Navigating Australia's New Minimum Tax: A Guide to Transitional Compliance and Penalty Relief

Knowledge • Navigating Australia's New Minimum Tax: A Guide to Transitional Compliance and Penalty Relief

Navigating Australia's New Minimum Tax: A Guide to Transitional Compliance and Penalty Relief

Australia's implementation of a 15% global and domestic minimum tax (Minimum Tax) introduces new lodgement obligations for in-scope multinational enterprise groups (MNE Groups). To assist taxpayers in complying with these new requirements, the Australian Taxation Office (ATO) has released Draft Practical Compliance Guideline PCG 2025/D3, which outlines a practical administrative approach to penalty enforcement during a crucial transition period.

Understanding the Minimum Tax and New Obligations
The Minimum Tax implements the Organisation for Economic Co-operation and Development’s (OECD’s) Global Anti-Base Erosion Model Rules (GloBE Rules), a key component of Pillar Two addressing tax challenges from digitalization. For Applicable MNE Groups – generally those with annual revenue of EUR750 million or more in their Consolidated Financial Statements for at least two of the four preceding fiscal years – this means new reporting responsibilities.

The new lodgement obligations include:

The GloBE Information Return (GIR): An OECD standardized form providing information to calculate tax liability.
The Foreign Notification Form (FNF): Notifies the Commissioner if a foreign entity has lodged the GIR on behalf of Australian Group Entities.
The Australian IIR/UTPR tax return (AIUTR): An Australian-specific return for assessing Australian Income Inclusion Rule (IIR) tax and Undertaxed Profits Rule (UTPR) tax.
The Australian Domestic Minimum Tax (DMT) tax return (DMTR): An Australian-specific return for assessing Australian DMT tax.

For streamlined lodgement, the FNF, AIUTR, and DMTR are combined into the Combined Global and Domestic Minimum Tax Return (CGDMTR), while the GIR remains a standalone form. Due dates are typically 18 months after the end of the GloBE Transition Year and 15 months after the end of subsequent Fiscal Years.

The Transitional Period and "Soft Landing" Approach

The draft Guideline applies to a Transition Period covering Fiscal Years commencing on or before December 31, 2026, and ending on or before June 30, 2028. For instance, for MNE Groups with a December 31 fiscal year end, this includes the 2024, 2025, and 2026 Fiscal Years.

During this period, the ATO will adopt a "soft-landing" approach to penalties. This means penalties will generally be remitted where MNE Groups can demonstrate they have acted in good faith and taken reasonable measures to understand and comply with their lodgment obligations. It is important to note that this is not a blanket concession; the onus is on MNE Groups to demonstrate these reasonable measures.

What Constitutes "Reasonable Measures"?

The ATO expects relevant MNE Group Entities' tax functions to be aware of these measures and to develop systems and capabilities for compliance. Reasonable measures include, but are not limited to:

Undertaking steps to prepare for timely lodgment of returns.
Maintaining adequate records of positions taken.
Proactively engaging with the ATO where lodgment delays are anticipated.
Timely remedying mistakes or errors, including proactively contacting the ATO when identified.

Evidence to support that reasonable measures have been taken can include:

Internal policy or procedure documents detailing Minimum Tax reporting requirements.
A documented plan incorporating funding and resourcing for implementation.
Senior-level approval for the implementation plan.
Documented new or updated processes.
A gap analysis of existing tax and financial systems to identify shortcomings.
Advice obtained from external service providers.
Modifications to staff roles and responsibilities to reflect new duties.
Updated internal control testing plans.
Evidence of seeking relevant information from offshore MNEs.
Records of positions taken.

It is crucial that reasonable measures do not involve actions taken for avoidance, fraud, or evasion.

Penalty Administration During Transition

The existing administrative penalty regime will apply to Minimum Tax obligations, including penalties for failure to lodge on time (FTL), making false or misleading statements, or failing to keep records. MNE Groups face significant penalties, with FTL penalties being 500 times the base penalty amount. However, during the Transition Period, the ATO's approach aims for flexibility:

Failure to Lodge (FTL) Penalties

Where MNE Groups proactively engage and provide evidence of reasonable measures, the ATO will typically grant full remission of FTL penalties. While at law, multiple FTL penalties could apply (e.g., for each entity and each obligation), during the Transition Period, the ATO will typically remit these down to one FTL penalty for the MNE Group's CGDMTR obligations and one FTL penalty for the MNE Group's GIR lodgement obligations. Penalties may still be imposed if there is a clear failure to undertake reasonable measures, or in cases of avoidance, fraud, evasion, or poor compliance history.

False or Misleading Statement Penalties

Generally, penalties will not be imposed for mistakes or errors resulting from unfamiliarity with rules, isolated mathematical errors, or where errors did not reduce a Minimum Tax liability. If errors lead to a reduction in tax liability, the ATO will examine the circumstances. Penalties are typically not imposed if mistakes are due to a lack of clarity in Minimum Tax rules and the MNE Group took appropriate steps (e.g., contacting the ATO, referring to publications, or obtaining advice). However, penalties will be imposed if conduct demonstrates gross indifference or a lack of objective evidence to support statements. The ATO expects a lower likelihood of errors as MNE Groups become more familiar with the Minimum Tax.

Lodgment Deferrals and Suspensions

MNE Groups anticipating delays can request assistance. While the ATO does not have discretion to defer the lodgment due date for the GIR or FNF, it may agree to suspend lodgment enforcement action for these forms during the Transition Period. For the AIUTR and DMTR, lodgment deferrals can be granted. Any such requests must include information on the circumstances causing the delay and evidence of reasonable measures taken.

This draft Guideline highlights the ATO's commitment to balancing the need to support taxpayers in understanding and complying with new Minimum Tax obligations with the consistent administration of the GloBE Rules. MNE Groups are encouraged to proactively engage with the ATO and demonstrate reasonable measures to benefit from this transitional compliance approach.

Navigate the Minimum Tax Requirements with Confidence.

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