Pillar Two: OECD Side-by-Side (SbS) Package

The package includes:

1. Compliance simplifications intended to reduce the burden on multinational groups and tax administrations when calculating and reporting Pillar Two outcomes.
2. A Permanent Simplified ETR Safe Harbour, including detailed rules for a simplified ETR computation approach, plus a one-year extension of the Transitional CbCR Safe Harbour to facilitate the transition.
3. A new Substance-based Tax Incentive (SBTI) Safe Harbour designed to align the Pillar Two treatment of certain qualifying incentives with substance-based policy objectives, subject to conditions and caps.
4. Two headquarter-based elections: the SbS Safe Harbour and the UPE Safe Harbour, available to groups headquartered in jurisdictions recognised as eligible under the Inclusive Framework’s criteria (with eligibility set out in the OECD “Central Record”).
5. An evidence-based stocktake intended to be concluded by 2029 to assess competitiveness and “level playing field” outcomes.
6. Reinforcement that Qualified Domestic Minimum Top-up Taxes (QDMTTs) are the first-line mechanism for safeguarding local tax bases, including for developing countries.

What changes, and when

Key timing points include:

1. SbS Safe Harbour and UPE Safe Harbour: Applies for fiscal years commencing on or after 1 January 2026 (or a later year, where indicated for SbS in the OECD Central Record). Elections are required. As of 5 January 2026, the US is the only jurisdiction identified in the OECD Central Record as meeting the eligibility criteria for the SbS Safe Harbour.
2. Transitional CbCR Safe Harbour: Extended for one additional year to fiscal years commencing on or before 31 December 2027, excluding fiscal years ending after 30 June 2029.
3. Permanent Simplified ETR Safe Harbour: Generally applies for fiscal years commencing on or after 31 December 2026, with limited earlier application for fiscal years commencing on or after 31 December 2025 in defined cases.
4. SBTI Safe Harbour: Applies to fiscal years beginning on or after 1 January 2026.
5. Additional OECD support: The OECD has indicated it will publish further tools and factsheets in the coming weeks and will host a dedicated webinar on 13 January 2026, alongside capacity-building support for jurisdictions.

Potential considerations for MNEs

For in-scope groups, potential implications include:

1. Targeted simplification, not a blanket exemptionThe Simplified ETR Safe Harbour can reduce compliance effort in relevant jurisdictions, but eligibility and benefit depend on elections, data quality, and required adjustments (including areas such as deferred tax treatment).
2. Cash tax and forecasting impactsWith QDMTTs positioned as the primary mechanism, a greater share of top-up tax may be paid locally, potentially shifting cash tax geography, payment timings, and local compliance calendars.
3. Headquarter effectsGroups headquartered in an “eligible” jurisdiction may be able to rely on SbS/UPE relief mechanisms (while QDMTTs may still apply). Other groups should focus on optimising the Transitional CbCR Safe Harbour (including achieving qualified CbCR status) and adopting a jurisdiction-by-jurisdiction approach to Simplified ETR.
4. Incentive resilience and investment planningThe SBTI Safe Harbour may help preserve value from qualifying incentives (subject to caps and substance conditions). Groups may wish to revisit investment cases in relevant locations and assess whether incentives remain effective under Pillar Two.

Our initial observations

The SbS Package represents a significant step toward making Pillar Two more workable in practice.

First, the package aligns with the agreement reached between the G7 members last June, which should prevent a revival of the US proposed “revenge tax” (Section 899).

Second, many in-scope groups have faced substantial complexity during implementation, and the new simplifications and safe harbours should provide practical pathways to reduce burden where conditions are met. The overall direction is toward a more coordinated and predictable framework—but one that still requires robust modelling, strong data foundations, and careful management of elections and filing positions. Now is an appropriate time to refresh Pillar Two readiness assessments and consider how the package may affect 2026–2027 compliance plans and cash tax outcomes.

Sources

• OECD press release (5 January 2026): https://www.oecd.org/en/about/news/press-releases/2025/12/international-community-agrees-way-forward-on-global-minimum-tax-package.html
• OECD Side-by-Side Package (PDF): https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/global-minimum-tax/side-by-side-package.pdf
• OECD Pillar Two / Global Minimum Tax materials: https://www.oecd.org/en/topics/sub-issues/global-minimum-tax/global-anti-base-erosion-model-rules-pillar-two.html

Disclaimer: This publication provides general information only and does not constitute advice. Professional advice should be sought before taking any action based on its contents.