Tax Insights: Bill C-31 amends the Pillar Two rules and introduces new Pillar Two safe harbours

Issue 2026-19

In brief

What happened? 

On May 6, 2026, the federal government tabled Bill C‑31, A second Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025. Bill C‑31 includes legislation that amends the Global Minimum Tax Act (GMTA), as well as the Income Tax Act (ITA) to address foreign tax relief for taxes paid under foreign Qualified Domestic Minimum Top‑up Tax (QDMTT) regimes. The legislation as it relates to global minimum taxes mainly combines draft legislation previously released on August 12, 2024, August 15, 2025 and January 29, 2026.¹

Key changes in Bill C-31 (as compared to the previously released draft legislation) relating to global minimum tax include:

• deferring the effective date of the Undertaxed Profits Rule (UTPR) by one year, so that the UTPR will apply to in-scope multinational enterprise (MNE) groups for fiscal years that begin after December 30, 2025
• extending the “transitional country‑by‑country reporting (CbCR) safe harbour” by one year so that it is available for fiscal periods that begin before January 1, 2028 and end before July 1, 2029
• introducing the “side‑by‑side safe harbour” and “ultimate parent entity (UPE) safe harbour”

Why is it relevant?

Many of the amendments to the GMTA (and the ITA) in Bill C‑31 could affect MNE groups. For example, the introduction of the UTPR could affect multinational groups with Canadian subsidiaries when the UPE’s jurisdiction has not enacted Pillar Two rules. As well, amendments to the GMTA that relate to private investment entities could have wide ranging implications for Canadian private and public companies that are part of the same MNE group.

Action to consider

MNE groups that are subject to the GMTA should review the amendments in Bill C‑31 and determine how they could affect their corporate income tax and global minimum tax compliance obligations.

In detail

UTPR

Bill C‑31 implements the UTPR by adding it to the GMTA. The UTPR is a key component of the “Pillar Two” global minimum tax regime developed by the Organisation for Economic Co‑operation and Development (OECD). It acts as a backstop rule that applies to collect top‑up tax that has not been collected under other rules in the GMTA (i.e. the Income Inclusion Rule (IIR) or QDMTT). The UTPR will apply to in‑scope MNE groups for fiscal years that begin after December 30, 2025 (i.e. 2026 for calendar year taxpayers).

For more information on the UTPR, see our Tax insights “Bill C‑31 implements the undertaxed profits rule” (May 8, 2026 update).

Transitional CbCR safe harbour

Bill C‑31 extends the transitional CbCR safe harbour (which is part of the GMTA)² by one year, so that it is available for all fiscal periods beginning before January 1, 2028 and ending before July 1, 2029 (i.e. 2024 to 2027 for calendar year taxpayers). This extension had been proposed by the OECD/G‑20 Inclusive Framework (IF) on January 5, 2026. The effective tax rate will remain at 17% for the one‑year extension.

For more information on the extension and OECD/G‑20 IF’s January 5, 2026 package of administrative guidance, see our Global Tax Policy Alert “OECD announces agreement on a range of new Pillar Two safe harbours” at www.pwc.com/gx/en/services/tax/publications/tax-policy-bulletin.html.

Side-by-side safe harbour and UPE safe harbour

On January 5, 2026, the OECD/G-20 IF released administrative guidance on a proposed “side‑by‑side” system.³ As part of the “side‑by‑side” system, Bill C-31 introduces to the GMTA two new Pillar Two safe harbours:

• the side‑by‑side safe harbour, which will be available for MNE groups with a UPE located in a jurisdiction that has a qualified side-by-side regime; this safe harbour will exempt a qualifying MNE group from the IIR and UTPR (but not the QDMTT)
• the UPE safe harbour, which will be available for MNE groups with a UPE located in a jurisdiction that has a qualified UPE regime; this safe harbour will exempt a qualifying MNE group from the UTPR, but only with respect to top‑up tax computed for entities located in the UPE’s jurisdiction

The jurisdictions that have qualified side‑by‑side regimes and qualified UPE regimes will be determined by the OECD/G‑20 IF and listed on the OECD website. The US is currently the only jurisdiction with a qualified side-by-side regime; there are currently no jurisdictions with qualified UPE regimes. These safe harbours apply to fiscal years of a qualifying MNE group that begin after December 31, 2025.

For more information on these safe harbours, see our Global Tax Policy Alert “OECD publishes Pillar Two Side‑by‑Side System” at www.pwc.com/gx/en/services/tax/publications/tax-policy-bulletin.html.

The takeaway

Bill C‑31 implements many long-awaited amendments to the GMTA (e.g. the introduction of the UTPR), as well as the changes to the ITA that are intended to integrate the foreign affiliate regime and foreign tax credit rules with the GMTA. Bill C‑31 also incorporates January 5, 2026 OECD/G‑20 IF administrative guidance related to the Pillar Two “side‑by‑side” system.