International tax rules are changing. The new OECD “Side-by-Side” package simplifies Pillar Two and protects companies from double taxation. Learn how you can benefit from the new safe harbors and what requirements are now important.
The “Side-by-Side” package of the OECD/G20 Inclusive Framework is intended to supplement the international Pillar Two rules. The package aims to make the parallel application of different minimum tax systems (“side-by-side”) more practical through additional safe harbors, simplified structures, and more precise clarifications. The fundamental principles of Pillar Two are not intended to be altered.
Side-by-Side System
The new Side-by-Side System includes two new safe harbor provisions, both of which are scheduled to take effect on January 1, 2026:
Side-by-Side Safe Harbor (SbS Safe Harbor): This is intended for corporate groups whose ultimate parent company is resident in a country with a recognized minimum tax system (Qualified Side-by-Side Regime). It is designed to prevent double or multiple taxation that may arise from the simultaneous application of different minimum tax regimes. Under certain conditions, corporate groups may waive the application of the primary and secondary supplementary taxes. The national supplementary tax (QDMTT) remains unaffected. Countries with a “Qualified Side-by-Side Regime” are listed in a Central Record maintained by the Organization for Economic Co-operation and Development (OECD); currently, this includes only the United States.
UPE Safe Harbor: The UPE Safe Harbor builds on the Transitional UTPR Safe Harbor, which expired at the end of 2025. It provides an exemption from the Ultimate Parent Entity (UPE) tax for the country of residence of the Ultimate Parent Entity (UPE), provided that that country has a qualified UPE tax regime. The UPE Safe Harbor is intended for corporate groups whose ultimate parent entity is resident in a country that meets certain minimum standards but does not yet offer a full side-by-side regime. Countries can have their tax systems reviewed by the Inclusive Framework. To date, however, no country with a qualified UPE tax regime has been included in the Central Record.
Simplified ETR Safe Harbour
The Simplified ETR Safe Harbor allows for a simplified calculation of the effective tax rate based on the accounting data used in the consolidated financial statements. This approach is intended to require fewer adjustments than the full calculation and to be applicable on a permanent basis. The calculation is based on “Simplified Income” and “Simplified Taxes,” which require certain adjustments. The Safe Harbor is deemed to be met if the calculated effective tax rate of a tax jurisdiction is at least 15%. Despite the goal of simplification, the scope of the regulations demonstrates their continued considerable complexity. Application is generally intended for fiscal years beginning on or after December 31, 2026, but may, under certain conditions, already be utilized for fiscal years beginning on or after December 31, 2025, provided that no supplementary tax was incurred in the preceding two years.
Extension of the CbCR Safe Harbor
To ensure a smooth transition from the CbCR Safe Harbour to the Simplified ETR Safe Harbour, the application period of the temporary CbCR Safe Harbour will be extended by one year and will thus cover fiscal years beginning on or before December 31, 2027, but ending no later than June 30, 2029. Since the permanent Simplified ETR Safe Harbor must first be implemented by the member states, corporate groups may choose during this transition phase—for example, for fiscal years coinciding with the calendar year in 2027 and, where applicable, also in 2026—whether to apply the CbCR Safe Harbor or the Simplified ETR Safe Harbor for each tax jurisdiction. This ensures a seamless transition between the transitional and permanent safe harbor regimes.
Substance based Tax Incentive Safe Harbour
The Substance-Based Tax Incentive (SBTI) Safe Harbor is intended to ensure that national tax incentives linked to actual economic substance—so-called Qualified Tax Incentives (QTI)—do not increase the supplementary tax. QTIs include generally applicable allowances based on expenses incurred, such as research and development costs, or on the number of tangible assets produced. For tax allowances treated as income, an option is also created to classify them under the SBTI Safe Harbor, provided they meet the QTI requirements. Thus, the SBTI Safe Harbor provides planning certainty for substance-based incentives. This option may be exercised for the first time for fiscal years beginning on or after January 1st, 2026.
Fazit
The Side-by-Side Package is intended to simplify the application of Pillar Two and reduce compliance costs, even though it remains unclear how individual countries will implement the new requirements. Despite these simplifications, Pillar Two remains complex, which is why corporate groups should assess early on whether and to what extent Pillar Two regulations apply to them. Furthermore, it remains to be seen how Austrian lawmakers will respond to this publication.
