Australia: Consultation on draft legislation providing exemptions from obligation to file Pillar Two tax returns
Consultation closes September 24, 2025.
The Australian Taxation Office (ATO) on August 27, 2025, published draft legislation—LI 2025/D17 Taxation Administration (Exemptions from Requirement to Lodge Australian IIR/UTPR tax return and Australian DMT tax return) Determination 2025, along with an accompanying explanatory statement—providing the circumstances under which entities that are subject to Pillar Two would nonetheless be exempt from filing domestic minimum tax (DMT) returns and income inclusion rule (IIR)/undertaxed profits rule (UTPR) returns.
Exemption from obligation to file DMT returns
The exemption from the obligation to file DMT returns is proposed to apply to the following entities:
- Group entities that are subsidiary members of tax consolidated groups and multiple entry consolidated (MEC) groups
- Certain global anti-base erosion (GloBE) joint ventures (GloBE JVs) and GloBE JV subsidiaries
- Certain group entities that are not located in Australia
- GloBE securitisation entities
- Certain group entities that are flow-through entities
Exemption from obligation to file IIR/UTPR returns
In general, group entities would only be exempt from the obligation to file IIR/UTPR returns for a fiscal year under specific circumstances in which neither the liability to IIR or UTPR top-up tax can arise. That is, for an exemption to apply, the group entity would need to satisfy the conditions relating to the IIR as well as the conditions relating to the UTPR.
In relation to the IIR, the exemption would apply to a group entity that is:
- Not a parent entity located in Australia
- Is a parent entity located in Australia and all the constituent entities (CEs), GloBE JVs, and GloBE JV subsidiaries of the multinational enterprise (MNE) group in which it holds a direct or indirect ownership interest are located in Australia
- Is a parent entity located in Australia and to which the ordering rule applies, such that a higher-tier parent entity applies a qualified IIR in its jurisdiction and the Australian intermediate parent entity does not have an IIR top-up tax amount
In relation to the UTPR, the exemption would apply to a group entity that is:
- A subsidiary member of a tax consolidated group or MEC group
- Not a GloBE entity located in Australia or with an Australian permanent establishment (PE)
- A GloBE investment entity or insurance investment entity
- A GloBE securitisation entity
- A member of an MNE group subject to a total UTPR top-up tax amount of zero because 1) a qualifying IIR applies upstream to switch off Australia's UTPR taxing rights, or 2) the transitional UTPR safe harbor applies
The consultation closes September 24, 2025.
For more information, contact a KPMG tax professional in Australia:
Alia Lum | alum@kpmg.com.au
Amanda Maguire | amaguire@kpmg.com.au