Have we seen the end of widespread confusion over Pillar Two’s Global Anti-Base Erosion (GloBE) rules and their application to U.S.-based multinationals? That’s the big question after the OECD released new administrative guidance on January 5, 2026, relating to the Pillar Two “Side-by-Side” framework (SbS).
The long-awaited SbS system is being viewed as a safe harbor for U.S. multinationals. But will it live up to the hype? Let’s break down what we know so far.
The Basics: Background
The SbS concept emerged from G7 and Inclusive Framework discussions to address concerns about overlapping minimum taxes under Pillar Two. Those concerns stem from the fact that certain jurisdictions, including the U.S., have not adopted Pillar Two and instead operate their own minimum tax regimes independently. The SbS framework was designed to save multinationals from facing duplicative taxes.
In short, the new guidance seeks to allow certain companies based in these jurisdictions — which are already paying minimum taxes under an “eligible domestic tax system” — to eliminate a portion (or the entirety) of their obligation under Pillar Two’s Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR). Note that the SbS guidance does not impact obligations under Qualified Domestic Minimum Top-Up Tax (QDMTT) regimes, as these remain a linchpin to keeping the Pillar Two rules afloat across the broader Inclusive Framework.
As written, the SbS piece of the administrative guidance release would apply to fiscal years starting on or after January 1, 2026.
So, What’s the Catch?
First, it’s critical to understand that the administrative guidance is a blueprint, not a directive. Until domestic laws align with the OECD’s recommendations, the SbS framework will have little impact. In practice, a safe harbor would require Inclusive Framework member countries to enact domestic laws aligned with the SbS carve-out.
Regarding year-end tax calculations for 2025 (and likely Q1 2026), multinationals — including U.S.-parented groups — should operate as if nothing has changed with respect to IIR and UTPR, recognizing their full liabilities under Pillar Two. As mentioned above, QDMTT liabilities and their creditability by U.S.-based multinationals will remain unchanged.
What We Don’t Know Yet
Many questions remain from a tax accounting and reporting perspective regarding the OECD’s new guidance. There could be some welcome relief on the horizon, but it will depend on the following unknowns:
- Which jurisdictions (in addition to the U.S.) will ultimately qualify under the framework for having a duplicative minimum tax in relation to IIR and UTPR?
- Whether, when, and how will the guidance be enacted into domestic law or the EU Directive?
- Will enacted QDMTTs change or potentially become optional in reaction to the SbS framework?
- What will be the timing of any such changes relative to future reporting periods?
- Going forward, will the full GloBE Information Return (GIR) remain a requirement for multinational groups that have a qualified SbS system?
What We Recommend to Clients
In a nutshell, hang tight. For provision purposes, companies and their tax teams should continue to determine their Pillar Two liabilities based on enacted legislation in each relevant jurisdiction, rather than the new SbS guidance. However, in some cases, it would be appropriate to incorporate the SbS framework into forward-looking modeling. Any anticipated impact from the new guidance should be addressed through financial statement disclosures, not through measurement adjustments.
It is important to note that these changes do not apply to FY 2024 and 2025. As such, continue to file any required Pillar Two registrations and returns related to these years. Remember, some of these deadlines for the 2024 transitional year are not until 18 months following the end of the fiscal year (i.e., June 30, 2026).
Conclusion
The OECD guidance sends a meaningful policy signal that could result in reduced tax burdens and Pillar Two complexity over time. If the SbS framework is incorporated into applicable domestic laws, it will provide welcome relief for U.S.-headquartered multinationals, however a significant Pillar Two compliance burden will still remain. Until then, companies should not make adjustments to their Pillar Two tax liability calculations or to their plans for managing the associated compliance obligations.
It will be important to stay up to date on the latest news in the months ahead. Our team will continue to monitor legislative developments worldwide. Furthermore, our global tax experts are available to discuss the potential implications of the OECD guidance.
