigate risks
• Lodge Global Anti-Base Erosion (GloBE) returns with the ATO.  This lodgement is likely to be required regardless of whether a top-up tax liability exists.

SW held a seminar to discuss the operation of the rules in greater details. you can access the webinar video here.

Key elements of the Two-Pillar Solution

Pillar One

Under Pillar One, MNEs will need to determine whether their profit margin (profit before tax ÷ revenue) exceeds 10%. The excess being referred to as “residual profits”.

A quarter of the residual profits would be redistributed to the countries where the products or services are consumed, to be taxed in those jurisdictions. The allocation of the residual profits to source jurisdictions will broadly be based on the revenue sourced from those jurisdictions. There will be some de-minimis exclusions.

What are the key implications for affected taxpayers?

• Systems and processes should be implemented to meet this compliance requirement
• Subsidiaries based in Australia may need to consider any profits allocated to Australia before finalisation of their income tax returns
• Global transfer pricing policies will need to be reviewed in light of the new rules
• The tax impact should be modelled.

Pillar Two

Pillar Two is also referred to as the Global Anti-Base Erosion or Global Minimum Tax rules.

Objectives of Pillar Two

The objective of Pillar Two is to set a minimum Effective Tax Rate (ETR) to reduce incentives for multinational to move profits to low tax jurisdictions.

Calculating the ETR

• The ETR is not the corporate tax rate in the country. It is similar to how the effective tax rate is calculated under the accounting rules but will not be the same as the calculation required under the Pillar Two rules.  
• The ETR = Adjusted Covered Taxes ÷ Net GloBE Income. The minimum ETR is 15% and is calculated on a jurisdictional basis.
• The financial accounts and tax effect accounting balances will be used in the calculation of the ETR to better align the financial accounts with tax purposes. The net GloBE income will generally be the accounting profits used in the parent entity’s consolidated financial statements subject to certain adjustments (see below).
• In calculating the net GloBE income, there will be some adjustments for certain permanent differences such as removing dividends and equity gains. The OECD framework also includes an exclusion for international shipping income.
• In calculating the net covered taxes, only tax on profits are relevant. Indirect taxes are excluded. Further, there are rules for addressing temporary differences. Therefore, the tax effect accounting workpapers will be relevant in calculating the ETR.
• Tax losses brought forward can broadly be carried forward and applied in the calculations.
• There are also adjustments to Net Globe Income based on the level of employment costs and tangible assets in each jurisdiction.  This would reduce the profits subject to the top-up tax.
• As the calculations are complicated, SW will hold seminars when the legislation is released to discuss the operation of the rules in greater detail.
• If subsidiaries in a jurisdiction have an effective tax rate of <15% (say 10%), then the parent entity jurisdiction can levy a “top-up” tax of the difference i.e. 5% (15%-10%) on the relevant profits in the jurisdiction. This is referred to as the Income Inclusion Rule (IIR). This tax is in addition to the tax paid by the parent company on its own profits.
• Where the top-up tax amount is not fully covered by the IIR, then the Undertaxed Payment Rule (UTPR) will operate as a stop gap measure. In general, the remaining top-up tax will be allocated to the all the jurisdictions (in which the MNE operates) which have implemented the GloBE rules.
• Before calculating the IIR and UTPR, the Subject To Tax Rule (STTR) must firstly be considered. The STTR prevents companies from avoiding tax on their profit earned in developing countries by making deductible payments such as interest or royalties that benefit from reduced withholding tax rates under tax treaties and which are not taxed (or taxed at a low rate) under the tax laws in the treaty partner. In this case, the payer’s jurisdiction can levy an additional top-up withholding tax so that the income amount is subject to a minimum tax (in both countries together) of 9%. This is lower than the minimum 15% tax on profits because the STTR tax is calculated based on the gross amount.

Operation of Pillar Two

Step 1. Subject to tax rule (STTR)

Objective: Ensure that developing countries have an equal opportunity to tax certain types of income.

Implementation:

• Participating members who are taxing certain items of income below 9% will be required to include the STTR into a bilateral tax treaty when requested by a developing treaty partner.
• When the STTRs are included in a bilateral tax treaty, the payer jurisdiction may additionally tax certain related party payments if the receipt is taxed at a rate of less than 9% in the payee’s jurisdiction.
• This taxing right will be capped at the difference between the STTR minimum tax rate and the tax rate on the payment.

