The OECD’s new Pillar Two Side-by-Side Package introduces permanent safe harbors, extends transitional relief, and simplifies global minimum tax compliance while preserving incentives for real economic activity.
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On January 5, 2026, the Organisation for Economic Co-operation and Development (OECD) released the Side‑by‑Side Package (SbS Package), a major set of administrative simplifications and new safe harbors designed to facilitate global implementation of the global minimum tax (GMT) under Pillar Two. This administrative guidance introduces a permanent simplification framework, preserves the effectiveness of the GMT, and helps countries and multinational enterprises (MNEs) transition more smoothly into the full regime. The SbS Package will be incorporated into the Commentary to the OECD Global-anti-Base Erosion (GloBE) Model rules; however, note that each jurisdiction that previously implemented Pillar Two GloBE Model rules locally needs to also implement the SbS Package within their local legislation for the legislation to be fully enacted.
The inclusive framework recognizes the complexity of the 15% GMT and aims to reduce compliance burdens while maintaining integrity of the rules. The 2026 SbS Package provides:
Material simplifications to reduce administrative cost
Greater alignment of substance‑based tax incentives with qualified refundable tax credits that qualify as an expenditure or production-based tax incentive
Two new safe harbors, including i) the Simplified Effective Tax Rate (ETR) Safe Harbor and ii) the Side‑by‑Side (SbS) Safe Harbor
An extension of the Transitional Country-by-Country Reporting (CbCR) Safe Harbor rules, which allows companies a sufficient time for a smooth implementation of the Simplified ETR Safe Harbor
A cornerstone simplification, the Simplified ETR Safe Harbor allows qualifying jurisdictions to avoid full GloBE computations if the ETR calculated under the Simplified ETR Safe Harbor test meets the 15% minimum rate. Features include:
Reliance on financial accounting data rather than full GloBE adjustments
Minimal modifications/adjustments to income and tax calculations
Jurisdiction‑level, not entity‑level, computation
Availability beginning 2027 (or 2026 in limited cases)
Optional re‑entry rules for groups that fall out of the safe harbor in a given year
Ryan’s Observation: This measure dramatically reduces the compliance burden in jurisdictions with consistently high-tax outcomes.
To ensure a smooth transition to the new Simplified ETR Safe Harbor, the package extends the existing CbCR-Based Transitional Safe Harbor by one year, covering fiscal years beginning on or before December 31, 2027 (but not ending after June 30, 2029). Note that the 17% transition rate for 2026 fiscal years will also apply to 2027 fiscal years.
Ryan’s Observation: This gives MNEs flexibility to rely on either the existing or new simplified tests during the interim period.
Recognizing the legitimate use of tax incentives tied to real economic activity, the package includes a safe harbor for Qualified Tax Incentives (QTIs). Under this rule:
Incentives linked to expenditures or tangible production can be treated as increases to Adjusted Covered Taxes, reducing the overall Top‑Up Tax.
Relief is capped by a “Substance Cap,” which is defined as either
5.5% of eligible payroll or depreciation of tangible assets, or
1% of the carrying value of tangible assets (optional five‑year election).
Ryan’s Observation: This safe harbor, if elected, ensures the GMT does not undermine genuine substance‑driven incentives by increasing the Adjusted Covered Taxes in the tested jurisdiction by the lesser of i) the amount of QTI used in the fiscal year or ii) the Substance Cap calculated.
A major structural development, the SbS System provides two new top‑level safe harbors: Side‑by‑Side Safe Harbor This is available to MNEs headquartered in jurisdictions that operate a Qualified SbS Regime, which is a domestic and worldwide tax system that already imposes effective minimum taxation. If SbS Safe Harbor is elected by an MNE group:
The Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) top‑up taxes are deemed zero for all entities of the group.
The IIR top-up taxes, which would otherwise apply at the Intermediate Parent Entity, would also be reduced to zero.
The top-up tax for joint ventures (JV) and JV subsidiaries of the MNE group will also be deemed zero with respect to the MNE group’s interest in a JV or JV subsidiary and, therefore, also benefit from the SbS Safe Harbor.
