New Zealand Implements OECD Side-by-Side Tax Package With a Timing Amendment

Existing New Zealand Pillar Two Rules

New Zealand implemented Pillar Two through subpart HP of the Income Tax Act 2007, supported by administrative provisions in the Tax Administration Act 1994. Section HP 1 imposes liability where a constituent entity is required to pay tax under the ‘applied GloBE rules’; New Zealand-located entities in the same MNE group are jointly and severally liable for the amount. Section HP 2 sets the payment date by reference to the annual top-up tax return timing. Section HP 3 is the key incorporation provision that gives operative effect to the OECD GloBE materials for New Zealand tax purposes.

The critical design choice is that New Zealand did not reproduce the OECD GloBE Model Rules in full domestic statutory form. Section HP 3 applies the GloBE Model Rules, as modified by Schedule 25B, and applies those rules in accordance with relevant OECD Commentary and Inclusive Framework administrative guidance published before the start of the relevant fiscal year. Section HP 3(4) then gives primacy to the Commentary and guidance if there is inconsistency with the Model Rules. Section HP 4 gives GloBE-defined terms used in the Inland Revenue Acts their GloBE meaning, as modified for New Zealand purposes.

The operative rules began in stages. The IIR and UTPR apply for fiscal years beginning on or after 1 January 2025, while the domestic income inclusion rule applies for fiscal years beginning on or after 1 January 2026.

This method of incorporating the OECD rules in domestic legislation is highly sensitive to the publication date of OECD materials. The “published before the start of the fiscal year” requirement is administratively understandable: it avoids taxpayers being bound, without warning, by later-issued OECD materials for a year already underway. But the Side-by-Side Package presented an unusual case because the OECD’s intended effective date was essentially contemporaneous with publication.

The OECD Side-by-Side Package

The OECD’s January 2026 Side-by-Side Package was approved by the Inclusive Framework on BEPS and released on 5 January 2026. It forms part of the continuing administrative guidance under Pillar Two and addresses both simplification and the coexistence of the GloBE rules with certain alternative minimum-tax systems. 

The package has four principal elements: a Simplified ETR Safe Harbour; a one-year extension of the Transitional CbCR Safe Harbour; a Substance-Based Tax Incentive Safe Harbour; and the Side-by-Side system itself. 

For New Zealand advisers, the Side-by-Side system is the most politically and practically important component. Where the full Side-by-Side Safe Harbour applies, the top-up tax for a jurisdiction is deemed to be zero for IIR and UTPR purposes. However, the OECD guidance is explicit that qualified domestic minimum top-up taxes are not displaced: QDMTTs remain applicable, and the Side-by-Side Safe Harbour cannot be used for QDMTT purposes.

The Side-by-Side Safe Harbour is tied to the OECD Central Record for purposes of the Global Minimum Tax. The Central Record page states that it includes jurisdictions with Qualified SbS Regimes and that a jurisdiction is treated as having a Qualified SbS Regime from the effective date listed there. The United States’ regime has been added to the Central Record as a jurisdiction with a Qualified Side-by-Side Regime following assessment by the Inclusive Framework.

The package also contains a narrower UPE Safe Harbour. Unlike the full Side-by-Side Safe Harbour, the UPE Safe Harbour is directed at the application of the UTPR to profits in the ultimate parent jurisdiction. Where its conditions are met, top-up tax for the UPE jurisdiction is deemed to be zero for UTPR purposes, but the safe harbour does not affect QDMTTs and does not protect low-taxed constituent entities outside the UPE jurisdiction.

The New Zealand timing problem

The New Zealand problem arose from the interaction between section HP 3(3)(b)(ii) of the Income Tax Act 2007 and the OECD publication date. Because the Side-by-Side Package was published on 5 January 2026, it was not “published before” the start of a 1 January 2026 fiscal year.

As such without amendment, the January 2026 OECD guidance would automatically apply only to fiscal years beginning on or after 6 January 2026, meaning that many MNE groups with 1 January fiscal years would not get the benefit of the package until the 2027 fiscal year. The commentary identifies this as contrary to the intended 2026 application.

That result would have been difficult to justify as a policy matter. New Zealand’s timing rule was designed as a certainty protection against later OECD materials changing the law for a year already underway. In the Side-by-Side context, however, the late publication date would have blocked a package that is primarily relieving and simplifying, including safe harbours that reduce IIR and UTPR compliance burdens. The OECD guidance itself contemplates domestic adoption from the intended effective date because the Side-by-Side Safe Harbour is relieving rather than tax-imposing.

The mismatch was particularly acute for US-parented calendar-year groups with New Zealand constituent entities. 

What the amendment does