Members of the OECD/G20 Inclusive Framework (Inclusive Framework) on Base Erosion and Profit Shifting (BEPS) have agreed to exempt certain US-headquartered multinational enterprises (MNEs) from top-up taxes under the income inclusion rule (IIR) and the undertaxed profits rule (UTPR) from 2026. However, their subsidiaries remain liable to any qualified domestic minimum top-up tax (QDMTT) in the jurisdictions they operate. Other notable recent Pillar 2 developments are also discussed below.
Table of contents
- US-headed MNEs can elect to be partially exempt from IIR and UTPR
- Other measures in OECD Side-by-Side Package
- Latest Pillar 2 developments in Australia
- Recent ATO online guidance
- Managing evolving Global Minimum Tax requirements
US-headed MNEs can elect to be partially exempt from IIR and UTPR
The Inclusive Framework agreed to impose global minimum tax rules under BEPS Pillar 2, ensuring large MNE groups are subject to a minimum effective tax rate of 15% on income arising in each jurisdiction in which they operate.
The Side-by-Side (SbS) Safe Harbour the Inclusive Framework agreed to in January 2026 provides a mechanism for recognising cases when an MNE group is headquartered in a jurisdiction with a tax system that imposes sufficient minimum tax requirements with respect to domestic and foreign income.
According to the OECD, MNE groups with their ultimate parent entity (UPE) located in a jurisdiction with a “Qualified SbS Regime” can elect the SbS Safe Harbour. In particular, the filing constituent entity can elect to deem the top-up tax for a jurisdiction to be zero for IIR and UTPR purposes where the constituent entities are located in a jurisdiction with a “Qualified SbS Regime” for the fiscal year. This safe harbour is designed to apply to jurisdictions that have satisfied the Inclusive Framework that both their domestic and worldwide tax systems impose sufficient minimum taxation requirements on domestic and foreign income such that Pillar 2 taxation would not be required. As of January 2026, the US is the only jurisdiction listed on the OECD Central Record for purposes of the Global Minimum Tax as a Qualified SbS Regime.
Be mindful that any QDMTTs enacted by other jurisdictions continue to apply to US-headed subsidiaries that operate in those jurisdictions.
MNE groups electing to apply the SbS Safe Harbour are still required to file a GloBE Information Return (GIR), although the scope would be narrowed to support QDMTTs. It is anticipated that the GIR form will be revised to allow an MNE group to elect the SbS Safe Harbour in an appropriate field.
Other measures in OECD Side-by-Side Package
The SbS Safe Harbour was announced as part of the OECD’s comprehensive package for a “side-by-side” arrangement in January 2026. Other notable measures in the package include:
- a new UPE safe harbour to replace the transitional UTPR safe harbour which expired in 2025. As discussed above, a Qualified SbS Regime for the SbS Safe Harbour would need to meet eligibility standards in respect of both its domestic and worldwide tax systems. In contrast, the UPE safe harbour would apply in respect of a “Qualified UPE Regime” ie a jurisdiction that has an eligible domestic, but not worldwide, tax system. In such instances, an MNE group may elect to deem the top-up tax for the UPE jurisdiction for UTPR purposes only to be zero. As of January 2026, no jurisdiction has been recognised as a Qualified UPE Regime on the OECD Central Record for purposes of the Global Minimum Tax
- measures to simplify calculations and reporting, including a simplified effective tax rate (ETR) safe harbour, an extension of the transitional country-by-country reporting (CbCR) safe harbour for one additional year, and a work program for additional simplifications, and
- a new targeted substance-based tax incentive (SBTI) safe harbour to allow MNE groups to treat certain qualified tax incentives (QTIs) as an addition to the “Covered Taxes” of constituent entities.
In addition, the Inclusive Framework agreed to an evidence-based stocktake process to ensure a level playing field is maintained for all its members. They also reinforced the objective that QDMTT regimes remain a primary mechanism to ensure the protection of local tax bases, especially in developing countries. Meanwhile, the Inclusive Framework will continue its work to reduce administrative burdens for jurisdictions and simplify compliance for MNE groups subject to the global minimum tax.
Latest Pillar 2 developments in Australia
In Australia, the Taxation (Multinational—Global and Domestic Minimum Tax) Amendment (2025 Measures No 1) Rules 2025 (Legislative Instrument F2025L01550) were registered to amend the Taxation (Multinational—Global and Domestic Minimum Tax) Rules 2024 to implement policy amendments outlined in the OECD’s Administrative Guidance. Applying retrospectively to fiscal years starting on or after 1 January 2024, the changes include:
- inserting an equity investment inclusion election and the related rules on qualified flow-through tax benefits
- clarifying the limited circumstances where securitisation entities would be liable to pay UTPR top-up tax
- clarifying the investment entity transparency election for regulated mutual insurance companies, and
- minor amendments to the domestic minimum tax (DMT) provisions to ensure effective administration of the taxes.
As for lodgment of returns, certain MNE groups satisfying the relevant criteria in Taxation Administration (Exemptions from Requirement to Lodge Australian IIR/UTPR Tax Return and Australian DMT Tax Return) Determination 2025 (Legislative Instrument F2025L01645) are exempt from lodgment of IIR/UTPR and/or DMT tax returns, essentially because lodgment in the specified situations would be unnecessary as they could only ever disclose a nil liability.
Meanwhile, the ATO's transitional compliance approach to lodgment obligations and penalties in respect of Pillar 2 is set out in Practical Compliance Guideline PCG 2025/4 for lodgments in respect of fiscal years commencing on or before 31 December 2026 and ending on or before 30 June 2028. Essentially, the ATO takes a “soft-landing approach” to penalties during the transition period where MNE groups can demonstrate they have acted in good faith and taken “reasonable measures” to understand and comply with their lodgment obligations. Importantly, the ATO is not providing a blanket penalty concession during the transition period, as the onus is on MNE groups to demonstrate that they have taken reasonable measures.
Recent ATO online guidance
The ATO also publishes helpful guidance on Pillar 2 on its website. ATO guidance recently released or updated include, for instance:
- guidance on how Pillar 2 applies to tax consolidated groups, including lodgment obligations, reporting simplifications and calculating and allocating top-up tax
- guidance on specific issues, including misaligned fiscal years for MNE groups with constituent entities that maintain financial accounts based on a different accounting period than the ultimate parent entity, as well as prior period adjustments for changes to covered tax liabilities from previous fiscal years, and
- a quick reference guide on the transitional CbCR safe harbour.
Managing evolving Global Minimum Tax requirements
Given the evolving landscape it’s important for corporate tax teams and firms who manage this work for their clients have solutions in place that will help ensure compliance.
CCH Integrator is a comprehensive corporate tax management software system, which includes a dedicated solution to manage BEPS Pillar Two requirements – adapting quickly as changes and updates are released.
The solution provides templated calculations for GloBE income, jurisdictional ETR, and TopUp Tax, with required adjustments and transparent audit trails. CCH Integrator is already capable of computing Transitional Safe Harbour calculations, and is designed for flexibility and enhancements as the OECD replaces transitional safe harbours with permanent versions.
The solution also supports GIR XML population, domestic submissions, and revised return generation – ensuring compliance across jurisdictions.
To learn more visit: https://www.wolterskluwer.com/en-au/solutions/cch-integrator/beps-pillar-two
To stay up to date on the latest BEPS developments, learn more about CCH iKnowConnect – BEPS -which allows tax professionals to efficiently research issues across 60+ jurisdictions.
