Multinationals to pay fair share of tax: Australian overview of BEPS 2.0 Pillar One and Two

Anthony Patrk, Jason Matchado, John Baillie, Luca Wright

The Organisation for Economic Co-operation and Development (OECD) has been working on a 15-point action plan since February 2013 to address base erosion and profit shifting (BEPS) caused by multinational enterprises (MNEs) exploiting weaknesses in the legacy international tax rules, which have arguably failed to keep up with global commerce.   

In October 2021, over 135 jurisdictions joined a two-pillar solution, referred to as BEPS 2.0, to reform the international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate and generate profits.   

In this article, we aim to provide a concise overview of  the equitable profit distribution and taxing rights (Pillar One), and global minimum tax (Pillar Two), alongside an exploration of their practical implications within the Australian corporate tax landscape to help businesses prepare for their implementation. 

Pillar One:  Equitable Profit Distribution and Taxing Rights

Pillar One aims to reallocate certain amounts of taxable income based on the market jurisdictions where the relevant customers are located, rather than based on the current “source-based” income allocation method.  Importantly, Pillar One comprises of two parts, namely Amount A and Amount B, each summarised below: 

Amount A

Amount A broadly seeks to redistribute 25% of any residual profits which are above the MNE’s profit before tax (PBT) margin of 10% (i.e., PBT over total revenue (PBT Margin)). 

Upon implementation, Amount A will only apply to the largest and most profitable MNEs, with the global turnover threshold being €20 billion.  With revenues and profits relating to the extractive and regulated financial services industries being excluded, the OECD anticipates that approximately 100 MNEs will qualify for Amount A.  

For example, if an MNE’s global revenues were €20 billion, with PBT of €4 billion, this would equate to a 20% PBT Margin, and €500m would be redistributed to local market jurisdictions based on the revenue generated in each jurisdiction.  Local tax authorities would then be able to tax the additional allocated profits. 

For Amount A to come into force, an MLC must be signed by at least 30 jurisdictions where more than 60% of the MNEs captured under Amount A are headquartered.  Amount A will then run for a 7-year review period, and if successful, the revenue threshold is expected to be reduced to €10 billion. 

Amount B

In contrast, Amount B does not have a turnover threshold and, therefore, applies to all MNEs with marketing and distribution activities, including commissionaires and sales agents.  

The intention of Amount B is to simplify the existing transfer pricing rules and provide increased tax certainty to taxpayers.  The OECD plans to achieve this by performing global dataset analyses in line with the Transactional Net Margin Method (TNMM) to determine appropriate return on sale (ROS) margins for in-scope transactions.   

Commodity related transactions are excluded from Amount B.  Further, entities that also perform non-distribution activities and are unable to reliably segment their financial performance between distribution and non-distribution will also be excluded from applying Amount B.  

While taxpayers will still be required to prepare appropriate transfer pricing documentation establishing the functional characterisation of relevant entities and confirming eligibility to apply Amount B, taxpayers will no longer be required to undertake separate benchmarking analyses to support the arm’s length nature of in-scope transactions.  

The OECD expects to incorporate Amount B into the OECD Transfer Pricing Guidelines by January 2024. 

Pillar Two: Global Minimum Tax

The Australian Government announced, in the May 2023 Federal Budget, the implementation of the Global Anti-Base Erosion (GloBE) Rules, a key element of the Pillar Two framework.  Draft legislation to implement the Pillar Two rules in Australia has not yet been released, however is expected to be based on the OECD Model rules and apply with effect for income years commencing on or after 1 January 2024.

Pillar Two will broadly operate to apply to MNEs with a group turnover exceeding €750 million, calculated based on a four-year test (i.e., the threshold must be exceeded for at least two of the previous four years).  Out-of-scope MNEs include investment funds which are ultimate parent entities (UPEs), holding vehicles, pension funds, Government and non-profit entities.  Certain types of income are excluded from the €750 million turnover test including revenues from transactions with other Group Entities which are eliminated in the consolidation process. 

H3: Global minimum tax guidance 

The OECD recently released further guidance on Pillar Two which sets out the scope and operation of the rules.  The guidance provides for some basic steps that an MNE must go through to calculate its top-up tax liability.  These can be summarised as follows: 

Step 1 – Determine whether the MNE Group is within scope 

Step 2 – Allocate income of Constituent Entities on a Jurisdictional Basis 

Step 3 – Calculate the GloBE Income 

Step 4 – Determine Adjusted Covered taxes 

Step 5 – Compute the Effective Tax Rate and calculate the Top-up Tax

Step 6 – Charge the Top-up Tax

A central concept to the operation of Pillar Two is the 15% minimum tax rate.  The minimum tax rate is the effective tax rate (ETR) which is determined on a jurisdictional basis.  The starting point is the consolidated financial accounts which are then adjusted to better align the income or loss of the local entity with the local tax base and to ensure a correct allocation of income between jurisdictions.  If the calculation results in an ETR that is below 15%, the MNE Group is required to pay a top-up tax to bring the total amount of tax in that low-tax jurisdiction up to the 15% rate.

