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Side-by-side and UPE safe harbours

Applies
FY2026 onwards
Reviewed
Rule
P2-SBS-2026.1
By

What are the Pillar Two side-by-side and UPE safe harbours?

From 2026, by election, IIR and UTPR top-up tax is nil where the UPE's jurisdiction has a qualified side-by-side regime. Neither affects a QDMTT.

Per Consolidated Commentary to the GloBE Model Rules (May 2026), Annex A, Chapter 5, Side-by-Side System

At the election of the Filing Constituent Entity, for Fiscal Years commencing on or after 1 January 2026 (or a later year listed in the Central Record): under the Side-by-Side Safe Harbour the Top-up Tax is deemed to be zero for the IIR and the UTPR where the UPE is located in a jurisdiction with a Qualified SbS Regime; under the UPE Safe Harbour the Top-up Tax of the UPE Jurisdiction is deemed to be zero for the UTPR where the UPE is located in a jurisdiction with a Qualified UPE Regime. Neither affects a QDMTT.

The SbS Safe Harbour reaches all the group's Constituent Entities wherever located, including Stateless and Minority-owned ones, and its interests in Joint Ventures. The UPE Safe Harbour replaces the Transitional UTPR Safe Harbour from 2026.

What the result turns on

The listing is decided elsewhere

Whether a jurisdiction has a Qualified SbS Regime or a Qualified UPE Regime is the Inclusive Framework's determination, recorded on the Central Record. This rule asks for it and does not assess the criteria.

Qualified SbS Regime — the criteria the Inclusive Framework applies

  • An eligible domestic tax system: a statutory nominal corporate income tax rate of at least 20% after preferential adjustments and sub-national taxes; a QDMTT or a financial-statement corporate alternative minimum tax at a nominal rate of at least 15% covering a substantial portion of in-scope income; and no material risk of an effective rate below 15% on domestic operations
  • An eligible worldwide tax system: a comprehensive regime on foreign income including controlled foreign companies; substantial mechanisms against BEPS risks; and no material risk of an effective rate below 15% on foreign operations
  • A foreign tax credit for QDMTTs on the same terms as any other creditable Covered Tax
  • Enacted before 1 January 2026 or a later date set by the Inclusive Framework

Qualified UPE Regime

An eligible domestic tax system, as above, enacted and in effect on 1 January 2026.

What each reaches

  • SbS: IIR and UTPR, in every jurisdiction, for the whole group and its Joint Venture interests
  • UPE: the UTPR in the UPE Jurisdiction only
  • Neither: a QDMTT, which continues to apply and is creditable

Only the UPE's jurisdiction counts

A group with its UPE in an unlisted jurisdiction cannot elect, even for operations in a jurisdiction that has a listed regime, and even if 50% of its UPE is held by a group that can.

Fiscal Years before 2026

The safe harbours do not affect Fiscal Years commencing before 1 January 2026. The Transitional UTPR Safe Harbour is the relief for the UPE Jurisdiction in them.

Order of testing

  1. 1

    No impact on a QDMTT

    Asked first and answered immediately: no safe harbour reaches a QDMTT.

  2. 2

    The date the safe harbours apply from

    A Fiscal Year commencing before 1 January 2026 is outside both.

  3. 3

    The Central Record listing

    The UPE Jurisdiction must be listed, and the entry must cover the Fiscal Year.

  4. 4

    What the UPE Safe Harbour reaches

    Only the UTPR in the UPE Jurisdiction.

  5. 5

    The election

    Both are made by the Filing Constituent Entity.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

SbS Safe Harbour, elected

The UPE is in a jurisdiction the Central Record lists as a Qualified SbS Regime, for a Fiscal Year commencing on 1 January 2026, and the election is made. The question is about the IIR in another jurisdiction.

Computed

The Top-up Tax is deemed to be zero for the IIR for all the group's Constituent Entities, Stateless and Minority-owned ones included, and for its interests in Joint Ventures as computed: the Central Record lists a Qualified SbS Regime for the jurisdiction of the Ultimate Parent Entity, the Fiscal Year commences on or after 2026-01-01, and you have indicated the election has been made. A QDMTT is not affected. Based on what you supplied.

Decided by the election

UPE Safe Harbour, UTPR elsewhere

The Central Record lists a Qualified UPE Regime only. The UTPR allocated to another jurisdiction is not reached.

Computed

The UPE Safe Harbour does not reach this as computed: it deems to zero only the Top-up Tax of the UPE Jurisdiction, and only for the UTPR. The IIR, and the UTPR in any other jurisdiction, are computed under the ordinary rules. A Qualified SbS Regime would reach more, but the Central Record lists a Qualified UPE Regime for this jurisdiction. Based on what you supplied.

Decided by the what the upe safe harbour reaches

A QDMTT

Whatever is listed or elected, a QDMTT is not affected.

Computed

A QDMTT is not affected as computed: the SbS Safe Harbour does not deem any Top-up Tax to be zero for the purposes of a QDMTT calculation, and neither does the UPE Safe Harbour. A QDMTT continues to apply, including to the foreign operations of a group headquartered in a jurisdiction with a Qualified SbS Regime, and a jurisdiction cannot let a group apply the safe harbour for the QDMTT. Based on what you supplied.

Decided by the no impact on a qdmtt

A 2025 year

A Fiscal Year commencing on 1 July 2025 is before the date the safe harbours apply from.

Computed

Neither safe harbour applies to this Fiscal Year as computed: it commences on 2025-07-01, and the SbS Safe Harbour and the UPE Safe Harbour apply to Fiscal Years commencing on or after 2026-01-01. The SbS Safe Harbour does not affect Fiscal Years commencing before that date; the Transitional UTPR Safe Harbour is the relief for the UPE Jurisdiction in them.

Decided by the date the safe harbours apply from

Try it

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Not computed yet

1 input still need your determination:

  • Which charge are you asking about — the Income Inclusion Rule, the UTPR, or a Qualified Domestic Minimum Top-up Tax?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader