OECD Pillar Two: Side-by-Side Solution Explained

On 5 January 2026 the OECD/G20 Inclusive Framework agreed a “Side-by-Side package” to support the coordinated operation of global minimum tax arrangements.
Two elective safe harbours are introduced for groups headquartered in eligible jurisdictions.
The safe harbours are prospective (for fiscal years commencing on or after 1 January 2026) – importantly this does not change compliance and reporting obligations for FY2024 and FY2025.

Context

The Side-by-Side solution addresses the interaction between the GloBE global minimum tax (including the Income Inclusion (IIR) and Under Taxed Profits Rule (UTPR)) and certain pre-existing minimum taxation regimes. It is intended to reduce duplicative compliance and mitigate double minimum taxation where the Inclusive Framework determines that the headquarter jurisdiction meets defined minimum taxation standards.

A summary of the Pillar 2 rules and their operations is outlined in our information brochure here.

OECD materials
Press release (5 January 2026)
Side-by-Side Package (OECD PDF)
Central Record for purposes of the Global Minimum Tax

How the new arrangement will work

Rather than a substantive amendment of the existing Pillar 2 rules, the new package will operate by introducing two new elective safe harbours:

1. SbS Safe Harbour
Available only where the Ultimate Parent Entity (UPE) is located in a jurisdiction with a “Qualified SbS Regime” listed on the OECD Central Record.

Election: made by the filing constituent entity via the GloBE Information Return (GIR).
Effect: for IIR and UTPR purposes, Top-up Tax is deemed to be zero for the group’s constituent entities (with extended treatment for joint ventures/JV subsidiaries as set out in the OECD text).
QDMTTs unaffected: the election does not switch off QDMTT liabilities or QDMTT-related reporting where a QDMTT applies.

2. UPE Safe Harbour
A separate elective safe harbour for groups headquartered in jurisdictions that meet the domestic eligibility criteria but do not meet the full SbS criteria (i.e., no eligible worldwide tax system).

Effect: for UTPR purposes, Top-up Tax for the UPE jurisdiction is deemed to be zero (for constituent entities located in the UPE jurisdiction).
Timing: applies from 1 January 2026 and effectively replaces the Transitional UTPR Safe Harbour, which expires at the end of 2025.

Eligibility in brief
Qualification is determined through the Inclusive Framework process and reflected in the Central Record. At a high level, the OECD text tests whether the headquarter jurisdiction’s regime is expected to achieve minimum levels of taxation over domestic and (for SbS) foreign operations.

Domestic leg: statutory nominal corporate income tax rate of at least 20% (after specified adjustments) and an in-scope domestic minimum tax (e.g., QDMTT or corporate alternative minimum tax) at a nominal rate of at least 15%, with no material risk of an overall domestic effective rate below 15%.
Worldwide leg (SbS only): a comprehensive foreign income regime (broad base, including key CFC inclusions) together with targeted mechanisms to manage BEPS and foreign tax credit blending risks, with no material risk that the group’s collective foreign operations are taxed below 15%.

Central Record and effective dates
Safe harbour availability is driven by the OECD Central Record listing (including any later effective date specified for a jurisdiction). Groups should monitor changes to headquarter jurisdiction status, including material amendments to the underlying regime that may impact qualification.

What it does not do

The Side-by-Side safe harbours do not affect reporting obligations for fiscal years commencing before 1 January 2026. For calendar-year groups, this means there is no relief for the FY2025 and FY 2026 years.

How we can help

We can assist with eligibility monitoring (including Central Record tracking), FY2026 modelling under IIR/UTPR/QDMTT interactions, and end-to-end GIR readiness and governance.

Practical takeaways

FY2024/FY2025 years remain unaffected. Groups still need to prepare and comply with all applicable Pillar 2 obligations for these years.
For groups eligible for the new concessions, confirm UPE location and monitor the OECD Central Record for Qualified SbS Regime / Qualified UPE Regime status and effective date.
Model FY2026 outcomes: SbS/UPE relief is limited to IIR/UTPR mechanics; QDMTTs (and related filings) remain relevant where enacted.
Design election governance: define the filing constituent entity, approval process, and documentation package supporting eligibility and election.
Refresh your Pillar Two roadmap and timelines to reflect potential FY2026 safe harbour availability and any further OECD tools released in early 2026.
Final Observation
These additional rules result in an already complex global tax regime becoming additionally complex. But, most significantly, groups affected by Pillar 2 must continue to comply with all countries’ rules for the FY2024 and FY2025 years. As the first deadline is 30 June 2026, all affected groups need to continue their Pillar 2 implementation journey with sufficient time to meet the 30 June 2026 deadline as substantial penalties could apply for filed or late filings.

Final observation – Immediate call for action

These additional rules result in an already complex global tax regime becoming additionally complex. But, most significantly, groups affected by Pillar 2 must continue to comply with all countries’ rules for the FY2024 and FY2025 years. As the first deadline is 30 June 2026, all affected groups need to continue their Pillar 2 implementation journey with sufficient time to meet the 30 June 2026 deadline as substantial penalties could apply for filed or late filings.