OECD Unveils 'Side-by-Side' Pillar Two Overhaul, Names U.S. as Only SbS-Qualified Jurisdiction

Overview

• The OECD’s January 5 package recalibrates Pillar Two to address U.S. objections while keeping the 15% minimum tax architecture intact.
• Under the new SbS Safe Harbor, U.S.-headed groups may elect out of the IIR and UTPR but remain subject to QDMTTs, with the United States the sole jurisdiction on the Central Record as of early January.
• The package introduces a permanent Simplified ETR Safe Harbor that deems zero top-up tax when a jurisdiction’s simplified ETR is at least 15%, alongside a one-year extension of the transitional CbCR safe harbor with a 17% threshold for 2026–2027.
• A new Substance-based Tax Incentive Safe Harbor recognizes Qualified Tax Incentives—covering certain credits, allowances, exemptions, and rates—subject to a substance cap tied to payroll and tangible assets.
• Jurisdictions are expected to implement the elective safe harbors, often with retrospective effect, a UPE Safe Harbor replaces the lapsed transitional UTPR relief, and an OECD stock take by 2029 will review implementation and taxpayer behavior.