Australia Approves OECD’s Pillar Two Minimum Corporate Tax Rate

In a landmark decision, Australia’s Senate has passed three critical bills with amendments to implement the OECD’s global minimum corporate tax rate of 15% on multinationals.

This move aligns Australia with the international effort to curb tax avoidance and profit shifting by large corporations.

The legislation, known as the Taxation (Multinational—Global and Domestic Minimum Tax) Imposition Bill, introduces three key tax measures aimed at ensuring multinational corporations pay a fair share of tax. These include a 15% domestic minimum tax for multinationals with global revenues exceeding €750 million (approximately A$1.2 billion), the income inclusion rule, and the undertaxed profits rule.

The Senate's approval on November 26 follows the initial passage of the bills by the House of Representatives in August. With the Senate now approving the legislation with amendments, the bills are poised to become law, marking a significant step in Australia’s tax policy reforms.

According to a parliamentary release, these measures are designed to "remove or limit the incentive for multinationals to shift profits between jurisdictions to minimise their tax burden." The new taxation rules will be effective for financial years starting on or after January 1, 2024.

The legislation also includes provisions to harmonize the new taxes with existing Australian tax laws. An additional bill passed by the Senate incorporates “amendments to ensure that the taxes interact appropriately with existing Australian taxation laws.”

Australia’s current headline corporate tax rate stands at 30%, notably higher than the OECD average of 23.9%. This new legislation aims to ensure Australia remains competitive while aligning with global tax standards.

The Senate’s Economics Committee had earlier endorsed the pillar two legislation after conducting a public hearing and reviewing input from industry stakeholders. Reassurances about the timely issuance of subordinate rules were instrumental in the Committee’s decision to approve the legislation. These subordinate rules are intended to help maintain alignment with international jurisdictions implementing pillar two reforms.

Australia’s adoption of the OECD’s minimum tax rate demonstrates its commitment to global tax equity and transparency, setting the stage for fairer taxation in the multinational corporate sphere. 

By fLEXI tEAM