Focus areas for your business - Outbound vs Inbound
Current action items relating to the implementation of Pillar Two in Australia will vary to some degree, depending on whether a MNE group is headquartered in Australia and invests overseas or whether it is an inbound investment of an overseas parent entity.
Outbound organisations
As the IIR primarily applies to the UPE of an MNE group, or another intermediate parent entity if the UPE is not located in a jurisdiction that has or will implement an IIR, for an Australian headquartered MNE group it will be the Australian UPE that will be responsible for undertaking the Pillar Two calculations for the MNE group and paying top-up tax, applying Australia’s IIR. Based on the Federal Government’s previous announcements, this will apply for income years commencing on or after 1 January 2024.
Australian UPEs should look to undertake the steps outlined above with respect to creating an action plan around Pillar Two, commencing with an assessment of the availability of the transitional CbCR safe harbour and/or undertaking modelling of the potential impact of Pillar Two on the MNE group.
These steps will assist with potentially imminent financial statement reporting obligations (including satisfying any required auditing procedures supporting these disclosures), broader stakeholder management, as well as setting the MNE group up to address the required submission of the GIR and potentially a domestic minimum tax return in the coming years.
Inbound organisations
As the Pillar Two rules primarily apply to the UPE of the MNE group, it may be the case that the primary responsibility for Pillar Two readiness and compliance rests with the offshore UPE. . However, Pillar Two compliance requires a globally coordinated approach. In this regard, significant involvement by the tax (and other) teams of local subsidiaries may still be required.
For Australian inbound organisations, it will be necessary for local teams to consider the impact of a domestic minimum tax in Australia, gather and assess the extensive information required to complete Pillar Two calculations and, as noted above, manage the local financial statement disclosure requirements and compliance obligations that will apply in Australia. These obligations can also extend further where the UPE (or other intermediate parent entities) of the group is located in a jurisdiction that has not yet chosen to implement the Pillar Two rules, or will be implementing but with a commencement date that is later than the start date of the rules in Australia.
To prepare for the implementation of Pillar Two, we recommend that inbound organisations undertake the following steps.
- Confirm responsibility for Pillar Two - It is important to identify and understand who within the MNE group is responsible for Pillar Two readiness and whether this role will be undertaken by the UPE and/or whether local teams will be required to separately implement systems and processes for managing Pillar Two.
- Confirm the intended approach being taken by the group to the calculations – Has an assessment been completed as yet with respect to the availability of safe harbours and will this be relied upon by the group? If so, will the Australian entities satisfy one of the safe harbour tests or will full calculations be required to be completed from the commencement of the rules? These questions will be important to resolve as they will directly impact the approach to be taken for the purposes of financial statement disclosure preparation, tax provisioning and compliance more broadly.
- Undertake a data gap analysis - Subject to the satisfaction of safe harbour rules, undertake an assessment of the Pillar Two data requirements and a current state data gap analysis utilising PwC’s Pillar Two Data Input Catalog, including identifying whether the required data can be collected using existing systems. Where required, this will assist in preparing the information that may be required to be reported to the global parent entity and assist with the preparation of domestic tax returns (for their lodgement in years to come).