Transfer Pricing Perspective on Federal Budget 2023

Implementation of a global minimum tax regime under OECD Pillar 2

The Government will implement key aspects of Pillar 2 of the OECD Two Pillar solution to address perceived tax challenges arising from the digital economy to ensure multinationals are paying their ‘fair share of tax’ in Australia. 

This makes Australia an early adopter of these measures, yet to be implemented by many countries around the world.

The Government initiative will include a 15% global minimum tax, and a domestic minimum tax of 15% designed to allow Australia to claim a top-up tax for any low taxed domestic income. 

This new tax regime will apply to large multinationals with annual global revenue equal to, or exceeding, EUR750 million (approximately  AUD$1.2 billion), with effect from 1 January 2024 in the case of the global minimum tax and one year later, from 1 January 2025, in respect of the domestic minimum top-up tax.

The Government is forecasting revenue of AUD$370 million over  five years – is this sufficient material and are Australian multinationals ready for a new regime that will introduce considerable compliance burdens, the need for new systems to collect and assess information, as well as current uncertainty around the interaction between the new regime and existing Australian tax rules?

Whilst these new measures will showcase Australia as a leader in adopting the OECD’s global minimum 15% tax floor, the 2024 start date seems optimistic to say the least, as many Australian entities are unlikely to be ready for implementation. 

BDO's Federal Budget Analysis