Depending on local legislative procedures, participating jurisdictions may need to implement the Package into their domestic rules before it becomes applicable.

Since the Package applies to fiscal years (FY) 2026 and further, it does not affect the application of the current GloBE Rules for FYs 2024 and 2025. It should therefore generally not impact the GloBE preparations of in-scope MNE Groups for the FY 2025 financial statements, which is particularly relevant for groups with UPEs located in eligible jurisdictions under the SbS system. According to the Package, work is ongoing to also develop a routine profits safe harbour and a de minimis safe harbour to replace the corresponding tests currently available under the Transitional CbCR Safe Harbour. These have not yet been released.

Below we summarize the Package, the EU and Swiss implementation, and provide initial key takeaways.

1. Simplified ETR Safe Harbour

The Package introduces the permanent Simplified ETR Safe Harbour, which aims to simplify the operation of the GloBE Rules, ideally relieving multinationals and tax administrations from more complex computations.

An MNE Group may elect to apply the Simplified ETR Safe Harbour for a Tested Jurisdiction with respect to a FY where such Tested Jurisdiction has a Simplified ETR of at least 15% or has a Simplified Loss. The Top-up Tax in the Tested Jurisdiction shall then deemed to be zero.

The Simplified ETR Safe Harbour should be available for FYs beginning on or after 31 December 2026. Optionally, jurisdictions can choose to introduce the Simplified ETR Safe Harbour already for FYs beginning on or after 31 December 2025. Such an earlier introduction could allow MNE Groups to benefit from the Simplified ETR Safe Harbour in a jurisdiction for 2026 already, but only if all jurisdictions that have taxing rights with respect to that jurisdiction have opted for this earlier application of the Simplified ETR Safe Harbour and an election is made.

The Simplified ETR is determined by dividing the Simplified Taxes by the Simplified Income. Both the determination of the Simplified Taxes and the Simplified Income follow simplified rules compared to the standard GloBE Rules, whilst also addressing some shortcomings of the Transitional CbCR Safe Harbour.

However, the Simplified ETR Safe Harbour becomes less straightforward due to the integrity-related required adjustments, which follow four general principles:

  • Matching principle – intragroup income is not recognized in a FY later than the FY when the corresponding expense is recognized and the amount of income matches the amount of the corresponding expense.
  • Full allocation principle – all income is allocated to a Tested Jurisdiction;
  • Single expense and loss principle – expenses and losses are only deducted once and in a single Tested Jurisdiction; and
  • Single tax principle – taxes are only recorded once and in a single Tested Jurisdiction.

2. Extension of Transitional CbCR Safe Harbour

To support the transition from the Transitional CbCR Safe Harbour to the Simplified ETR Safe Harbour, the application of the Transitional CbCR Safe Harbour will be extended for one year applying to FYs beginning on or before 31 December 2027 but not including any FY ending after 30 June 2029. The applicable Transition Rate to meet the Simplified ETR Test for FYs 2026 (i.e., 17%) will also apply to FYs 2027.

3. Substance-based Tax Incentives

The Package also introduces the Substance-based Tax Incentives Safe Harbour. This safe harbour allows a “zero impact” treatment of Qualified Tax Incentives (QTIs) for GloBE purposes.

QTIs are tax incentives that are: (i) generally available to taxpayers, (ii) result in a reduction of Covered Taxes, and (iii) are calculated based on: (a) expenditures incurred (an expenditure-based incentive); or (b) on the amount of tangible property produced in the jurisdiction (a production-based tax incentive). The Package seems to also allow the production of “clean energy” as acceptable output.  

The Substance-based Tax Incentives Safe Harbour supplements the Qualified Refundable Tax Credits (QRTCs) and Marketable Transferable Tax Credits (MTTCs). There are notable differences:

  • Under the Substance-based Tax Incentives Safe Harbour, the Top-up Tax corresponding to the QTI is deemed zero. Under a QRTC or MTTC however, the tax incentive is treated as an increase to the relevant GloBE income instead of a reduction to the Top-up Tax. This can still distort the GloBE ETR.
  • QRTCs and MTTCs are only qualifying if they meet a strict set of rules. The QTI category seems much broader.
  • QRTCs and MTTCs are not capped whereas under the Substance-based Tax Incentives Safe Harbour, the amount is capped at (i) 5.5% of the higher of (a) the Eligible Payroll Costs or (b) the depreciation of Eligible Tangible Assets, in the jurisdiction or (ii) subject to an alternative cap of 1% of the carrying value of the Eligible Tangible Assets subject to a five-year election (Substance Cap).
  • QRTCs and MTTCs are calculated per Constituent Entity, whereas the Substance-based Tax Incentive Safe Harbour is applied per Tested Jurisdiction.
  • QRTCs and MTTCs are considered upon calculating the ETR, whereas this safe harbour comes into play after this ETR is initially calculated.
  • The Substance-based Tax Incentives Safe Harbour is only available for a FY commencing on or after 1 January 2026, whereas the treatment of QRTCs and MTTCs is already available for earlier years.

