(38) (16).webp)
February 13, 2026
On January 5, 2026, more than 135 countries agreed on new measures to advance the implementation of the Global Minimum Tax. As part of this effort, the OECD introduced the Side-by-Side Package, a practical toolkit to help governments and multinational enterprises manage the complexity of the 15 percent minimum tax regime. Rather than requiring full calculations in every jurisdiction, it introduces safe harbours that allow companies to demonstrate compliance through simplified methods. Crucially, where a country has implemented a Qualified Domestic Minimum Top-up Tax that meets OECD standards, that domestic tax takes priority over any top-up tax otherwise imposed at the parent company level reducing duplication and easing administrative burdens.
Besides, the United States occupies a unique and pivotal position within the global minimum tax framework. Its existing GILTI regime the nation's current minimum tax on foreign earnings remains under formal review for potential equivalence with the OECD’s GloBE rules. Consequently, the central unresolved question is not one of simplified safe harbors, but rather whether and how the United States will adapt its domestic tax rules to align with the international system.
For a long time, profit allocation could be engineered independently of where work was actually done. The Global Minimum Tax interrupts that separation. If profits sit in a jurisdiction taxing below 15 per cent, the benefit does not disappear, but it does get neutralised elsewhere through a top-up. Over time, this makes purely tax-driven structures harder to justify and shifts attention back to where value is genuinely created.
The objective from a policy perspective is straightforward: stop erosion. From a business perspective, the impact is cumulative. More data points, more reconciliations, more consistency checks across jurisdictions. What used to be a year-end tax exercise now spills into systems, controls, and internal reporting, with mistakes carrying both financial and reputational consequences.
Once a global floor is in place, the relative advantage of low-tax jurisdictions narrows. That does not eliminate differences between countries, but it changes what matters. Labour quality, infrastructure, regulatory predictability, and proximity to markets start to outweigh headline tax rates in a way they did not before.
Even with simplifications, Pillar Two adds friction. Accounting income does not always translate cleanly into Pillar Two income. Deferred tax adjustments are not intuitive. In some regions, top-up taxes can affect cash planning more than headline profitability. At the same time, boards and investors expect clarity, not technical excuses.
For decades, many global groups relied on tax havens and complex arrangements to lower their effective tax rates. The GMT changes that calculus. If profits are booked in a jurisdiction with less than 15% tax, a “top?up tax” ensures the difference is collected elsewhere.
If a company pays less than 15% in a country, another country (often the parent company’s home country) can now charge a “top up tax” to make up the difference.
The Global Minimum Tax is targeted at scale rather than behaviour. It applies primarily to large multinational groups operating across multiple jurisdictions, regardless of whether they have historically engaged in aggressive tax planning. Even groups with consistently high effective tax rates are affected through expanded reporting, reconciliation, and governance requirements.
The choice of a 15 per cent minimum rate reflects a deliberate compromise aimed at securing broad international adoption. It is high enough to discourage profit shifting driven purely by tax rate differentials, yet low enough to avoid disrupting genuine commercial investment. The objective is not to maximise revenue, but to stabilise the global tax system and reduce reliance on rate arbitrage as a structuring tool.
Instead of performing detailed GloBE calculations, a company can use simplified financial statement data to calculate an Effective Tax Rate (ETR) for each jurisdiction.
Formula:
Simplified Taxes ÷ Simplified Income
If the result is 15% or more, the company:
Automatically qualifies for the safe harbour
Owes zero top up tax in that country
How Does This Help?
Uses data companies already have
Reduces compliance time and cost
Applies permanently, starting from 2027 (and in some cases, as early as 2026)
Importantly, if a company fails the test in one year, it can try again in later years. There’s no “once out, always out” rule.
