OECD publishes Side-by-Side Package on Pillar Two

On 5 January 2026, the OECD/G20 Inclusive Framework on BEPS published the so-called Side-by-Side Package on the global minimum taxation regime / Pillar Two. With this package, the OECD is technically implementing the political agreements reached in 2025 – especially at the G7 level – and responding to ongoing criticism of the complexity and administrative burden of the Pilar Two rulebook.

The aim of the Side-by-Side Package is to make in particular the simultaneous existence of different minimum tax systems ("side by side") more practicable through additional safe harbours, structural simplifications and clarifications, without questioning the basic principles of Pillar Two. The design of the package must also be seen against the background of the US minimum taxation regulations (in particular GILTI) and their embedding in the existing Pillar Two rulebook.

At the same time, the package lays the foundation for further work of the OECD Inclusive Framework, in particular the ongoing examination of additional simplifications and their impact on compliance requirements.

Side-by-Side Safe Harbour (SbS Safe Harbour)

The core of the Side-by-Side Package is the new Side-by-Side (SbS) Safe Harbour. This is aimed at multinational groups whose ultimate parent company (UPE) is resident in a country that has introduced a “Qualified side-by-side regime” that is recognised as equivalent. The SbS Safe Harbour is thus intended in particular to avoid double or multiple taxation that could result from the parallel application of different minimum tax regimes.

The SbS Safe Harbour allows multinational groups to waive the application of the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) under certain conditions. The decisive factor here is, among other things, that the country of the UPE applies both an eligible domestic tax system and an eligible worldwide tax system.

It is also clarified that the new Side-by-Side Safe Harbour has no effect on existing Qualified Domestic Minimum Top up Taxes (QDMTT). This means that the respective QDMTT rules remain unaffected and continue to apply even if the Side-by-Side Safe Harbour is used.

All countries that meet the requirements of a "Qualified Side-by-Side Regime" are to be included in the "Central Record" published by the OECD (as of 5 January 2026, only the USA). The SbS Safe Harbour shall apply for financial years beginning on or after 1 January 2026.

The Side-by-Side Package also includes a UPE Safe Harbour, which is functionally linked to the Transitional UTPR Safe Harbour, which expired at the end of 2025. The UPE Safe Harbour is aimed at MNE groups whose UPE is resident in a jurisdiction with a qualified domestic minimum tax system that meets certain criteria but does not yet constitute a full side-by-side regime. It ensures that no top-up-tax is levied on the domestic profits of the UPE jurisdiction under the Undertaxed Profit Rule (UTPR). The UPE Safe Harbour is to be applied for financial years beginning on or after 1 January 2026.

Further development and permanent implementation of existing Safe Harbours

Another significant new element is the permanent Simplified ETR Safe Harbour, which is intended to replace the corresponding temporary CbCR Safe Harbour in the long term and ensure permanent administrative simplification. The permanent Simplified ETR Safe Harbour allows the effective tax burden to be calculated based on simplified figures (Simplified income resp. simplified taxes). These are determined from existing accounting data, require fewer adjustments than under a full Pillar Two calculation, and at the same time allow for optional adjustments. If the specified thresholds (ETR of at least 15% or simplified loss) are reached, a full Pillar Two calculation can therefore be dispensed with.

For the affected MNE groups this shall lead to a reduction in ongoing compliance costs in the future, especially in jurisdictions with a stable and sufficiently high tax rate. The Simplified ETR Safe Harbour is generally intended to apply for financial years beginning on or after 31 December 2026 (i.e. calendar year FYs 2027). In certain constellations, i.e. with appropriate local implementation and making use of the relevant election, application is already possible for financial years beginning on or after 31 December 2025.

Since the permanent Simplified ETR Safe Harbour must first be implemented by the jurisdictions and the OECD IF is also working on permanent rules of the de minimis test and the routine profit test, the Side-by-Side Package also provides for an extension of the temporary CbCR Safe Harbours by one year. The temporary CbCR Safe Harbours are therefore applicable for financial years beginning on or before 31 December 2027 but not ending after 30 June 2029. This will ensure a seamless transition between the previous transition phase and the future permanent Safe Harbour system.

Substance-Based Tax Incentive Safe Harbour

Another focus of the Side-by-Side Package concerns the so-called Substance-Based Tax Incentives. These are national tax incentives that are linked to actual economic substance – such as personnel, property, plant and equipment or operational activities. A so-called Substance-based Tax Incentive Safe Harbour is intended to ensure that such incentives – if they meet the definition of a Qualified Tax Incentive (QTI) – do not trigger top-up-tax, although a substance cap must be taken into account. For affected MNE groups, this means a certain degree of planning security: tax incentives that reflect real economic activity will not generally be neutralised by the new Pillar Two rules. The Substance-based Tax Incentive Safe Harbour shall be available for financial years beginning on or after 1 January 2026.

Conclusion

The side-by-side package is intended to facilitate the practical application of Pillar Two and reduce the calculation and compliance effort – especially in an environment of differently designed minimum tax systems. However, it remains to be seen how the individual jurisdictions will implement the new regulations.

Despite the new simplifications, Pillar Two remains a complex set of rules. An early analysis of which safe harbours can be used in which jurisdictions is strongly recommended for financial years from 2026 onwards.

If you have any questions about the Pillar Two regulations, your contact persons at Deloitte will of course be happy to help.