What the OECD’s January 2026 Package Removes for US-Parented Groups, and What Stays

Pillar Two sets a 15% minimum effective tax rate for large multinational groups. For groups whose ultimate parent sits in the United States, a side-by-side arrangement agreed within the OECD’s Inclusive Framework now removes some of that top-up exposure, though not all of it.

The arrangement has developed in stages: a G7 understanding in June 2025, a formal OECD package announced in January 2026, and a continuing question about how it fits with US rules on foreign income. The figures below come from adviser commentary and a summary of the G7 statement.

The 15% Floor and Who It Covers

Pillar Two applies a 15% minimum effective tax rate to multinational groups with at least EUR 750 million in annual revenue, according to RSM US’s analysis dated 6 August 2026. Where a group’s taxes on its profits fall below that rate, top-up taxes can be charged to lift the burden to 15%.

Application has not been simultaneous. RSM says many jurisdictions began applying the rules in 2024, with the undertaxed profits rule generally following in 2025. EY notes that US-headquartered groups remain subject to the global minimum tax rules for 2024 and 2025 even after the side-by-side package.

Key Date
The Inclusive Framework announced the side-by-side package on 5 January 2026. EY’s January note lists the United States as the only jurisdiction with a Qualified SbS Regime, effective 1 January 2026.

Three Top-Up Charges That Work Together

Pillar Two relies on three separate charges. The income inclusion rule (IIR) is generally applied by the parent jurisdiction. The undertaxed profits rule (UTPR) is a backstop. The qualified domestic minimum top-up tax (QDMTT) is imposed by the source jurisdiction.

RSM notes that Notice 2023-80 treats the IIR, UTPR and QDMTT as separate levies for US foreign tax credit purposes. Under that notice, IIR taxes generally receive no credit, while QDMTTs generally may be credited. The related proposed regulations have not been issued.

The June 2025 G7 Understanding

The G7 statement of June 2025 said agreement had been reached on the operation of a side-by-side system that would fully exclude US-parented groups from both the IIR and the UTPR, covering their profits in the United States and abroad, according to Simmons & Simmons’ summary of the statement.

The statement set no implementation date. Simmons & Simmons describes it as a broad understanding rather than a finished agreement, and the G7 recognised that these issues have relevance to a wider group of jurisdictions. The firm says the US appears to have agreed to remove Section 899 of the One Big Beautiful Bill Act, a step the statement calls crucial to this understanding. It also says it would be surprising if the US did not expect countries that implement the UTPR to do so on the basis of this solution from the outset.

The G7 set three principles: addressing substantial risks to the level playing field, simplifying the Pillar Two compliance framework, and considering changes to how substance-based tax credits are treated.

The side-by-side election changes the top-up exposure of elected US-parented groups, while the QDMTT exposure in source countries remains.

The January 2026 Package and Its Safe Harbours

The Inclusive Framework announced the side-by-side package on 5 January 2026. EY reports that it takes the form of administrative guidance, to be incorporated into the Commentary to the GloBE Model Rules.

The central element is an elective side-by-side safe harbour for groups whose ultimate parent entity sits in a jurisdiction with both an eligible domestic and an eligible worldwide tax regime. A group that elects it is not subject to the IIR or the UTPR, including at the intermediate parent level. The QDMTT still applies in every QDMTT jurisdiction where the group operates, and the safe harbour cannot be applied for QDMTT purposes, EY says.

A second election, the UPE safe harbour, covers only the group’s domestic profits in the parent’s jurisdiction and removes the UTPR for those profits. EY’s January note says the United States was the only jurisdiction listed in the Central Record as having a Qualified SbS Regime, effective 1 January 2026, and that no Qualified UPE Regimes were yet listed.

The package also sets other dates. EY says the simplified ETR safe harbour is available in all jurisdictions for fiscal years beginning on or after 31 December 2026, which means 2027 for calendar-year groups, and in certain circumstances, if jurisdictions so choose, for fiscal years beginning on or after 31 December 2025 (2026 for calendar-year groups). The substance-based tax incentive safe harbour allows elections for fiscal years beginning on or after 1 January 2026. The transitional CbCR safe harbour is extended to fiscal years beginning on or before 31 December 2027. A stocktake of the global minimum tax and the side-by-side system is to be concluded by 2029.

Profit Location, Compliance and What to Watch

The side-by-side election changes the top-up exposure of elected US-parented groups under the IIR and the UTPR. The QDMTT exposure in source countries remains, according to EY and RSM.

RSM says the package does not remove Pillar Two compliance. QDMTT filings, Global Information Return filings and full GloBE compliance for 2024 and 2025 continue, and groups should document the assumptions supporting safe harbour elections.

On the US side, the One Big Beautiful Bill Act renamed GILTI as net CFC tested income (NCTI) for tax years beginning after 31 December 2025, according to RSM. NCTI remains outside the GloBE rules. The OECD’s transitional blended CFC allocation covers only fiscal years beginning on or before 31 December 2025 and ending before 30 June 2027. RSM says the package did not extend that allocation to NCTI, which leaves NCTI’s GloBE treatment unresolved for 2026 and later. RSM expects Treasury and the IRS to issue guidance on how the two regimes coexist, and advises treating them as parallel regimes until Treasury, the IRS and the OECD issue further guidance.

For investors, the items to track are the Central Record’s list of qualified regimes, Treasury and IRS guidance on NCTI, and the 2029 stocktake of the global minimum tax and the side-by-side system.

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