In brief
The Budget included Pillar Two measures implementing the OECD Side‑by‑Side Package and funding to streamline Australia’s foreign investment approvals.
Key takeaways
Australian Pillar Two Framework – implementing the Side‑by‑Side Package
- The Australian Government has committed to implementing the OECD’s Side‑by‑Side Package, providing long awaited relief from the Australian Pillar Two Framework for certain MNE Groups where the ultimate parent entity is located in a jurisdiction that is sufficiently robust from a taxation perspective.
Foreign investment review funding allocation
- AUD 47.5 million in funding allocated to Treasury and the Australian Taxation Office to streamline Australia’s foreign investment framework.
International Tax
Australian Pillar Two Framework – implementing the Side-by-Side Package
Broadly, and in alignment with the OECD, the Australian Pillar Two Framework seeks to introduce a minimum effective tax rate for large multinational enterprises (MNE Groups), these being MNE Groups with annual revenue of EUR 750 million or more, with the minimum effective tax rate equating to 15% in each jurisdiction in which the MNE Group operates. This objective is brought about through the imposition of an Income Inclusion Rule (IIR), Undertaxed Profits Rule (UTPR), and a Domestic Minimum Tax.
The 2026-27 Australian Federal Budget contains a commitment by the Australian Government to amend the existing Australian Pillar Two Framework to implement the OECD’s Side-by-Side Package. Among other relief measures, the Side-by-Side Package will introduce a ‘Side-by-Side Safe Harbour’ which will exempt certain MNE Groups from the IIR and UTPR, where the ultimate parent entity resides in a jurisdiction which is sufficiently robust from a taxation perspective. According to the Central Record for purposes of the Global Minimum Tax, US-parented groups fall within this Side-by-Side Safe Harbour.
The effect of implementing the Side-by-Side Package is a forecasted decrease in tax receipts by AUD 240 million. The Side-by-Side Package will apply from 1 January 2026.
For further details on the Side-by-Side Package, we recommend reviewing Baker McKenzie’s 6 January 2026 publication.
Foreign investment review funding allocation
As part of the 2026–27 Federal Budget, the Australian Government confirmed funding of AUD 47.5 million over four years from 2026–27 (and AUD 3.9 million per year ongoing) for Treasury and the Australian Taxation Office (ATO) to strengthen and streamline Australia’s foreign investment framework. The measures include the introduction of a new performance target to decide all “low risk” foreign investment applications within 30 days from 1 January 2027, the removal of ineffective or redundant conditions from existing approvals, and reforms to the foreign investment laws and the Register of Foreign Ownership of Australian Assets.
This is a positive development and signals a clear policy commitment to faster and more efficient foreign investment processing. However, it remains to be seen how “low risk” applications will be defined in practice. Until further detail is provided, there is uncertainty as to the extent to which the 30 day decision making target will apply, particularly for foreign multinationals undertaking otherwise straightforward transactions. The practical impact of the reform will depend on how risk is assessed by reference to factors such as the sector involved, the nature of the assets, the level of control acquired, and whether the transaction raises national interest, tax integrity, data or national security considerations.
A copy of the Federal Budget papers can be found here.
Alexandra Stead, Special Counsel, Serena Chow, Senior Associate, Aiden Varvaressos, Associate, Jeremy Hyman, Head of Communications, and Sky Friend, Business Development Consultant, have contributed to this legal update.