OECD: Side by Side Arrangement on Global Minimum Tax

On 5 January 2026 the OECD issued a document with the title Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), Side-by-Side Package. This document set out more details of the side-by-side arrangement originally discussed with the US in June 2025. At that time, it was agreed that material simplifications would be made by the OECD to the administrative and compliance rules for the global minimum tax. Also, changes would be considered to the Pillar 2 treatment of substance-based non-refundable tax credits, to bring them more into line with the treatment of refundable tax credits.

The document notes that the side-by-side (SbS) arrangement would be available where a country’s tax regime has similar policy objectives and scope to the global minimum tax. The SbS and ultimate parent entity (UPE) safe harbours would apply to multinational groups headquartered in jurisdictions that meet the requirements for an eligible tax regime.
SbS safe harbour

The SbS safe harbour would only be available to a multinational group that has an ultimate parent entity located in a jurisdiction which has both an eligible domestic tax regime and an eligible worldwide tax regime. A tax regime would only be eligible if it effectively achieves a minimum level of taxation of the multinational group’s domestic and foreign operations. A multinational group electing for the SbS safe harbour would not be subject to the income inclusion rule (IIR) or the undertaxed profits rule (UTPR).

UPE safe harbour

A safe harbour would also apply for jurisdictions with regimes that only meet the domestic part of the eligibility criteria. The UPE Safe Harbour would provide a safe harbour with respect to the domestic profits of multinational groups headquartered in jurisdictions which have a pre-existing eligible domestic tax regime. A multinational group that elects for the UPE safe harbour will not be subject to the UTPR in respect of the profits located in the jurisdiction of the ultimate parent entity.

Other safe harbours

The introduction of a simplified ETR safe harbour would substantially reduce the burden of compliance with the global minimum tax in many cases. Under this rule, a multinational group’s ETR would be established by a simplified computation based on the income and taxes drawn from the multinational group’s reporting packages with just a few adjustments.

Also, the transitional CbC Reporting safe harbour would be extended for one year. This would provide taxpayers with the choice of opting for the simplified ETR safe harbour or for the transitional CbC Reporting safe harbour during a transition period.

Additional clarification and simplification work will be done by the OECD in 2026, including the ongoing work on a routine profits test and a de minimis test, and more simplification of the Pillar 2 rules generally. The OECD will develop further administrative guidance on technical issues relating to the global minimum tax rules; and look at the integration of the simplified calculations for the simplified ETR safe harbour into the design of the global minimum tax, to help implementation by jurisdictions with lower resources. Further work will be done in the first half of 2026 to adapt the GloBE Information Return (GIR); the GIR XML Schema; and the related validation rules to apply the agreed safe harbours.

Tax Incentives

The package of measures further aligns the treatment of tax incentives globally through the introduction of a targeted substance-based tax incentive safe harbour. The substance-based tax incentive (SBTI) safe harbour would allow a multinational group to treat certain qualified tax incentives (QTIs) as an addition to the covered taxes of the constituent entities of that group located in the relevant jurisdiction. A QTI would be an incentive that is generally available to taxpayers and calculated on the basis of expenditures incurred; or on the amount of tangible property produced in the jurisdiction. The allowance for QTIs would be limited by reference to the amount of substance in the jurisdiction.

Stocktake

As part of the arrangements there is a commitment from the OECD to ensure that any substantial risks to the level playing field or risks of base erosion and profit shifting (BEPS) are addressed, to preserve the policy objectives of the global minimum tax and the SbS system. The OECD is therefore committed to carry out a “stocktake” of the situation, following an evidence-based objective process that would be concluded by 2029. The stocktake would look at data on the effect of the global minimum tax and the SbS system, including the level of implementation of qualifying domestic minimum top-up taxes (QDMTTs). It would also look for and assess any negative trends in taxpayer behaviour such as changes in corporate structures to shift profits between jurisdictions.

Other

The latest package of measures from the OECD reinforces the objective that qualified domestic minimum top-up tax regimes remain a primary mechanism in the global minimum tax framework for ensuring the protection of local tax bases. This is particularly important for developing countries, as they need to mobilise domestic resources for economic growth and development.

Additional tools and fact sheets are to be made available by the OECD in the near future. The OECD is also offering capacity-building support where needed.