Recent developments under OECD BEPS Pillar 2 introduce an important shift for multinational groups headquartered in the United States. Members of the OECD Inclusive Framework on BEPS Inclusive Framework have agreed on a mechanism that could exempt certain US-headed MNEs from top-up taxes under the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) starting in 2026.
That said, this does not mean a full exemption from Pillar 2. Subsidiaries operating outside the US will still be subject to local minimum tax rules, particularly where Qualified Domestic Minimum Top-Up Taxes (QDMTTs) apply.
Pillar 2 is designed to ensure that large multinational groups pay a minimum effective tax rate of 15% in each jurisdiction where they operate. To achieve this, the framework relies on a combination of rules:
- The IIR, applied at the parent level
- The UTPR, acting as a backstop
- Local QDMTTs, allowing countries to tax low-taxed income domestically
As countries move from design to implementation, the focus has shifted toward making these rules workable in practice.
Side-by-Side Safe Harbour: What Has Changed?
In January 2026, the Inclusive Framework introduced the Side-by-Side (SbS) Safe Harbour as part of a broader package of measures.
This safe harbour recognises that some jurisdictions already operate tax systems that achieve outcomes similar to Pillar 2. Where that is the case, additional top-up taxation may not be necessary.
Key features
- MNE groups with their Ultimate Parent Entity (UPE) in a jurisdiction classified as a Qualified SbS Regime can elect into the regime
- For eligible jurisdictions, top-up tax is treated as zero for IIR and UTPR purposes
- The assessment is based on whether the jurisdiction’s tax system imposes sufficient minimum taxation on both domestic and foreign income
As of early 2026, the United States is the only jurisdiction listed by the OECD as meeting these criteria.
Important limitation: QDMTT still applies
While this development is significant, it is not a blanket exemption.
- Foreign subsidiaries of US-headed groups remain within scope of QDMTT regimes in the countries where they operate
- This ensures that taxing rights remain with source jurisdictions and helps protect local tax bases
In practice, this means that the compliance burden does not disappear—it simply shifts.
Ongoing reporting obligations
Groups making use of the SbS Safe Harbour will still need to file a GloBE Information Return (GIR).
The expectation is that:
- The scope of reporting will be narrower, focusing mainly on QDMTT requirements
- Future updates to the GIR will include a specific election mechanism for the safe harbour
Other elements of the OECD Side-by-Side package
The SbS Safe Harbour is only one part of a broader set of measures aimed at easing implementation.
New UPE safe harbour
A separate safe harbour has been introduced to replace the transitional UTPR safe harbour that expired in 2025.
- Applies to jurisdictions with a Qualified UPE Regime (i.e. strong domestic rules, but not necessarily worldwide taxation)
- Allows top-up tax to be deemed zero for UTPR purposes only
- At this stage, no jurisdiction has been recognised under this category
Simplification measures
The OECD is also taking steps to reduce administrative complexity. These include:
- A simplified effective tax rate (ETR) safe harbour
- Extension of the transitional country-by-country reporting (CbCR) safe harbour for an additional year
- Continued work on further simplification measures
These changes are intended to make compliance more manageable, particularly during the early years of implementation.
Substance-Based Tax Incentive (SBTI) Safe Harbour
Another addition is a targeted safe harbour for certain tax incentives.
- Allows qualified tax incentives (QTIs) to be treated as part of covered taxes
- Helps ensure that legitimate incentives are not inadvertently penalised under Pillar 2 rules
Focus on consistency and fairness
The Inclusive Framework has also agreed to:
- Introduce an evidence-based review process
- Reinforce the role of QDMTTs as a primary mechanism for protecting domestic tax revenues
This is particularly relevant for developing countries, which rely more heavily on source-based taxation.
The continued importance of QDMTTs and reporting requirements shows that Pillar 2 compliance is far from simplified in practice. For multinational groups, the challenge now is less about understanding the rules in theory, and more about applying them consistently across jurisdictions.