On 11 September 2026 the Inclusive Framework published another round of Pillar Two material: new Administrative Guidance, a revised GloBE Information Return and a framework for peer-reviewing domestic legislation. Most of the commentary has gone to the new GIR. The part we would read first is shorter and easier to miss: the definition of an Explicitly Conditional Tax.
What the guidance is aimed at
Some local tax rules switch on, or switch off, depending on what happens elsewhere. A surcharge applies only if the entity is within the scope of a qualified IIR or UTPR in another jurisdiction. An exemption falls away if a foreign parent would otherwise collect top-up tax. Since January, a third trigger has become possible: whether the Side-by-Side Safe Harbour applies to the group.
The September guidance treats all of these the same way. A tax whose application depends on one of those conditions is an Explicitly Conditional Tax, and it does not matter whether the rule is written as a charge that applies if the condition is met or as an exemption that is withdrawn unless it is. The substance decides, not the drafting.
How it is treated
Two things follow, and they pull in slightly different directions:
- It is excluded from Adjusted Covered Taxes. It does not count in the numerator of the jurisdictional ETR.
- It is not added back to GloBE Income. The tax falls outside the Article 3.2.1(a) Net Taxes Expense adjustment, so the expense stays in the accounting profit you start from.
In other words, the tax still reduces income, but it no longer helps you reach 15%.
A simple illustration, with deliberately round numbers. A jurisdiction has GloBE Income of 10m and covered taxes of 1.5m, of which 0.4m is a surcharge that only applies because of a foreign IIR. Before the guidance the ETR is 15% and there is no top-up. After it, covered taxes fall to 1.1m and the ETR to 11%. Ignoring the substance-based income exclusion to keep the arithmetic visible, that is a 4% top-up on 10m, or 0.4m. The group pays the conditional surcharge and then top-up tax on top.
Severable surcharges and integrated taxes
The guidance distinguishes between a condition attached to a separate component and a condition built into the tax itself. If a conditional surcharge sits on top of an ordinary corporate income tax and can be separated from it, only the surcharge is excluded. If the condition is part of the tax as a whole, the whole tax is an Explicitly Conditional Tax. That distinction is worth getting right early, because the difference between excluding a surcharge and excluding an entire local income tax is not a rounding error.
The QDMTT angle
A domestic minimum top-up tax that is itself explicitly conditional cannot be a Qualified Domestic Minimum Top-up Tax. That matters well beyond the ETR calculation, because QDMTT status drives whether the QDMTT Safe Harbour is available and how other jurisdictions credit the tax. The guidance includes narrow transitional relief for conditional rules enacted before 30 November 2024 that ceased to be conditional from the start of 2025. Check the exact wording against your own jurisdictions rather than relying on a summary, including this one.
Who should look at this
Most mainstream corporate income taxes are not conditional on anything happening abroad, and for most groups this guidance changes nothing. The groups that should spend an afternoon on it are those with:
- entities in jurisdictions that introduced top-up style surcharges or "IIR-aware" incentive clawbacks in 2023 or 2024;
- tax holidays or incentives that are withdrawn if a parent jurisdiction applies the GloBE rules;
- local rules that refer to the Side-by-Side Safe Harbour or to US-parented groups specifically.
What to do now
- List the local taxes and incentives in each jurisdiction and flag any whose application refers to a foreign IIR, UTPR, or the Side-by-Side regime.
- Decide severable or integrated for each flagged item, and write down why. That reasoning is what a reviewer will ask for.
- Re-run the jurisdictional ETR with the flagged amounts removed from covered taxes but left in the profit figure.
- Check any DMTT you rely on for a conditional element before assuming QDMTT treatment or the QDMTT Safe Harbour.
In Pillar2OS each covered tax line carries its source and the rule applied to it, so moving a conditional surcharge out of Adjusted Covered Taxes is one reclassification, with the old and new ETR traceable side by side. Try it in the sandbox.