On January 5, 2026, the  Organisation for Economic Co-operation and Development (“OECD”) released a political and technical agreement called “Side-by-Side” System (“SbS System”) as part of a broader package of Administrative Guidance on Pillar 2 (the “Side-by-Side Package”), which is intended to address U.S. concerns about the global minimum tax while attempting to provide greater stability and predictability to the international tax system, without rolling back the progress already achieved. 

In practical terms, the package revolves around three main outcomes:

• A SbS System that establishes clear rules to allow coexistence with certain low-tax or minimum tax regimes.
• Simplification measures focused on reducing the administrative burden.
• Adjustments to ensure that the treatment of substance-based tax incentives is aligned with Pillar Two.

A. The Side-by-Side system

The SbS System recognizes that some jurisdictions may have existing minimum taxation regimes with similar policy objectives and complementary effects to the Global Anti-Base Erosion (GloBE) rules. The two new safe Harbours are expected to reduce the compliance burden on MNE Groups with an Ultimate Parent Company (“UPE”) located in a jurisdiction that has both an eligible domestic tax regime and an eligible worldwide tax regime.

• Side-by-Side Safe Harbour:
  
  
  • Applicable to fiscal years beginning in 2026 or later as listed in the Central Record.
  • Allows, at the taxpayer’s election, the top-up tax to be treated as zero for IIR and UTPR purposes in eligible jurisdictions.
  • Applies where the group’s UPE is located in a jurisdiction with a Qualified SbS Regime, subject to meeting specific requirements. A jurisdiction is deemed to have a Qualified SbS regime if it has eligible domestic and worldwide tax systems.
    
    
• UPE Safe Harbour:
  
  
  • Applicable to fiscal years beginning in 2026.
  • Applies only with respect to the UPE jurisdiction, and solely where that jurisdiction is listed in the Central Record as a Qualified UPE Regime. Under the UPE Safe Harbour, the MNE Group’s Top-up Tax liability under the UTPR with respect to all Constituent Entities (“CEs”) located in the UPE jurisdiction is deemed to be zero.
  • It is expressly stated that this mechanism does not modify or limit the operation of QDMTTs.
  • Replaces the transitional UTPR safe harbour that was set to expire at the end of 2025.

So far, the U.S. is the only jurisdiction that the OECD has added to a Central Record of jurisdictions that qualify for the SbS Safe Harbor. Additional jurisdictions may be added to the Central Record in the future.

B. Simplification of the calculation

As part of its simplification strategy, the OECD introduces the Simplified ETR Safe Harbour, designed to ease the practical complexity and the volume of information originally required to calculate the jurisdictional effective tax rate under the GloBE rules.

Key features are:

• a Simplified Effective Tax Rate (ETR) Safe Harbour applicable as of 2027 (and in certain circumstances as of 2026 in jurisdictions that so choose).
• An extension of the Transitional CbCR (country-by-country reporting) Safe Harbour by one additional year.
• A work programme for additional simplifications.

Multinational  groups may be able to choose between the Transitional CbCR Safe Harbours and the Simplified ETR during the adjustment period.

C. Tax incentives and substance

With respect to incentives, the package introduces the Substance-based Tax Incentive (“SBTI") Safe Harbour, which allows the top-up tax attributable to certain substance-based incentives—defined as “Qualified Tax Incentives”—to be neutralized, either partially or in full.

The main elements of this mechanism are:

• The adjustment is reflected in the “Adjusted Covered Taxes.”
• A cap (“substance cap”) applies, calculated by reference to payroll and tangible fixed assets.
• Application is optional, at the taxpayer’s election.
• It applies to fiscal years beginning in 2026.

Key points to consider

While it is clear that the overall direction is toward greater simplification and coexistence, this should not be interpreted as immediate relief from compliance obligations or administrative burden. Pillar Two continues to present highly technical operational challenges for multinational groups.

As Pillar Two and the U.S. GILTI (now called “NCTI” under the “OBBBA”) operate on different principles and design features, it is difficult to assess to what extent the SbS System could raise concerns about the potential competitive disadvantages from the variations in the administrative and legal complexity of the respective regimes.

If your group is currently assessing the implications of Pillar Two and the potential impact of the Side-by-Side Package on the Global Minimum Tax calculation, our professionals can assist with diagnostics and tailored training on this new set of rules. Even if Pillar Two has not yet been implemented under Mexican tax law, Mexican holding companies or Mexican subsidiaries that form part of an in-scope MNE Group should begin preparing, as jurisdictions that have already implemented the rules will require the first filing of the GloBE Information Return no later than July 2026.

J.A. DEL RÍO offers a wide array of specialized consulting services to assist you with these and other matters, in order to ensure that your project complies with the applicable characteristics  contained in this agreement.

If you have any questions, J.A. DEL RÍO can provide you with our experts to advise in matters concerning compliance with your legal and tax obligations. Once again, please let us know if we may be of any further assistance to you at: contacto@jadelrio.com.