Simplified Income
Starts with profit before tax from the financial accounts
Excludes dividends and equity gains or losses
Adds back disallowed payments (bribes, kickbacks, fines)
Sector specific rules for industries such as insurance and shipping
Simplified treatment for mergers and acquisitions
Simplified Taxes
Based on income tax expense in the financial statements (current + deferred tax)
Excludes non covered or uncertain taxes
Removes deferred tax liabilities not relevant under Pillar Two
Recasts deferred taxes at the 15% safe harbour rate
Losses can be carried forward, transitional rules apply, and optional elections allow inclusion of certain credits.
Cross Border Simplifications and Transfer Pricing
Five year election aligns income and taxes for permanent establishments, hybrid entities, and controlled foreign companies
Transfer pricing adjustments streamlined
Five year election allows alignment for post year end adjustments
The Transitional CbCR Safe Harbour is intended to ease the initial burden of Pillar Two compliance during the early years of implementation. Rather than requiring groups to immediately undertake full GloBE calculations across all jurisdictions, it allows reliance on existing Country-by-Country Reporting data for a limited period. The thresholds under this safe harbour are deliberately conservative, which means it is available primarily to groups whose tax outcomes are already clearly above the minimum level.
Qualified Refundable Tax Credits (QRTCs) sit at the intersection of policy and practice. Where incentives are tied to real activity and structured within defined limits, they can continue to operate without distorting Pillar Two outcomes. Poorly designed incentives, however, will not survive the transition.
The Side-by-Side Safe Harbour addresses one of the most practical risks created by the Global Minimum Tax, namely the possibility of multiple jurisdictions attempting to tax the same income. It does this by recognising qualifying domestic minimum tax regimes and coordinating their interaction with the OECD rules. Where such a regime exists, the OECD framework steps back to avoid duplication, while still preserving the integrity of the minimum tax outcome. This does not remove domestic minimum taxes, nor does it reduce overall tax exposure. Its value lies in reducing overlap, minimising disputes between jurisdictions, and bringing a greater degree of predictability to cross-border tax outcomes.
The UPE Safe Harbour plays a narrower but critical role in stabilising group-level taxation under Pillar Two. It is designed to preserve taxing priority for the jurisdiction of the ultimate parent entity in defined situations, limiting scenarios in which multiple jurisdictions seek to impose top-up tax on the same income. By curbing cascading claims across the ownership chain, this safeguard improves predictability and supports more effective centralised tax governance. While its scope is limited, its impact on managing risk and uncertainty at the group level is significant.
For multinational groups, the Global Minimum Tax represents a permanent operating constraint rather than a transitional compliance exercise. Tax planning must now align more closely with operational substance and value creation, while cash flow planning takes on greater importance than headline profitability. Data quality, systems integration, and internal controls become central risk areas, as tax outcomes increasingly influence investment sequencing and location decisions.
At the same time, boards and investors expect clear, commercially grounded explanations of tax positions. Groups that integrate Pillar Two into their operating model will manage it effectively, while those that treat it as a filing obligation are likely to face avoidable cost and uncertainty
As a global tax and legal advisory firm specialising in cross border structuring and transactions, Water & Shark helps multinational groups navigate the Global Minimum Tax, assess eligibility for Safe Harbours (Simplified ETR, CbCR, SbS, UPE), design Pillar Two aligned structures, manage cross border transactions and restructurings, and implement compliance solutions all to minimize tax exposure, preserve investment incentives, and ensure efficient compliance with global OECD policies.
Frequently Asked Questions - FAQ's
1. Does every country have to adopt the OECD Side by Side (SbS) system?
No, only jurisdictions that implement a qualifying regime are recognised, and currently the list is very limited.
2. Who is realistically affected by the 15 per cent Global Minimum Tax?
Large multinational groups with operations across multiple jurisdictions are the primary targets.
3. How do safe harbours actually help under Pillar Two?
They allow groups to demonstrate minimum tax compliance using simplified data instead of full GloBE calculations.
4. Will the Global Minimum Tax eliminate the benefit of tax incentives altogether?
No, incentives tied to real economic activity can still be preserved through specific safe harbour rules.
5. How should businesses approach Pillar Two from a planning perspective?
As a permanent operating constraint that requires early modelling, clean data, and strong governance.
