This introduces new safe harbours and extends existing safe harbours in a bid to reduce the compliance burden for Multinational Enterprises (MNE) that are in-scope of the Pillar Two rules.
The Package introduces new safe harbours, extends transitional measures, and provides further guidance that will influence how multinational groups prepare for compliance from December 2026 onward.
The Package aims to streamline compliance, reduce duplication where domestic minimum tax regimes already apply and provide clarity regarding the interaction between Pillar Two and the United States minimum tax system. For many multinational groups – particularly those with United States head entities – this represents a meaningful shift in how top-up taxes will be assessed and allocated.
The SbS Package delivers five key outcomes – here are the key takeaways:
The United States has not adopted the OECD’s Pillar Two rules in their standard form. Instead, it operates a set of domestic and worldwide minimum tax rules that the US considers to be broadly consistent with the Pillar Two policy intent. Together with its G7 allies, the US advocated for ‘side‑by‑side’ model, under which Pillar Two would operate in parallel with the US minimum tax regime, rather than displacing it.
Agreement on the SbS Package was reached in return for the US withdrawing its proposed retaliatory ‘revenge tax’, which would have imposed punitive measures on jurisdictions applying Pillar Two top‑up taxes to US‑headed groups. The result is a framework designed to reduce the risk of double taxation and excessive compliance costs, while maintaining the integrity of the global minimum tax system.
The SbS safe harbour allows Constituent Entities (CEs) whose UPE is located in a jurisdiction with a sufficiently robust domestic and worldwide tax system (a Qualified SbS Regime), as listed on the OECD Central Record) to be exempt from the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR). Importantly, the QDMTR continues to apply in all jurisdictions that have implemented it.
Broadly, a jurisdiction will qualify as having a Qualified SbS Regime where it demonstrates:
Application of the SbS safe harbour is elective and must be made in the group’s GIR. It does not apply automatically.
The SbS safe harbour applies for income years commencing on or after 1 January 2026.
Grant Thornton comment: At present, only the United States is listed on the OECD Central Record as having a Qualified SbS Regime. As a result, for US‑headed groups, neither the IIR nor the UTPR will apply from income years commencing on or after 1 January 2026.
The UPE safe harbour applies where the UPE is located in a jurisdiction with a sufficiently robust domestic tax system (a Qualified UPE Regime), but that jurisdiction does not meet the additional worldwide tax system criteria required for the SbS safe harbour.
Under this safe harbour:
The UPE safe harbour applies for income years commencing on or after 1 January 2026.
Grant Thornton comment: As at the date of release, no jurisdiction has yet been recognised as having a Qualified UPE Regime.
The SBTI safe harbour is designed to neutralise top‑up tax outcomes that would otherwise arise from certain Qualified Tax Incentives (QTIs), such as tax credits, super‑deductions, qualifying exemptions and preferential rates, subject to strict substance‑based caps.
Where an MNE group elects to apply the SBTI safe harbour:
The uplift to the ETR numerator is capped at the greater of:
The SBTI safe harbour applies for income years commencing on or after 1 January 2026.
Grant Thornton comment: While conceptually welcome, the SBTI safe harbour operates within a tightly defined and highly conditional framework. In practice, it is neither particularly generous nor simple to apply, and careful modelling will be required.
The Simplified ETR safe harbour introduces a permanent, alternative method for determining whether a tested jurisdiction has top‑up tax exposure, provided that no top‑up tax arose in that jurisdiction in the preceding two years.
Key features include:
Despite its name, the simplified ETR calculation still requires multiple adjustments, including basic, industry‑specific, conditional and optional adjustments and differs to the simplified ETR under the Transitional CbCR safe harbour.
The Simplified ETR safe harbour generally applies for income years commencing on or after 1 January 2027, although limited early application from 1 January 2026 is possible.
Grant Thornton comment: The Simplified ETR safe harbour remains highly technical and data‑intensive. While it may reduce complexity relative to the full GloBE calculation, it still demands substantial systems readiness and data quality.
The SbS Package extends the Transitional CbCR safe harbour by an additional year, from three years to four years.
Grant Thornton comment: This extension is a welcome development, giving MNEs additional time to enhance systems and processes required for full Pillar Two compliance.
The SbS Package introduces an evidence based stocktake that will periodically assess whether the safe harbours continue to operate consistently across jurisdictions. The stocktake will review whether jurisdictions listed as Qualified Regimes still meet the relevant criteria and whether the outcomes remain aligned with the intent of the global minimum tax.
Grant Thornton comment:
The stocktake reinforces that the safe harbours are not permanent. Jurisdictions may be added or removed over time, and multinational groups will need to monitor the OECD Central Record to ensure they are applying the correct treatment for each reporting year.
Amendments to the Australian domestic Pillar Two rules to reflect the SbS Package are expected in due course. However, Australian legislation already requires the Pillar Two rules to be interpreted consistently with OECD Administrative Guidance.
The SbS Package does not apply retrospectively. Full Pillar Two compliance remains required for income years 2024 and 2025.
Importantly:
While Australia and other jurisdictions may seek recognition as Qualified SbS or Qualified UPE regimes in the future, the registration and review process may be lengthy. Taxpayers should not rely on this outcome until formally confirmed in the OECD Central Record.
MNE groups should now:
Please reach out to our team of experts today to discuss any of the above.
The Australian Pillar Two Rules align with the OECD’s initiative to ensure MNEs pay a minimum Effective Tax Rate (ETR) of 15 per cent globally.
On Jan. 5, 2026, the OECD Inclusive Framework released significant administrative guidance, dubbed the side-by-side package, intended to resolve long-running uncertainty over how the Pillar 2 Global Anti-Base Erosion (GloBE) rules will apply to U.S. multinational enterprise (MNE) groups.
Pillar 2 tax law became effective Jan. 1 in the European Union and many other countries, and the new rules are generally applicable to multinationals with a turnover of more than 750 million euros.
