On 5 January 2026 the OECD released its "Side-by-Side" administrative guidance package, implementing the G7's June 2025 political agreement to carve US-parented multinational groups out of the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) applied by other jurisdictions. For any tax team managing a US-headquartered group's Pillar Two position — or a non-US group with significant US operations — this is the most consequential change to the framework since the original Model Rules.
What the Side-by-Side Safe Harbour actually does
The Side-by-Side (SbS) Safe Harbour allows an MNE group to elect a deemed Top-up Tax of zero under both the IIR and the UTPR, across all of its operations, where its Ultimate Parent Entity (UPE) sits in a jurisdiction with a "Qualified SbS Regime." As of the guidance date, the United States is the only jurisdiction that qualifies — other countries with comparable domestic minimum-tax systems can ask the Inclusive Framework to assess their own regime, but none had done so successfully at time of writing.
In practice: a US-parented group's foreign subsidiaries stop being exposed to IIR top-up tax collected by the parent jurisdiction, and other countries' UTPR mechanisms stop reaching into the group's US and foreign profits on the SbS group's behalf.
What qualifies as a "Qualified SbS Regime"
The bar is specific, not just "has a corporate tax system." A jurisdiction must demonstrate:
- An eligible domestic tax system with a nominal corporate income tax rate of at least 20%, backed by a corporate alternative minimum tax of at least 15%;
- An eligible worldwide tax system that taxes foreign income broadly — CFC-style rules and branch income — with anti-base-erosion controls; and
- No material risk that overall domestic or foreign profits fall below a 15% effective rate.
This is why the safe harbour currently applies to exactly one jurisdiction. It is not a general "large economy" exemption.
Effective date — and no retroactive relief
The SbS Safe Harbour applies to fiscal years beginning on or after 1 January 2026. There is no relief for FY2024 or FY2025 — groups still owe full GloBE compliance, including GIR preparation, for those years under the ordinary rules. If your FY2024 or FY2025 GIR work is still open, this guidance changes nothing about it.
What doesn't change
This is the detail that catches people out. Qualified Domestic Minimum Top-up Taxes (QDMTTs) continue to apply separately in every jurisdiction that has implemented one, regardless of the UPE's SbS status. A US-parented group with a low-taxed subsidiary in a QDMTT jurisdiction still owes that jurisdiction's domestic top-up tax locally — the SbS Safe Harbour only removes exposure under the IIR and UTPR collected elsewhere, not the host country's own QDMTT.
That means the compliance burden doesn't disappear so much as narrow: entity-level QDMTT testing and local filing obligations remain live in every jurisdiction where the group operates and a QDMTT is in force, even as group-wide IIR/UTPR modelling becomes largely irrelevant for the US-parented group itself.
A related but separate development: the Substance-Based Tax Incentive Safe Harbour
The same January 2026 package introduced a second mechanism worth knowing about, particularly if the SbS Safe Harbour doesn't apply to your structure. It lets MNE groups treat certain qualified expenditure- or production-based tax incentives — R&D credits being the clearest example — as additions to adjusted covered taxes, up to a jurisdictional "Substance Cap" calibrated to payroll and tangible-asset substance. This is most relevant for non-US-parented groups, including US subsidiaries of non-US groups that claim the US R&D credit, since it can absorb top-up tax exposure that the SbS Safe Harbour doesn't reach.
What to check before you rely on this
- Confirm the UPE jurisdiction. The safe harbour is assessed at the group's UPE — a US intermediate holding company under a non-US ultimate parent does not qualify the group.
- Map every QDMTT jurisdiction in your footprint. These obligations are unaffected and still need entity-level testing and local returns.
- Don't touch prior-year positions. FY2024 and FY2025 GloBE computations and GIR filings proceed exactly as before.
- Watch for new Qualified SbS Regimes. If a second jurisdiction is confirmed by the Inclusive Framework, the group's exposure calculus changes again — this is a live area, not a settled one.
- Keep the full computation on file. Electing the safe harbour changes what you owe, not what you need to be able to show if a tax authority asks how you got there.
Pillar2OS tracks your entity footprint against every applicable safe harbour — SbS, transitional CbCR, and QDMTT — and flags exactly which jurisdictions still carry a live filing obligation once an election is applied. Try it free.