Pillar II: OECD publishes new Safe Harbours in Side-by-Side Package

On 5 January 2026, the OECD announced that 147 members of the Inclusive Framework have agreed on a new administrative guidance for Pillar II (side-by-side package). Most important for practice are the simplifications regarding Safe Harbours, in particular the extension of the existing temporary country-by-country reporting Safe Harbour and the implementation of a permanent Safe Harbour. Moreover, the agreement with the US is taken into account by a new (side-by-side) Safe Harbour.

What is new?

The new side-by-side package includes:

• the one-year extension of the existing Transitional Country-by-Country Reporting Safe Harbour (therefore, now applicable for the years 2024-2027),
• the implementation of a permanent Simplified Effective Tax Rate Safe Harbour (Safe Harbour from 2027)
• a new Substance-based Tax Incentive Safe Harbour (Safe Harbour from 2026),
• a new Side-by-Side Safe Harbour as agreed-on solution with the US and a new ultimate parent entity Safe Harbour (UPE Safe Harbour) from 2026.

Goal

The package aims, alongside the practical demand for simplifications and a reduction of administrative burdens, to take into account the political agreement with the US. After all, a year ago the US not only withdrew support for Pillar II but also threatened retaliatory tax measures against countries implementing Pillar II legislation. The new side-by-side approach now also considers the US-American minimum tax regulations.

Extension of the CbCR Safe Harbour and introduction of a permanent ETR Safe Harbour

The application of the Transitional CbCR Safe Harbour was originally only intended for the years 2024–2026. To facilitate the transition to the new permanent Simplified ETR Safe Harbour (applicable from 2027), the CbCR Safe Harbours have been extended by one year and are now applicable for all financial years beginning before 31 December 2027. The relevant ETR for the one-year extension remains at 17%.

The introduction of a permanent Simplified ETR Safe Harbour is intended to reduce compliance costs for the affected groups. If a jurisdiction meets the conditions of the Safe Harbour (either a “simplified effective tax rate” of at least 15% or a “simplified loss”), no top-up tax will be due. For determining this new permanent Safe Harbour, detailed new rules and definitions are introduced, including special provisions for M&A transactions, transfer pricing adjustments, etc. In the new Simplified ETR Safe Harbour, there is no “once-out-always-out” exclusion.

Substance-based Tax Incentives Safe Harbour

The new Substance-based Tax Incentive Safe Harbour is designed to mitigate the impact of certain qualified tax incentives (“QTI”) on the ETR. Under this Safe Harbour provision, QTI can be added back to the covered taxes, creating an additional tax expense. This new provision applies from 2026 and can be particularly beneficial for Austrian entities that, for example, receive research premiums.

Side-by-Side Safe Harbour (SbS Safe Harbour) and UPE Safe Harbour

If the SbS Safe Harbour conditions are met, a group will not incur top-up tax under the Income Inclusion Rule (IIR) or Undertaxed Profit Rule (UTPR) on all its domestic and foreign activities. The SbS Safe Harbour enters into effect for financial years beginning on or after 1 January 2026. To qualify for the SbS Safe Harbour, the ultimate parent entity must be located in a country that has both a “qualified domestic tax system” and a “qualified global tax system”. Currently, the US is the only country recognised by the OECD as eligible.

This side-by-side arrangement does not affect the imposition of qualified domestic minimum top-up taxes (QDMTT), as implemented by Austria. Therefore, even after 2025, if the ETR falls below the 15% effective tax rate threshold for Austrian subsidiaries and permanent establishments of US groups, a domestic top-up tax may be levied in Austria. Furthermore, compliance obligations under the Austrian Minimum Tax Act remain unchanged (in particular, the submission of GloBE Information Returns and advance notifications).

Additionally, a UPE Safe Harbour is introduced, which essentially extends the UTPR Safe Harbour: if the jurisdiction of the UPE has a “qualified UPE regime” (in particular, a nominal tax rate of at least 20%), the group is exempt from the UTPR for that jurisdiction only.

Implications

A circulated abolition of Pillar II appears to be off the table for now with the publication of this package.

In particular, the extension of the CbCR Safe Harbours provides a noticeable (temporary) simplification for groups covered by Pillar II. Regarding the permanent ETR Safe Harbour, it remains to be seen to what extent the new provisions will actually lead to simplifications. It should be noted that national compliance obligations remain unchanged.

We are happy to assist you in evaluating the impact on your company!

PwC Austria hosts a webcast covering the new side-by-side package on Tuesday, 27 January from 9:30 to 10:30 AM (registration is already possible here).