Impact on Australian taxpayers

The STTR is expected to have limited application to Australian taxpayers given our corporate tax rate and withholding tax system.  However, this will need to be monitored to confirm that affected payments have been subject to the minimum 9% tax.

Step 2. IIR and UTPR

Once the STTR has been considered, the next step is to consider the IIR and UTPR rules.

Objective: Ensure an effective minimum 15% effective rate is imposed on multinationals with a global revenue of EUR 750 million (~AUD 1.2 billion) per annum. 

Implementation: These rules would be carried out through two interlocking rules. Together they would work to collect a top-up tax on profits in jurisdictions which are deemed to be ‘undertaxed’.

• Income inclusion rule (IIR) – is the primary charging mechanism which would allow the parent company jurisdiction to apply a top-up tax on resident multinational ‘parent’ companies, where the group’s income in another jurisdiction is being taxed below the global minimum rate of 15%. Note that there are special rules applying to overseas branches of the parent company which operate differently to the IIR.
• Undertaxed payments rule (UTPR) – where the parent company jurisdiction does not implement the IIR or the top-top up tax is not fully captured by the IIR, then the UTPR as the secondary charging mechanism would broadly allocate the remaining top-up tax to all the implementing jurisdictions in which the MNE operates.
• For example, if a multinational subsidiary in Australia had a foreign subsidiary paying less than the global minimum rate on its profits, and there was no foreign jurisdiction applying the IIR in relation to those profits, then Australia may be required to apply the UTPR to the Australian subsidiary in respect of the under-taxation in the foreign subsidiary’s jurisdiction. 

How can affected taxpayers prepare?

• Systems and processes will need to be implemented to allow for an effective and efficient calculation of the effective tax rates and completion of the GloBE information return
• The impact on the MNE group should be modelled
• Review current transfer pricing agreements to determine how they would be impacted by Pillar One and Pillar Two.

Contributors

Kate Wittman

The post Major international tax reform with OECD Two-Pillar approach appeared first on SW Accountants & Advisors.

The Exposure Draft Bill (the draft Bill), released on 31 March 2023, proposes a new anti-avoidance rule to deny deductions for payments attributed to intangible assets located in low corporate tax jurisdictions. Significantly, the changes do not remove withholding tax from affected payments that are classed as royalties. In some circumstances, payments may therefore be both non-deductible, and subject to Australian withholding tax at rates of up to 30%.

The changes will apply to payments made by significant global entities (SGEs) on or after 1 July 2023. Broadly, SGEs are members of multinational groups with annual consolidated global income of at least AUD 1 billion. The proposed 1 July 2023 start date allows little time to prepare for the impact of the proposed changes.

The draft Bill is one of several measures introduced in the 2022-23 Federal Budget as part of a comprehensive strategy to enhance multinational enterprises’ tax integrity.

Anti-avoidance rule changes

The statutory objective is to discourage SGEs from avoiding income tax by channeling income from the exploitation of intangible assets to low corporate tax jurisdictions. The proposed rule will apply to payments:

• made by SGEs
• in relation to an arrangement where the SGE or an associate acquires or exploits the intangible asset
• where the arrangement results in the recipient (or another associate) generating income in a jurisdiction with low taxes.

A jurisdiction will be classed as a ‘low corporate tax jurisdiction’ if the corporate tax rate is less than 15%.

The rules are also intended to encompass the incurring of a liability or crediting of an amount, without an actual direct royalty payment. This ensures the proposed rules cannot be evaded through indirect payments.

Intangible assets payments

As expected, the proposed law applies to relevant payments made by an SGE directly or indirectly to an associate.

Payments made directly to unrelated third parties are not within the scope of the proposed law unless they are otherwise also indirect payments to an associate.

General definition of intangible assets

In general, the term ‘intangible asset’ is interpreted according to its ordinary meaning. However, the draft Bill proposes an additional definition.

The proposed rules will utilise some of the existing definitions of ‘royalty’ in the current tax legislation, with respect to the use or supply of specific assets. Some examples are:

• intellectual property rights such as trademarks, patents, designs and processes
• knowledge and information pertaining to certain fields such as science, technical and commercial
• in house designed algorithms
• any tapes, visual images or sounds used for broadcasting
• motion picture films.