The resulting top-up tax can then be collected under three types of provisions (in this order):

1. Qualified Domestic Minimum Tax (QDMTT)

Relates to a top-up tax assessed by the low-tax jurisdiction itself under a computation consistent with Model rules.  This ensures a minimum level of taxation paid in the low-tax jurisdiction.

2. Income Inclusion Rule (IIR)

The IIR applies second to impose a top-up tax on a parent entity in respect to the income of an entity in the MNE’s structure taxed under the minimum 15% rate.  This would apply where the low-tax jurisdiction does not have a QDMTT but where the UPE or an intermediate parent entity has.  Generally, the UPE would collect the tax unless the UPE is not subject to an IIR, in which case an intermediate parent entity may collect the tax.

3. Undertaxed Payments Rules (UTPR)

Where the IIR cannot be applied to a jurisdiction’s low-tax income, the top-up tax is collected by all jurisdictions which have implemented a UTPR (effective for income years on or after 1 January 2025).

Given these provisions, it will be important to determine responsibilities within MNE groups for managing the collective response to Pillar Two given that the rules will impact Australian headquartered and foreign headquartered groups differently.  In this regard, and broadly, foreign owned Australian groups will need to actively address the implications of a domestic minimum tax in Australia.  This will involve local tax, finance, human resources, information technology and other teams undertaking the crucial task of gathering the requisite data.  These obligations may become more intricate in cases where the UPE or other intermediate parent entities of the group are situated in a jurisdiction that has not yet chosen to adopt the Pillar Two rules (or may implement at a later date).

On the contrary, and in the case of an MNE group headquartered in Australia, the responsibility for conducting Pillar Two calculations for the entire group and remitting top-up tax will likely rest with the Australian UPE.

It should also be noted that the OECD guidance provides for some compliance saving approaches such that:

  • A simplified methodology for calculating the ETR may be available under a safe harbour (e.g., Country by Country Report transitional safe harbour).
  • When the MNE Group has limited operations in a jurisdiction, the calculation of the ETR is not required.  This exclusion applies for jurisdictions where an MNE Group’s revenue and income is below the de minimis threshold (EUR 10 million and EUR 1 million, respectively).

Practical considerations for Pillar Two

The ATO has commenced sending letters to self-declared Significant Global Entities (SGEs) alerting them that they may be within scope of the OECD Pillar Two GloBE rules.  In addition, the ATO is consulting with industry groups and professional services firms (including Crowe), where the focus will be on education and administration of the rules rather than policy matters.

Relevantly, the letter states that “MNEs may need to consider additional resources, systems and processes to meet their Pillar Two GloBE obligations both in Australia and in other jurisdictions”.  There is no doubt that the complexity of these rules and the demand for comprehensive data and information, particularly in respect to Pillar Two, potentially represent a cumbersome issue for the MNEs for which the rules are designed for.   

It is anticipated that the number of data points required to prepare a GloBE return is around double the current number expected to be available to even the most advanced tax functions.   Therefore, collaboration between the tax and other business functions is required.

As such, some practical considerations for businesses include: 

  • There will be significant additional tax compliance obligations to impacted MNE groups.  New forms will be developed by the ATO to enable reporting of any top-up taxes.  We understand that Australian groups should anticipate submitting initial findings within 18 months after the first relevant income year, with subsequent filings due within 15 months of each subsequent income year.
  • Affected taxpayers must prepare for the substantial compliance efforts and resources which are expected to be required to adhere to the new rules. This includes collecting extensive tax, financial, and other data beyond the standard tax reporting requirements.  Additional financial statement reporting obligations may arise with respect to the accounting standards to address Pillar Two.
  • Timely data access to support various financial and tax-related processes will be required.  It will also be necessary to assess whether current systems can handle the Pillar Two calculations and compliance requirements. 

Key takeaways

There is no doubt that these rules will significantly impact the tax function of MNEs due to their complexity, uncertainty and increased compliance and reporting obligations.  In addition, MNEs will need to consider whether their teams, resources and systems are prepared to address the many questions that will arise during the course of their assessment of the rules.   

The Tax Advisory team here at Crowe can help your organisation navigate the complexities and obligations of these rules.  Get the expert guidance your group will need by contacting us today.  


  • Anthony Patrk, Partner, Tax Advisory
  • Jason Matchado, Partner, Tax Advisory 
  • John Baillie, Managing Partner (AU), Tax Advisory  
  • Luca Wright, Transfer Pricing Lead Partner, Tax Advisory


This document contains general information and is also not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.  

Findex (Aust) Pty Ltd, trading as Crowe Australasia is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity.  

Findex (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Global does not render any professional services and does not have an ownership or partnership interest in Findex (Aust) Pty Ltd.  

November 2023