Welcome to the first Global Tax Talks Tax in
60 seconds of 2026. I’m Will Morris and expect
to hear a lot more this week about the OECD
side by side package that eventually came out on
January 5. It seems to conform to the outlines
of the pre-Christmas leak with five safe harbours, but
obviously now with a lot more detail. The first
thing to say is that this is welcome. A
disorderly breakdown of Pillar Two would not have been
good and the reappearance of section 899 and a
possible trade war would have been very bad news
indeed. The agreement (as the OECD’s so-called Central Record shows)
really does solve most US problems by excepting
US parented companies from the IIR and UTPR. So,
that does remove much of the US tension from
the international tax equation. But there are still some
issues to note. First, even for US companies, the
existing full reporting remains for 2024 and 2025 using
the GloBE Information Return. And while the side by
side agreement is meant to be effective 1/1/2026 there
is a footnote acknowledging that retroactivity may not be
possible for some countries and in those cases some
UTPR may be owing – and the reporting that
goes with that. Likewise the agreement spends a lot
of time buttressing the QDMTT, and again points out
that that may require GIR reporting in some cases.
So, probably, hold the champagne on reporting relief. We
also have much more detail on the non-refundable tax
incentive safe harbour, but given the OECD’s (and a
couple of countries’) well known antipathy to tax credits
it is neither overly generous, nor terribly simple. And
because of some of the qualifications and caps, it
is very heavily weighted towards developed countries where payroll
is higher, and manufacturing is more prevalent. So, very
little here for developed countries. On side by side
itself, the criteria – the statutory tax rate level,
the pre-existing nature and features of the domestic tax
regime and the required nature of the worldwide tax
regime – are all very tightly tailored to the
US. But one might assume that other countries will
try to qualify themselves. Or at least try to
take advantage of the new UPE safe harbour in
relation to their domestic regime. We’ll see, but it’s
hard to imagine that other countries won’t try to
qualify. Finally, there’s simplification. A word count shows 60
mentions of the word “simplification”, and 29 mentions of the word “simplifications”.
Unfortunately, the new and the amended rules don’t quite
get us there. In fact, in several cases there
is more complexity as with the tax credits. And
while the much-trailed simplified ETR safe harbour is slightly
less complex than some earlier drafts, it is in
no way simple. A lot of work must still
be done under the general p2 rules to apply
the safe harbour. So a lot of work to
be done here. Again, a lot to chew over
and to repeat the good news, a disorderly breakdown
has for now been averted. However, to repeat what
I said before Christmas, Pillar Two is really not
very stable, and five safe harbours to get us
just to this point is evidence of that. And,
presumably, this won’t be the last time countries ask
for something now they’ve seen what has been got
this time around. And there will be arguments over
the qualifications, and of course a “stock take” or review by the end of 2029 So, much more to come. Anyway, thanks for tuning in and come back next week for more analysis of this and other issues so that you stay global tax ready.