The proposed definition of intangible asset also encompasses rights or interests in the type of assets mentioned above.  Additionally, further assets may be specified in the regulations.

The proposed rule does not extend to rights related to tangible assets, such as interests in land, or to financial arrangements (as defined in the existing tax legislation). The exclusion from categorisation as intangible assets equally applies to industrial, commercial, or scientific equipment. 

Apportionment

The phrase, ‘to the extent’ in the proposed law contemplates payments of an undissected amount for a bundle of rights or benefits. Apportionment may then be required to allocate part of the payment as relating to the intangible assets. The deduction for that portion of the payment would then be denied.

Several transfer pricing methodologies may be used to apportion payments, however the proposed law is yet to provide guidance on how such apportionment should occur. This appears similar to the potential uncertainty on apportionment of income received in respect of software (albeit relevant to withholding tax).

Low corporate tax jurisdictions

The draft Bill defines a ‘low corporate tax jurisdiction’ as a country in which the lowest corporate income tax rate applicable to an SGE is below 15%. Determining the ‘lowest corporate income tax rate’ of a country may be a complex matter.

Of concern is the fact that jurisdictions which provide tax exemptions for specific types of income may be classed as low tax jurisdictions due to the broad scope of this definition. A country such as New Zealand, which does not generally tax capital gains, may be classed as a low corporate tax jurisdiction.

A Government Minister can also determine that a jurisdiction qualifies as low tax if it has a preferential patent box regime.  This provision is only intended to capture patent box regimes that provide concessional tax treatment without requiring any economic activity to develop the relevant intellectual property in the country providing the patent box treatment.

In making a determination, the Minister may have regard to publications of the Organisation for Economic Co-operation and Development (OECD).

The suggested tax threshold aligns with the global trend towards a domestic minimum tax (DMT) rate of 15% as proposed under the OECD’s Global Anti-Base Erosion (GloBE) Pillar Two initiative. Nonetheless, it exceeds the existing minimum royalty withholding rate of 10% commonly found in Australia’s double taxation agreements. Furthermore, the proposed rate is higher than the 10% rate stipulated in the equivalent legislation of the United Kingdom.

Exploitation of intangible assets

The draft Bill introduces an innovative concept in defining intangible assets to be ‘exploited’. This concept encompasses a wide range of arrangements that go beyond the mere use of the asset. Examples include the use by way of marketing, selling, licensing, distributing, supplying, or engaging in any other activity with the intangible asset. This expanded definition of ‘exploitation’ aims to cover a broad spectrum of arrangements, highlighting the comprehensive scope of activities that may be captured.

The condition will also be deemed as fulfilled if the SGE is granted explicit authorisation to utilise the intangible asset. According to the draft Explanatory Materials, as long as there is a mutual understanding between the parties that allows the SGE to access and utilise the intangible asset, this requirement will be considered met. It should be noted that this condition can still be satisfied even if the permission is not explicitly documented.

The broad definition of ‘exploit’ implies that the threshold for meeting this requirement is relatively low, which means that even ordinary commercial arrangements could potentially fall within its scope. Taxpayers will need to carefully assess the application of the other conditions to determine if the provisions are applicable in their specific situation.

SGE penalties

The Government is also requesting stakeholder views regarding the appropriateness of a shortfall penalty provision to be imposed on SGEs which mischaracterise payments in an attempt to avoid income tax, including withholding tax. Given the onerous penalty regime that already applies to SGEs, the introduction of further specific penalties under the intangible payments rules would seem to be excessive.

How SW can help

Our tax experts can assist with

• analysing arrangements referrable to the use of intellectual property and the likelihood of the measures applying to denied deductions
• analysing the substance of payments, including the extent of apportionment required to determine the part attributable to a right to exploit an intangible asset
• assessing the extent of income from exploiting intangible assets that is derived in a low corporate tax jurisdiction.

SW will be monitoring announcements and will keep you updated as more information becomes available.

Please reach out to the Key Contacts here or your SW contact if you would like assistance determining the impact of the measures on your group, and advice on how your group can navigate the complexities.

Contributors

Tony Principe

Wasi Hussain

Rahul Sanghani

The post Australian Treasury denies SGEs deductions for payment relating to intangibles appeared first on SW Accountants & Advisors.