As we enter the new year, the OECD Inclusive Framework has reached long-awaited consensus on the Pillar Two “Side by Side” (SbS) package[1]. Agreed by more than 145 jurisdictions, this package represents an important milestone in the evolution of the Global Minimum Tax framework and provides long-needed clarity for multinational enterprises navigating Pillar Two implementation.
The SbS package introduces a series of coordinated measures designed to reduce compliance friction while preserving the integrity of the GloBE rules. Key elements of the package include:
- A Simplified ETR Safe Harbor (ETR-SH) intended to reduce compliance and calculation burden.
- The introduction of a Substance-Based Tax Incentives Safe Harbor.
- A one-year extension of the CbCR Safe Harbor.
- A new Ultimate Parent Entity (UPE) Safe Harbor, aimed at shielding profits of entities in qualifying UPE jurisdictions from the application of the UTPR by other jurisdictions.
A significant development for US-parented groups
Of particular importance for US-parented multinational groups, the SbS package introduces a new Side by Side Safe Harbor (SbS-SH). This measure reflects the G7 Pillar Two understanding and provides for the deactivation of both the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) with respect to the domestic and foreign profits of a UPE, provided that the UPE is established in a Qualifying SbS Jurisdiction.
To qualify, a jurisdiction must meet several conditions, including:
- A minimum nominal corporate income tax rate without broad carve-outs.
- A robust and comprehensive minimum tax or alternative tax framework.
- The ability to grant a foreign tax credit for Qualified Domestic Minimum Top-up Taxes (QDMTTs) levied by other jurisdictions, consistent with the treatment of Covered Taxes under the GloBE rules.
At present, the United States is the only jurisdiction officially recognized as a Qualified SbS Jurisdiction. Even so, the SbS-SH does not apply automatically to all US-parented groups. Instead, each group must individually elect into the safe harbor, most likely through the GloBE Information Return (GIR).
Timing and implementation considerations
The SbS-SH is expected to become effective for fiscal years beginning on or after January 1, 2026, subject to local implementation. The package explicitly recognizes that constitutional or legal constraints may delay adoption in certain jurisdictions and calls on all implementing countries to proceed as soon as legally feasible. Depending on jurisdiction, implementation may or may not include retroactive effect.
What this means for in-scope groups
While the SbS consensus provides welcome certainty, it does not materially alter near-term compliance obligations. Several practical conclusions are worth highlighting:
- 2024 and 2025 compliance remains unchanged. In-scope groups must continue to prepare for full GIR and local Pillar Two filings based on currently enacted rules. A limited number of local filings are due as early as January 2026, with the majority of calendar-year filings due by June 30, 2026.
- IIR and UTPR relief is prospective and conditional. In the most optimistic scenario, electing US-parented groups may see IIR and UTPR switched off for fiscal years starting January 1, 2026. However, where implementation is delayed due to constitutional constraints, exposure to IIR and UTPR may continue until local adoption is finalized.
- QDMTTs are permanent. The SbS framework reinforces the permanence of QDMTTs. In fact, granting a foreign tax credit for QDMTTs is a prerequisite for SbS qualification, underscoring that QDMTT compliance remains fully in force.
- Reporting obligations do not disappear. Exclusion from IIR and UTPR does not eliminate Pillar Two compliance. QDMTT reporting remains unchanged, and the GIR will continue to be required, albeit potentially in an adjusted format to accommodate SbS elections and ongoing reporting needs.
How Orbitax supports its customers
Orbitax is closely monitoring these developments and continuously aligning its Global Minimum Tax solution to support compliance under both current rules and the newly agreed SbS outcomes. The Orbitax platform is designed to manage Pillar Two complexity today while remaining flexible as guidance and implementation continue to evolve.
For organizations seeking support with Pillar Two calculations, reporting, or filings, the Orbitax team and its global community of Certified Services Providers remain available to assist.
Looking ahead, Orbitax will host a series of Global Minimum Tax office hours in early 2026, focused on practical filing considerations as jurisdictions move closer to first major filing deadlines.
As clarity replaces uncertainty, tax teams can now shift focus from speculation to execution. Orbitax looks forward to continuing to support multinational tax teams through the next phase of Pillar Two implementation.
[1] OECD (2026), Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (PillarTwo), Side-by-Side Package: Inclusive Framework on BEPS, OECD, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/global-minimum-tax/side-by-side-package.pdf.