Who the rules apply to
The project team provided an overview on who is in-scope, including:
- The definitions and key terms used to establish whether entities are within scope such as Group Entity, Constituent Entity, Ultimate Parent Entity, Permanent Establishment and Joint Venture.
- The definitions for terms related to excluded entities, including pension fund, pension service entity, investment fund, real estate investment vehicle, government entity and non-profit organisation.
We sought feedback on the likelihood and volumes that groups will look to contact the ATO on these issues, as well as what additional ATO guidance would be useful.
Interactions with Australian domestic tax laws
An overview was provided on whether the implementation of Pillar Two affects, or interacts, with existing Australian domestic tax laws in relation to hybrid mismatch rules, foreign hybrid rules, foreign income tax offsets, controlled foreign entities, franking credits and tax treaties.
Feedback was sought on whether there were any questions or uncertainties around the operation of these interactions.
Member comments
Members raised the following points regarding who is in scope, and interactions with existing domestic tax laws:
- Unincorporated joint ventures, dormant and other non-material entities may not fall under the definition of Entity, which includes arrangements required to prepare separate financial accounts.
- dormant and other non-material entities may not be required to be captured in the financial accounts due to materiality and therefore could be overlooked when completing returns which means potential liability to significant non-lodgment penalties.
- Timing issues for claiming a foreign income tax offset in income tax returns for foreign Qualified Domestic Minimum Top-up Tax (QDMTT) paid at a later point in time.
- Practical issues of claiming the appropriate amount of a foreign income tax offset for foreign QDMTT paid in respect of attributed foreign income of a controlled foreign company or a permanent establishment.
- Outside of further discussion around penalties and Joint Ventures, we identified further guidance opportunities for filing entities, clarity when amending a Domestic Minimum Tax return, when tax is paid by another entity (in the context of the Domestic Minimum Tax), the amendment period, potential scenarios involving competent authority and exchange rate guidance.
- Working group members identified limited need for guidance around Hybrids, Foreign Hybrids, Tax Treaties and Not for Profit at this stage, helping us to prioritise the important issues for information and guidance.
Outcomes and next steps
The outcomes and next steps for the Pillar Two Global and Domestic Minimum special purpose working group are:
- Conducting a broader session on the Pillar Two impacts for joint operations and joint ventures.
- Compiling a key issue register to highlight feedback provided by the working group members and the actions we have taken as part of our implementation of this measure.
- Consideration of future sessions, taking into account when the subordinate legislation will be made.
Members were invited to provide written feedback at the conclusion of each meeting, and we are thankful for the additional submissions provided.