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At a glance
- The Australian Tax Office (ATO) has updated its guidance to provide detailed information and instructions for Australian Tax Consolidated Groups and Multiple Entity Consolidated (MEC) Groups.
- The ATO has also released guidance on specific issues including misaligned fiscal years, prior period adjustments and joint arrangements.
- Although the OECD Side-by-Side Package may simplify future compliance, Australian groups and foreign multinationals must still prepare for reporting obligations starting 30 June 2026.
- The introduction of Australia’s Pillar Two rules creates an opportunity beyond compliance.
- EY can support you in building a future‑ready tax function with scalable technology platforms.
- EY can assist you with integrated analytics, and streamlined processes, transforming Pillar Two compliance into a driver of efficiency, resilience, and strategic insight.
On 18 December 2025, the Australian Taxation Office (ATO) released updated guidance detailing the application of Australia’s Pillar Two rules to Tax Consolidated Groups (TCGs) and Multiple Entry Consolidated (MEC) groups, as well as addressing specific issues relevant to their Pillar Two obligations.
The Taxation (Multinational – Global and Domestic Minimum Tax) Rules 2024 (the Rules) are in force and have retrospective application to fiscal years starting on or after 1 January 2024. The Rules include a Domestic Minimum Tax (DMT) and Income Inclusion Rule (IIR) which apply to fiscal years starting on or after 1 January 2024 and an Undertaxed Profits Rule (UTPR) which applies to fiscal years starting on or after 1 January 2025.
The new ATO guidance assists TCGs and MEC groups to understand the interaction between the Rules and Australia’s tax consolidation regime, while clarifying key compliance requirements such as lodgment obligations, reporting simplifications and the processes for calculating and allocating top-up tax.
The ATO also provides additional information on specific issues, including:
- The process and rules for nominating a Designated Local Entity (DLE)
- The treatment of misaligned fiscal years which is relevant for Constituent Entities whose local financial accounts are based on a different accounting period than the Ultimate Parent Entity (UPE)
- Prior period adjustments in respect of covered tax liabilities for previous fiscal years
- Expanded guidance on how Australian global and DMT rules may apply to joint operations and joint ventures
Following our previous Tax Alert the final Legislative Instrument (LI) which provides certain exemptions from requirements to lodge Australian IIR/ UTPR tax returns and DMT tax returns was registered on 22 December 2025 and amendments to the Rules were registered on 5 January 2026.
Implications for taxpayers
Under Australia’s Pillar Two rules, the first Pillar Two returns for in-scope multinational enterprise groups (MNE groups) with a December year-end are due by 30 June 2026, which is 18 months after the end of the FY2024 fiscal year. MNE groups should take immediate action to assess exemption eligibility, review compliance frameworks, and prepare for the new reporting and compliance requirements which start from 30 June 2026, including consideration of this new ATO guidance.