What is the SbS SH?

The SbS SH is part of the OECD’s Side‑by‑Side Package released on January 5, 2026. When elected, the SbS SH deems all Top‑up Tax (TuT) under both the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) to be zero for MNEs with their ultimate parent entity (UPE) in a jurisdiction with a Qualified SbS Regime.

To qualify, the UPE jurisdiction must meet strict criteria on its domestic and worldwide tax systems, including:

  • A Corporate Income Tax (CIT) rate of at least 20% and a Qualified Domestic Minimum Top-up Tax (QDMTT) or a corporate alternative minimum tax ≥15%;
  • A comprehensive foreign income inclusion regime covering active and passive   Controlled Foreign Corporation (CFC) and branch income;
  • No material risk that the domestic or foreign effective tax rate (ETR) for in‑scope MNEs falls below 15%;
  • A foreign tax credit mechanism for QDMTTs; and
  • The relevant rules must (in principle) be in place before January 1, 2026.

Currently, the US is the only jurisdiction with a Qualified SbS Regime (given its CIT rate, Corporate Alternative Minimum Tax (CAMT) and Global Intangible Low Taxed Income/Net CFC Tested Income (GILTI/NCTI), but others may be added following Inclusive Framework review.

Impact on US MNEs

If the SbS SH is elected, the TuT under both the IIR and UTPR is deemed to be zero, effectively removing P2 exposure on US profits (UTPR) and on foreign profits (IIR and UTPR) in jurisdictions that do not levy a QDMTT. This substantially narrows the P2 impact for US MNEs.

That said, QDMTTs continue to apply in full, so US MNEs may still face TuT in jurisdictions with a QDMTT.

US MNEs must also continue to meet the P2 compliance obligations. This includes the GloBE Information Return, in which they have to include, among others, a general overview of the group structure and detailed calculation for the QDMTT jurisdictions.

Timing

The SbS SH applies to FYs starting on or after January 1, 2026. This means financial year 2024 (IIR) and 2025 (IIR and UTPR) remain fully subject to the current GloBE framework. US MNEs with a non‑calendar financial year may remain exposed to the IIR and UTPR for a part of financial year 2026.

Importantly, the SbS SH is OECD guidance at this stage and must likely be implemented into domestic law in most jurisdictions before it takes effect. The impact for financial year 2026 will therefore depend on timely local implementation, which may vary by jurisdiction. If a jurisdiction does not implement the SbS SH with retroactive effect to January 1, 2026, US MNEs could still be subject to the IIR and UTPR in 2026.

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