US-owned Australian subsidiaries still face Pillar Two rules

US-based parent groups with Australian subsidiaries and global consolidated revenue above €750 million remain in scope of Australia’s Pillar Two minimum tax regime despite new international changes designed to reduce overlap in global top-up taxation. 

Australia’s 2026-2027 Federal Budget implements legislative changes linked to two developments in early 2026 and operationalises the Organisation for Economic Co-operation and Development (OECD) ‘side-by-side’ package. The OECD is an international organisation based in Paris that sets global tax and economic standards. 

On 5 January 2026, the OECD agreed a ‘side-by-side’ package aligning the United States domestic minimum tax system with the OECD Pillar Two framework. On 28 January 2026, Australia became a qualified competent authority under the Global Information Return Multilateral Competent Authority Agreement (GIR MCAA), enabling international exchange of Pillar Two data between tax authorities. 

Together, these updates refine how global top-up taxes interact but do not alter Australia’s Domestic Minimum Tax (DMT) or local filing obligations.

What is Pillar Two in Australia?

Pillar Two is the OECD global minimum tax framework requiring large groups to pay at least a 15% effective tax rate in each jurisdiction where they operate. Australia implemented Pillar Two legislation in 2024, including all core mechanisms:

• Income Inclusion Rule (IIR) - This lets a multinational's home country top up the tax to 15% if a subsidiary's effective rate is below that.

• Undertaxed Profits Rule (UTPR) - This lets other countries top up if the home country doesn't.

• Domestic Minimum Tax - lets each country collect its own top-up directly on profits earned in that country. Australia has all three. 

These rules operate together to ensure minimum taxation of low-taxed income within Australia and internationally. 

Does the OECD side-by-side package change Australian tax exposure?

The OECD side-by-side package does not change Australian tax exposure and affects only the interaction between jurisdictions applying top-up taxes. OECD’s side-by-side package does not remove Australia’s ability to impose a 15% minimum tax on Australian profits earned by in-scope US-parented groups. 

Australia retains full operation of its Pillar Two framework, including IIR, UTPR and DMT. The DMT remains the primary mechanism for ensuring Australian profits are taxed at or above the minimum threshold locally. 

How the OECD side-by-side package changes US global minimum tax coordination?

The OECD side-by-side package reduces the likelihood of additional foreign top-up tax being applied where income has already been subject to the US domestic minimum tax. The package applies from fiscal years starting on or after 1 January 2026 and aligns the US domestic minimum tax system with the OECD Pillar Two framework to reduce cross-border overlap in top-up taxation. 

The key adjustment concerns the interaction between the US domestic minimum tax and the OECD UTPR. Under the revised coordination approach, income already captured under the US domestic minimum tax is less likely to attract further top-up tax under the UTPR in other jurisdictions. This limits duplication where multiple tax systems would otherwise apply adjustments to the same low-taxed income across different countries. 

What this means for US-parented groups in Australia

For Australian subsidiaries of US-based parent groups, the compliance position remains unchanged. The side-by-side package addresses international top-up taxes (the IIR and UTPR mechanisms only. 

In practice, if you're an Australian subsidiary of a large US group:

• You still need to determine whether your group is in scope (consolidated revenue at or above €750 million in at least two of the past four fiscal years).

• If in scope, you still need to nominate a ‘designated local entity’ to lodge Australia's information-return notification, and lodge the Australian DMT return. A designated local entity is the Australian group company appointed by an in-scope multinational group to act as the official point of contact with the Australian Taxation Office (ATO), Australia’s federal authority responsible for administering and enforcing taxation law, for Pillar Two notifications and DMT filing obligations.

• The first lodgements are generally due 15 to 18 months after fiscal year-end. For a 31 December 2024 year-end, that's mid-2026. For a 30 June 2025 year-end, that's late 2026 or early 2027.

• The transitional safe harbours (which simplify the calculations during the early years) continue but are time limited. The transitional ‘country-by-country report’ safe harbour was extended for one year, running for fiscal years beginning on or before 31 December 2026.  

While global coordination improves, Australian compliance obligations remain locally enforced.

What US-owned Australian subsidiaries should prioritise now

If your US parent group is in scope:

• Confirm your designated local entity nomination - This is the Australian group member responsible for lodging the information-return notification with the ATO. The choice has consequences for confidentiality, timing, and information flow.

• Reconcile your Australian DMT position with your group's Pillar Two model - Most group tax teams overseas run consolidated models. The Australian DMT needs to align, but it's calculated locally and lodged locally.

• Map your safe harbour eligibility - The transitional safe harbour is the most-used simplification, but it has technical requirements. Don't assume you qualify just because your group does.

• Document your tax consolidation interactions - Australia's tax consolidation regime intersects with Pillar Two in ways the ATO has issued specific guidance on. If you're part of an Australian tax-consolidated group, that adds a layer of complexity. 

Pillar Two is largely managed offshore for most in-scope US-based parent groups, with global tax teams typically responsible for modelling and coordination. However, Australia maintains a fully operational DMT regime with active local filing obligations administered by the ATO. 

The ATO applies a compliance-focused approach in the early implementation phase for groups acting in good faith, but full obligations still apply, including accurate calculations, documentation, and timely lodgements. 

If you are unsure whether your group is in scope or need an Australian-specific view on your Pillar Two obligations, we can help. Get in touch with our team here at ABN Australia.

 Last updated: 15th May 2026

About the Author

Ro Elvinia is ABN Australia's Customer Success and Marketing Manager. She holds a bachelor’s degree in mass communication, majoring in journalism, and also has an academic background in civil engineering. With over a decade of experience in professional writing and a background spanning journalism, Australian immigration, and business services, Ro brings a unique mix of communication and analytical expertise. She works closely with international clients and contributes to ABN Australia's content strategy, helping global businesses stay informed and confident as they navigate the Australian market.