How the OECD’s Side-by-Side Pillar Two Deal Empowers U.S. Multinationals with Safe Harbors in 2026

On January 5, 2026, the OECD’s Pillar Two global minimum tax framework was revised through a new “side-by-side” package negotiated among more than 145 countries in the Inclusive Framework, largely to accommodate concerns raised by the United States. The deal preserves the 15% minimum tax baseline but creates pathways for U.S. multinationals to avoid certain enforcement mechanisms: specifically, the income inclusion rule (IIR) and undertaxed profits rule (UTPR), via safe harbor regimes.

Central to the package are two safe harbor mechanisms. The SbS safe harbor permits multinationals headquartered in jurisdictions meeting specific criteria to avoid IIR and UTPR effects, provided those jurisdictions have both eligible domestic and worldwide tax regimes and sufficient protections preventing effective tax rates below 15% for domestic or foreign operations. The UPE safe harbor shields domestic profits in the UPE’s jurisdiction from UTPR under similar, slightly less stringent eligibility conditions.

The U.S. is the only jurisdiction currently listed in the OECD’s Central Record as having a Qualified SbS Regime, effective from January 1, 2026. That status enabled U.S. multinationals to access these safe harbors. For U.S. groups, this means partial exemption from IIR and UTPR rules going forward, though Pillar Two’s domestic Qualified Domestic Minimum Top-up Tax (QDMTT) provisions still apply. The rules do not have retroactive effect for tax years 2024–2025.

From a strategic standpoint, the deal is a win for U.S. sovereignty and competitiveness arguments, giving U.S. leaders political cover. However, it introduces new complexity for multinationals globally, especially European firms subject to full Pillar Two enforcement without equivalent exemptions. For other jurisdictions, obtaining Qualified SbS or UPE status is now a process involving both technical criteria and formal assessment requests, which will be conducted beginning mid-2026.

The deal raises several open questions: how strictly jurisdictions must meet “eligible regime” criteria; how subsequent enforcement and integrity rules will work to prevent abuse; how the U.S. QDMTT will interact with foreign jurisdictions’ minimum top-up rules; and whether other large economies (e.g., India, China, Brazil, Colombia) will seek and successfully obtain similar safe harbor status. The compliance burden remains significant under Pillar Two’s GloBE rules, even with simplification measures, and the incentives for divergence may increase.