Members of the OECD/G20 Inclusive Framework (Inclusive Framework) on Base Erosion and Profit Shifting (BEPS) have agreed to exempt certain US-headquartered multinational enterprises (MNEs) from top-up taxes under the income inclusion rule (IIR) and the undertaxed profits rule (UTPR) from 2026. However, their subsidiaries remain liable to any qualified domestic minimum top-up tax (QDMTT) in the jurisdictions they operate. Other notable recent Pillar 2 developments are also discussed below.
Table of contents
- US-headed MNEs can elect to be partially exempt from IIR and UTPR
- Other measures in OECD Side-by-Side Package
- Managing evolving Global Minimum Tax requirements
US-headed MNEs can elect to be partially exempt from IIR and UTPR
The Inclusive Framework agreed to impose global minimum tax rules under BEPS Pillar 2, ensuring large MNE groups are subject to a minimum effective tax rate of 15% on income arising in each jurisdiction in which they operate.
The Side-by-Side (SbS) Safe Harbour the Inclusive Framework agreed to in January 2026 provides a mechanism for recognising cases when an MNE group is headquartered in a jurisdiction with a tax system that imposes sufficient minimum tax requirements with respect to domestic and foreign income.
According to the OECD, MNE groups with their ultimate parent entity (UPE) located in a jurisdiction with a “Qualified SbS Regime” can elect the SbS Safe Harbour. In particular, the filing constituent entity can elect to deem the top-up tax for a jurisdiction to be zero for IIR and UTPR purposes where the constituent entities are located in a jurisdiction with a “Qualified SbS Regime” for the fiscal year. This safe harbour is designed to apply to jurisdictions that have satisfied the Inclusive Framework that both their domestic and worldwide tax systems impose sufficient minimum taxation requirements on domestic and foreign income such that Pillar 2 taxation would not be required. As of January 2026, the US is the only jurisdiction listed on the OECD Central Record for purposes of the Global Minimum Tax as a Qualified SbS Regime.
Be mindful that any QDMTTs enacted by other jurisdictions continue to apply to US-headed subsidiaries that operate in those jurisdictions.
MNE groups electing to apply the SbS Safe Harbour are still required to file a GloBE Information Return (GIR), although the scope would be narrowed to support QDMTTs. It is anticipated that the GIR form will be revised to allow an MNE group to elect the SbS Safe Harbour in an appropriate field.
Other measures in OECD Side-by-Side Package
The SbS Safe Harbour was announced as part of the OECD’s comprehensive package for a “side-by-side” arrangement in January 2026. Other notable measures in the package include:
- a new UPE safe harbour to replace the transitional UTPR safe harbour which expired in 2025. As discussed above, a Qualified SbS Regime for the SbS Safe Harbour would need to meet eligibility standards in respect of both its domestic and worldwide tax systems. In contrast, the UPE safe harbour would apply in respect of a “Qualified UPE Regime” ie a jurisdiction that has an eligible domestic, but not worldwide, tax system. In such instances, an MNE group may elect to deem the top-up tax for the UPE jurisdiction for UTPR purposes only to be zero. As of January 2026, no jurisdiction has been recognised as a Qualified UPE Regime on the OECD Central Record for purposes of the Global Minimum Tax.
- measures to simplify calculations and reporting, including a simplified effective tax rate (ETR) safe harbour, an extension of the transitional country-by-country reporting (CbCR) safe harbour for one additional year, and a work program for additional simplifications, and
- a new targeted substance-based tax incentive (SBTI) safe harbour to allow MNE groups to treat certain qualified tax incentives (QTIs) as an addition to the “Covered Taxes” of constituent entities.
In addition, the Inclusive Framework agreed to an evidence-based stocktake process to ensure a level playing field is maintained for all its members. They also reinforced the objective that QDMTT regimes remain a primary mechanism to ensure the protection of local tax bases, especially in developing countries. Meanwhile, the Inclusive Framework will continue its work to reduce administrative burdens for jurisdictions and simplify compliance for MNE groups subject to the global minimum tax.
Managing evolving Global Minimum Tax requirements
Given the evolving landscape it’s important for corporate tax teams and firms who manage this work for their clients to have solutions in place that will help ensure compliance.
CCH Integrator is a comprehensive corporate tax management software system, which includes a dedicated solution to manage BEPS Pillar Two requirements – adapting quickly as changes and updates are released.
The solution provides templated calculations for GloBE income, jurisdictional ETR, and TopUp Tax, with required adjustments and transparent audit trails. CCH Integrator is already capable of computing Transitional Safe Harbour calculations, and is designed for flexibility and enhancements as the OECD replaces transitional safe harbours with permanent versions.
The solution also supports GIR XML population and domestic submissions in key jurisdictions – ensuring compliance across jurisdictions.
To learn more visit: https://www.wolterskluwer.com/en/solutions/cch-integrator/
