OECD Pillar Two update: Side-by-Side Package and new GloBE safe harbours
News in Pillar Two Following the Side-by-Side Package
On 5 January 2026, the OECD Inclusive Framework took a significant step forward in the evolution of Pillar Two with the release of the Side-by-Side Package, a set of technical measures aimed at simplifying and clarifying the application of the GloBE Rules.
The Package was released as OECD Agreed Administrative Guidance and is intended to be incorporated into the Commentary to the GloBE Model Rules. It introduces new permanent safe harbours and temporarily extends certain transitional safe harbours. Its overarching objective is to reduce compliance burdens and enhance legal certainty for multinational enterprise groups (MNEs).
Among the key measures are:
- A new Simplified Effective Tax Rate (ETR) Safe Harbour
- A new Substance-Based Tax Incentives Safe Harbour
- A one-year extension of the Transitional CbCR Safe Harbour
- Two additional safe harbours specifically designed for the Side-by-Side system
What is a Pillar Two safe harbour?
By way of clarification and reminder, a safe harbour is a mechanism that allows a multinational group to avoid calculating the complex GloBE Rules in full in certain jurisdictions if predefined requirements are met.
Until the arrival of the Side-by-Side Package, the safe harbours were as follows:
Transitional Safe Harbours based on Country-by-Country Reporting (CbCR) data:
- De minimis test
- ETR test
- Routine profits test
Meeting any of these tests allowed the group to bypass the full GloBE computation.
Permanent Safe Harbour:
The Qualified Domestic Minimum Top-Up Tax (QDMTT) Safe Harbour, under which a jurisdiction applying a qualified QDMTT in line with OECD standards is treated as having satisfied the global minimum tax requirement under the GloBE framework.
The Transitional CbCR Safe Harbour is extended by one year to fiscal years commencing on or before 31 December 2027 and will coexist with the new permanent safe harbours introduced through the Side-by-Side Package.
New safe harbours
Linked to the Side-by-Side system
Side-by-Side Safe Harbour
This safe harbour is designed to prevent the application of both the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR).
It applies where the Ultimate Parent Entity (UPE) of the MNE group is located in a jurisdiction that:
• Applies a robust domestic minimum tax regime
• Applies minimum taxation on foreign income
• Allows crediting the Qualified Domestic Minimum Top-Up Tax (QDMTT)
OECD review is required to confirm that these conditions are met.
At present, the United States is generally expected to be the main jurisdiction potentially meeting these criteria, subject to OECD assessment and domestic legislative developments.
This safe harbour will apply for fiscal years beginning on or after 1 January 2026.
Ultimate Parent Entity (UPE) Safe Harbour
This mechanism protects profits earned in the UPE jurisdiction from being subject to UTPR allocations by other jurisdictions.
It applies where the UPE is located in a jurisdiction with a valid domestic corporate tax system meeting the relevant criteria.
It also applies for fiscal years beginning on or after 1 January 2026.
Simplified ETR Safe Harbour
A new Simplified ETR Safe Harbour has been introduced with the objective of reducing the compliance complexity of Pillar Two.
Until now, even where a jurisdiction exceeded the 15% global minimum tax rate, groups were required to perform a full GloBE calculation.
Using consolidated financial statement data, a jurisdictional ETR can now be calculated with limited adjustments.
If the ETR reaches or exceeds 15%, the Top-Up Tax in that jurisdiction will be zero and a detailed GloBE computation will not be required.
The safe harbour will generally apply for fiscal years beginning on or after 31 December 2026.
Importantly, it does not change the global minimum tax rate of 15%, but simplifies the way compliance is verified.
Substance-Based Tax Incentives Safe Harbour
Under Pillar Two, Qualified Refundable Tax Credits receive favourable treatment because they increase accounting income rather than reducing covered taxes.
The new safe harbour extends similar treatment to Qualified Tax Incentives linked to real economic substance.
Examples include:
• Expense-based incentives
• Production-based incentives
In Spain, potential examples include the R&D tax credit and the patent box regime.
The mechanism recalculates the Effective Tax Rate (ETR) to neutralise the effect of the incentive, subject to limits based on payroll costs or tangible assets.
This safe harbour will apply for fiscal years beginning on or after 1 January 2026.
Implementation of the Side-by-Side Package
The Side-by-Side Package does not automatically amend the EU Directive or domestic legislation. It is an OECD technical development that requires implementation at jurisdictional level.
Each country must decide whether and how to incorporate these mechanisms into its Pillar Two legislation.
As of today, Spain has not published draft legislation regarding the incorporation of the Side-by-Side Package into its Domestic Top-Up Tax rules.
In this evolving landscape, multinational enterprise groups should closely monitor implementation across relevant jurisdictions to assess whether the Side-by-Side Package will apply.
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