Simplification of existing rules

• The Side-by-Side Package provides a permanent safe harbour in the form of a Simplified ETR Safe Harbour. This will generally allow the calculation of the jurisdictional effective tax rate from reporting packages with fewer adjustments, so that groups do not have to perform full and complex GloBE calculations in a number of jurisdictions.
• The package also envisages the extension of the Transitional CbCR Safe Harbour by one year.
• At the same time, the OECD states that further simplifications are being prepared as part of the follow-up work programme, including e.g. the development of the concept of routine profits test, etc., which are proposed to be completed in the first half of 2026.

Taking tax incentives into account

The OECD acknowledges that tax incentives are a common tool of economic policy and do not have to constitute a harmful tax practice in themselves. That is why it is introducing a safe harbour (“Substance-based Tax Incentive Safe Harbour”), the aim of which is to enable the maintenance of the effect of selected incentives strongly linked to the real economic activity of the group in a given jurisdiction. This approach defines the so-called Qualified Tax Incentives, the part of which can – up to a limit derived from various criteria, such as payroll costs, depreciation of selected tangible assets or, alternatively, their book value in the jurisdiction (“Substance Cap”) – increase the Adjusted Covered Taxes and thus reduce (or eliminate) the Top-up Tax. This mechanism may also potentially be relevant for the assessment of certain tax incentives in the Czech Republic.

“Side-by-Side” System (SbS and UPE Safe Harbour)

The newly introduced concept of the Side-by-Side System aims to coordinate a situation where some jurisdictions do not apply the rules of Pillar II (GloBE), but at the same time apply their own minimum tax regimes with a comparable effect to the global minimum tax. The OECD therefore proposes two further safe harbours:

• SbS Safe Harbour – an optional safe harbour for groups whose Ultimate Parent Entity (UPE) is located in a jurisdiction that meets the conditions of the so-called qualified “Side-by-Side” regime (according to the proposal of a combination of the so-called eligible domestic tax system and worldwide tax system). Such a jurisdiction is to be listed on the Central Record of the OECD / Inclusive Framework. When choosing SbS Safe Harbour, no Top-up Tax will be paid under GloBE’s IIR or UTPR rules (i.e. Income Inclusion Rule and Undertaxed Profit Rules). At the same time, the functioning and calculation of Qualified Domestic Minimum Top-up Taxes (‘QDMTTs’) remain unaffected.
• UPE Safe Harbour – a narrower option for groups with a UPE in a jurisdiction that meets only the “domestic” part of the criteria (i.e. has an eligible domestic tax system). In particular, this safe harbour aims to limit the impact of the Pillar II secondary rule on Undertaxed Profits Rule (“UTPR”). If the Group chooses this safe harbour, no Top-up Tax will be paid under the UTPR rule (i.e. the Undertaxed Profit Rule) on profits realised in the UPE Jurisdiction. Here, too, qualifying jurisdictions are expected to be listed on the OECD/Inclusive Framework Central Record. SbS Safe Harbour has no impact on the operation of QDMTT calculation. The UPE Safe Harbour should effectively replace the transitional UTPR Safe Harbour, which ends at the end of 2025.

Thus, it can be said that “Side-by-Side” is by its nature a coordination setting to avoid overlapping Pillar II rules in situations where some jurisdictions apply an eligible domectictax regime with a comparable effect, which is crucial especially for US groups.

Conclusion

Although the “Side-by-Side Package” is conceived as an amendment to the existing rules, it will be crucial for practice how quickly, to what extent and with what effectiveness it will be reflected in local implementations and in the interpretative practice of tax administrators.

New safe harbours have the potential to reduce administrative burdens (in particular when calculating the jurisdictional effective tax rate), but will also bring new choices, conditions and the need for robust documentation, including an assessment of their eligibility. The real impact on everyday practice will therefore only become apparent gradually.

Even when using Safe Harbour SbS/UPE, the Qualified Domestic Minimum Top-up Taxes (QDMTT) remains relevant in individual jurisdictions, which – for example in the Czech Republic – can be comparable in terms of the complexity of the calculation as the calculation of the attributable Top-up Tax according to GloBE.

For more information, we recommend other articles and webcasts that we offer at Deloitte on this topic:

• Article on our platform Tax@hand (authors: Alison Lobb, Ryan Bowen and Roberta Poza)
• S. Tax News & Views webcast on January 14, 2026. Register here.
• EMEA Dbriefs webcast, taking place on January 15, 2026. Register here.