Similar to QRTCs and MTTCs, this safe harbour is not available during the Transitional CbCR Safe Harbour period and therefore the use of QTIs can still result in a jurisdiction failing the Transitional CbCR Safe Harbour.

4. Side-by-Side System 

As part of the Package, the IF has agreed on two additional safe harbours designed to coordinate the GloBE Rules with the preexisting minimum tax systems of certain jurisdictions: the SbS Safe Harbour and the UPE Safe Harbour.

Background

The SbS Safe Harbour and UPE Safe Harbour build on an earlier G7 statement in which it was agreed that the IIR and UTPR should not apply to U.S.-parented MNE Groups (see our earlier web post on the G7 agreement here).

The U.S. has long taken the position that its tax system – comprising domestic corporate income tax, a corporate alternative minimum tax, GILTI and other anti-BEPS measures – already operates as a worldwide minimum tax with policy objectives comparable to the GloBE Rules. On that basis, the U.S. considers that U.S.-parented MNE Groups should not be subject to additional Top-up Tax under the IIR or UTPR.

Following negotiations within the IF, these new safe harbours intend to prevent simultaneous application of the GloBE Rules and a comparable domestic regime for MNEs headquartered in a jurisdiction with a Qualified SbS Regime or a Qualified UPE Regime.

5. Implementation in the EU

Separate from the content of the Package, it should also be closely monitored how these new rules are implemented across the EU. The implementation in EU Member States of the GloBE Rules is mostly a transposition of the EU Pillar Two Directive, which was adopted at the end of 2022.

6. Implementation in Switzerland

Switzerland implemented the GloBE Rules through its Minimum Tax Ordinance (Mindestbesteuerungsverordnung, MindStV) by way of a direct static reference to the GloBE Rules as in force on 1 January 2024. Any subsequent changes to the GloBE Rules (e.g., through administrative guidance) have to be implemented by way of a change of the ordinance. Considering the SbS system alters MNE Groups in scope of the GloBE Rules it is unlikely to be considered a mere clarification. As such Switzerland will have to formally revise its ordinance to apply the Package. Unlike the EU, the Swiss federal government can issue a revised version (expected in connection with a public consultation process) without material delay.

7. Take-aways and next steps

The Package introduces several welcome simplifications and clarifications in relation to GloBE Rules. At the same time, it adds new optionality and technical complexity that MNE Groups will need to navigate carefully.

  • Simplified ETR Safe Harbour: This safe harbour has been widely requested and should reduce compliance obligations once the Transitional CbCR Safe Harbour expires. That said, the number of adjustments and optional elections means the simplification may still require significant preparatory work for MNE Groups.
  • Transitional CbCR Safe Harbour extension: Extending the safe harbour by one year provides for a smooth transition since the Simplified ETR Safe Harbour generally becomes available as of 2027.
  • Substance‑based Tax Incentives Safe Harbour: This safe harbour provides welcome relief for MNE Groups benefitting from expenditure‑ or production‑based incentives that are currently treated unfavourably under the GloBE Rules. For jurisdictions that benefit from substantial qualifying tax incentives, this can significantly reduce Top‑up Tax.
  • SbS and UPE Safe Harbours: These safe harbours give the U.S. its requested exemption from the IIR and UTPR and will substantially reduce the impact of the GloBE Rules for U.S.-parented groups once implemented. However, Pillar Two rules still apply. QDMTTs remain fully applicable, there is no retroactive effect for FYs 2024 and 2025, and if jurisdictions cannot implement the rules from 1 January 2026, the IIR or UTPR may still (partially) apply during 2026.

In‑scope MNE Groups should assess which safe harbours will be available in the jurisdictions in which they operate and how each safe harbour affects the group’s GloBE position. Given the number of new safe harbours and potential elections, modelling the impact at an early stage will be essential.

From a timing perspective, the measures in the Package generally apply as of 2026 or later, meaning there should generally be no accounting impact for FY 2024 or FY 2025. The timeline of the topics included in the Package would be as follows:

  • H1 2026: Completion of work on routine profits and de minimis tests; finalization of updated reporting adaptations, including GIR, GIR XML schema, and validation rules.
  • 2026/2027 start years: Introduction of the Simplified ETR Safe Harbour (generally from 2027, or 2026 in specific circumstances); extension of the Transitional CbCR Safe Harbour by one year.
  • 2027 - 2028: Additional assessments by IF for jurisdictions seeking Qualified SbS or UPE Regime status.
  • By 2029: Completion of an evidence-based ‘stocktake’, an assessment of the Package with potential actions to address identified risks.

Should you have any questions on how this Package may affect your MNE Group, please contact a member of our Pillar Two team or your regular trusted contact at Loyens & Loeff.