Australia's Pillar Two tax rules: updates and guidance

On 28 January 2026, Australia signed the GIR MCAA (PDF 108KB). By way of background, the Pillar Two rules require filing of a GloBE Information Return (GIR). The GIR MCAA facilitates the automatic exchange of Pillar Two information with relevant jurisdictions.

As of the OECD update of 2 February 2026, the GIR MCAA has been signed by 26 jurisdictions. Exchange relationships with Australia will become effective once the country notification process under the GIR MCAA has been completed.

For foreign headquartered in-scope groups, this should facilitate the filing of a notification in Australia where the GIR is filed in another jurisdiction that is a signatory to the GIR MCAA (rather than the filing of the GIR in Australia). This is a welcome development which can streamline Pillar Two compliance. It is expected that more jurisdictions will sign the MCAA in the coming months.

Finalised amending legislation

Secondary legislation which amends the Australian Pillar Two rules has been enacted. The amending legislation, registered in January 2026, makes several changes including:

• clarifying the limited circumstances where Securitisation Entities would be liable to pay Undertaxed Profits Rules top-up tax;
• inserting an Equity Investment Inclusion Election and the related rules on Qualified Flow‑through Tax Benefits;
• minor amendments to the Domestic Minimum Tax provisions; and
• clarifying the Investment Entity Transparency Election for Regulated Mutual Insurance Companies.

The finalised amendments are broadly consistent with the exposure draft released by Treasury in October 2025. The Pillar Two rules will need to be continually amended to reflect prior OECD Administrative Guidance (including the January 2026 package as well as prior releases).

Further draft amending legislation

Treasury has also released further draft amendments to the Australian Pillar Two rules. The main amendment is the inclusion of a foreign currency translation rule, which would require the conversion of Top-up Tax amounts calculated in a foreign currency to Australian dollars based on the foreign exchange rate on the last day of the Fiscal Year.

Consultation closes 13 March 2026.

In relation to the release of the OECD's SbS package, the ATO has confirmed that its adoption into Australian law is a matter for government and would need to be enacted into domestic law. Where it is enacted, it would not change the Australian Pillar Two filing requirements for fiscal years that commenced in 2024 or 2025, and would only impact fiscal years commencing from 1 January 2026 (these filings are generally due from March 2028).

In addition, the SbS safe harbour does not impact the application of Australian domestic minimum tax, or the requirement to lodge Australian DMT tax returns.

An administrative approach is provided for joint operations that are CEs. The ATO will accept GIRs from MNE groups that do not list joint operations as separate CEs, provided the following specific circumstances are met:

• the joint operation is a flow-through entity created in Australia and is not a trust, GloBE partnership, reverse hybrid entity or main entity of an Australian PE
• the joint operation could not have an Australian domestic top-up tax amount greater than zero
• the financial records available for the joint operation do not enable separate reporting as a CE in the GIR for the detailed disclosure requirements
• the participants in the joint operation that are Group Entities are CEs and report their proportionate share of the joint operation's income, covered taxes, and other relevant information as part of their disclosures in the GIR.

This will be helpful for MNE Groups who have proportionally consolidated JVs and do not prepare financial statements or financial accounts for the JV.

An administrative approach to the allocation of DMT and UTPR top-up tax is provided where one or more entities to which top-up tax is allocated are subsidiary members of a TCG. This recognises that some MNE groups will report DMT and UTPR top-up tax on a net basis for a tax consolidated group as opposed to an entity-by-entity basis (i.e. top down v bottom up approach).

The ATO will generally not devote compliance resources to assess the allocation approach taken by MNE groups.

The Pillar Two treatment of certain prior year tax adjustments (PYAs) is an area of uncertainty, with OECD guidance expected for some time but not yet released.

The ATO guidance provides some clarity for pre- and post-regime periods. Broadly:

• for post-regime PYAs, the ATO approach follows the Model Rules to only require a PYA to be pushed back to the year to which it relates where it is a decrease to covered taxes (with the prior year ETR recalculated)
• for pre-regime PYAs, these can likewise use the Model Rules approach to be pushed back to the year to which it relates where it is a decrease to covered taxes (but with no prior year ETR recalculated as it was pre-regime)
• the ATO confirms that similar treatment applies to deferred tax PYAs, but any pre-regime push back impact should be taken into account in transitional balances and in subsequent years.

This aligns with the approach that a number of other countries have taken in their legislation or guidance and will be welcome clarity for many MNE Groups.