A major update on OECD Pillar
A major update on OECD Pillar Two implementation has been announced with the release of the Pillar Two Side-by-Side Package by the OECD/G20 Inclusive Framework.
This package addresses the needs of businesses and tax administrations by reducing complexity and enhancing clarity regarding the Global Minimum Tax (GMT) for multinational enterprises. It includes a series of measures consisting of material simplifications, improved alignment of substance-based tax incentives with qualified refundable tax credits, and the introduction of a Side-by-Side (SbS) system.
Key measures included in the package are:
1 – Permanent Simplified ETR Safe Harbour: Eligible groups may demonstrate that no top-up tax is due in low-risk jurisdictions without performing full GloBE calculations, relying instead on simplified computations largely based on financial accounting data.
While the Simplified ETR Safe Harbour represents a significant step towards simplification of the rules, the Inclusive Framework recognises that the journey does not stop here and commits to a work programme to achieve additional clarifications and simplifications, while ensuring the continued integrity of the rules.
2 – Extension of the Transitional CbCR Safe Harbour: The transitional CbCR safe harbour is extended by one additional year, giving multinational groups more implementation runway and continued flexibility during the transition phase. Groups may choose between available simplification pathways as Pillar Two continues to evolve.
3 – Substance-based tax incentive safe harbour: The package improves alignment between Pillar Two and genuine economic activity. Certain qualifying tax incentives may be treated as covered taxes, subject to caps linked to payroll and tangible assets.
4 – Side-by-Side (SbS) and UPE Safe Harbours: Where jurisdictions operate qualifying domestic minimum tax regimes with equivalent policy outcomes, multinational groups may rely on those regimes rather than applying the IIR or UTPR, while Qualified Domestic Minimum Top-up Taxes (QDMTTs) will continue to take priority.
Key takeaway: For multinational groups, the priority now is to reassess:
- Eligibility for available safe harbors.
- interaction with QDMTTs and domestic minimum tax regimes; and
- whether existing data, systems, and governance frameworks are fit for this next phase of Pillar Two implementation.
Pillar Two is maturing and strategic preparation will increasingly define successful compliance.
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