The OECD publishes details of Pillar Two Side-by-Side Safe Harbour

After months of intense discussion following the announcement by the US Administration that it would be withdrawing from its previous commitments under the OECD’s global minimum tax rules under Pillar Two, the OECD has now published details of a compromise agreement which paves the way for US cooperation with the project. The new package contains details of the new Side-by-Side Safe Harbour which will see countries that operate a minimum tax system with similar policy objectives and overlapping scope as Pillar Two being granted ‘Side-by-Side’ status.

The Inflation Reduction Act (IRA) in the US introduced a new corporate alternative minimum tax (CAMT) of 15 percent effective for tax years beginning after 2022. As such, the same minimum tax rate that applies to US and Irish headquartered entities. This is naturally key to ensuring that the compromise agreement does not immediately provide a competitive advantage to companies headquartered in the US over similar entities headquartered in Europe and other jurisdictions implementing Pillar Two. 

From an Irish perspective, the report notes, for companies applying the Side-by-Side Safe Harbour, a qualified domestic minimum top-up taxes (QDMTTs) aligned with the Pillar Two rules will continue to apply in Ireland. Therefore, Irish subsidiaries of US-headquartered companies should continue to pay QDMTTs in Ireland with an even playing field being maintained as a result.

Overall, the package includes five key components:

• A series of simplifications to reduce the compliance burden on both in-scope entities and tax authorities.
• Rules to enhance alignment of tax incentives through a targeted substance-based tax incentive safe harbour.
• A new Side-by-Side (SbS) Safe Harbour for companies within a group whose ultimate parent entity is located in a jurisdiction that has not implemented Pillar Two and where that jurisdiction operates a minimum tax system with similar policy objectives and overlapping scope as Pillar Two.  
• A commitment to taking an evidence-based stocktake to ensure that a level playing field is maintained across the jurisdictions participating in the Pillar Two project.
• A commitment that the qualified domestic minimum top-up tax mechanism will be the primary mechanism for ensuring that local tax bases are protected through this process.

The OECD will host a dedicated webinar to support implementation of the package on 13 January 2026.