Qualified Domestic Minimum Top-up Tax (QDMTT) remains fully applicable.
Ryan’s Observation: The OECD’s Central Record was updated to include the United States as a jurisdiction that has a Qualified SbS Regime; however, no other jurisdictions are included as having a Qualified SbS Regime; therefore, the SbS Safe Harbor currently only applies to U.S.-parented MNE groups. Ultimate Parent Entity Safe Harbor
Where a jurisdiction only satisfies the domestic element of SbS Safe Harbor qualification (and therefore does not have a worldwide tax system in place), MNEs that are located in a jurisdiction with a Qualified Ultimate Parent Entity (UPE) Regime may elect to apply the UPE Safe Harbor, under which:
The top-up tax is deemed to be zero for purposes of applying the UTPR with respect to all of its entities located in the UPE jurisdiction.
The application of the IIR or UTPR will still apply to an MNE group that has a UPE located in a jurisdiction that does not have a Qualified UPE Regime or to any of the MNE group’s entities located outside of the UPE jurisdiction.
QDMTT remains fully applicable.
Ryan’s Observation: Currently, no country is listed as having a Qualified UPE Regime on the OECD’s Central Record.
From now through 2029, the OECD will complete a global “stocktake,” closely monitoring interactions between the SbS Regimes and the GMT and reviewing various GloBE data points to analyze/confirm if there are any unintended effects or imbalances identified between MNE groups or any negative trends in taxpayer behaviors. The OECD will be doing this by reviewing items such as i) account data summarizing the effect of the GMT and SbS system, including the level of implementation of QDMTTs; ii) any changes in corporate structures of MNE groups that shifts profits to achieve low-tax outcomes; and iii) material competitive imbalances. To the extent any substantial risks are identified, the OECD is committed to take actions to address these risks.
Effective Dates
Simplified ETR Safe Harbor: For years beginning on or after January 1, 2027 (or for years beginning on or after January 1, 2026, in certain circumstances).
Extended Transitional CbCR Safe Harbor: Through years beginning on or before December 31, 2027, but not including a fiscal year that ends after June 30, 2029.
SBTI Safe Harbor: For years beginning on or after January 1, 2026.
SbS and UPE Safe Harbors: For years beginning on or after January 1, 2026, or a later year as listed in the Central Record.
The SbS Package represents one of the most significant refinements to Pillar Two since the rules were first adopted. It provides:
Practical simplifications for taxpayers and administrations
A path for jurisdictions with credible minimum tax systems to coexist with the GMT
Preserved incentives for real economic activity
A more manageable and predictable compliance environment
For multinational groups, the new safe harbors may dramatically reduce compliance costs and limit exposure to top‑up taxes—particularly in high‑tax or strongly substance‑based jurisdictions.
Despite this agreement, U.S.-parented MNEs are not completely insulated from all Pillar Two components:
QDMTT Remains Applicable: U.S. companies may still face a QDMTT in foreign jurisdictions where their subsidiaries are located and have an ETR below 15%.
Compliance Is Still Required: U.S.-parented MNEs must still prepare for complex compliance and reporting obligations for years 2024 and 2025, including completing the GloBE Information Return (GIR), as SbS Safe Harbor is only in effect for years beginning on or after January 1, 2026. Once SbS Safe Harbor is in effect, U.S.-parented MNEs must still i) calculate if there is a QDMTT in a jurisdiction they are located in that has enacted a QDMTT, and ii) prepare and file the GloBE Information Return (GIR) to report required QDMTT information.
Financial Statement Reporting/ASC740 Implications: Pillar Two still needs to be top of mind for U.S.-parented MNEs, as QDMTT should be calculated in each relevant jurisdiction as well as reported and included in the financial statements. Additionally, the full GloBE rules apply for years beginning before January 1, 2026; therefore, any IIR or UTPR calculated should also be included in the 2025 financial statements (as applicable).
If you have any questions or need any assistance regarding Pillar Two, our international tax experts are ready to help. We will work with you to identify your specific needs and find solutions that align to your business purpose.
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals.
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