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USAINTERNATIONAL TAX
Pillar Two’s side-by-side system: what US-parented groups need to know for 2026
In January 2026 the OECD agreed a safe harbour that exempts US-parented groups from the IIR and UTPR. Domestic minimum taxes still apply abroad, including in Latin America.
By the True CPA Tax TeamOctober 1, 20266 min read
On January 5, 2026, the OECD/G20 Inclusive Framework released the side-by-side package, recognizing the US tax system as a qualified regime that coexists with the Pillar Two global minimum tax.
What the side-by-side safe harbour does
US-parented groups may elect a deemed top-up tax of zero under the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR).
It applies to fiscal years beginning on or after January 1, 2026. Fiscal years 2024 and 2025 remain fully subject to the rules.
Qualified domestic minimum top-up taxes (QDMTTs) still apply in the countries where the group operates.
Other new safe harbours
A simplified effective tax rate safe harbour based on consolidated financial data.
A substance-based tax incentive safe harbour that protects certain expenditure-based credits, such as R&D credits.
A one-year extension of the transitional CbCR safe harbour, to fiscal years beginning by December 31, 2027.
Why it matters for operations in Latin America
Several countries have adopted their own domestic minimum tax. Brazil’s additional CSLL under Law No. 15,079/2024 is designed as a QDMTT, so a US-parented group with a low effective tax rate in Brazil may still owe top-up tax there, even under the side-by-side regime.
01Election: confirm eligibility and document the side-by-side election.
02Local QDMTTs: calculate the effective tax rate in each country where the group operates.
03Incentives: check whether local tax incentives qualify for the new safe harbour.
04Data: keep consolidated and local data aligned for the 2026 filings.
HOW TRUE CPA CAN HELPWe calculate effective tax rates in Brazil and Latin America and support the local data your group needs for Pillar Two compliance.Talk to a specialist
Legal basisOECD/G20 Inclusive Framework, Side-by-Side Package (January 5, 2026) · OECD GloBE Model Rules · Brazil Law No. 15,079/2024.This content is for information only and does not replace an analysis of each specific case.
