Announcement date
9 May 2023
Link to announcement
https://budget.gov.au/content/05-budget.htm#m8
Problem being addressed
The Two-Pillar Solution aims to address challenges that governments and multinational businesses are facing with current international corporate tax settings. It has become harder for governments around the world to raise corporate income taxation revenue from large multinationals. This arguably stems from outdated international conventions for corporate income taxation. These conventions were established a century ago and so did not account for today’s levels of digitalisation and globalisation. These problems require coordinated government action and cannot be addressed by market forces.
Proposal
The Two-Pillar Solution is made up of Pillar One and Pillar Two. Pillar One seeks to ensure more of the profits of the largest and most profitable multinationals are taxed where the products or services are consumed. Pillar One is primarily an attempt to address the problem of ‘scale without mass’—being able to derive significant profits from a country without having the traditional physical presence (mass).
Pillar Two seeks to establish a global minimum tax on large multinationals. While it is primarily seeking to address the ‘race to the bottom’, it also helps to create a more level playing field between large multinationals and domestic businesses, which have little ability to access the same profit shifting strategies.
Assessed Impact Analysis outcome
Good practice
Assessment comments
The analysis in the Impact Analysis (IA) is good quality overall. The IA addresses the seven IA questions and follows an appropriate policy development process commensurate with the significance of the problem and magnitude of the proposed intervention.
Regulatory burden
The Department of the Treasury estimates an increase in regulatory costs of $32.3 million per year, averaged over ten years.