Germany’s Pillar Two Amendments in its Draft Annual Tax Act 2026

On May 19, 2026, Germany’s Federal Ministry of Finance published the Draft Annual Tax Act 2026 (JStG 2026). 

The key changes are the domestic implementation of the OECD  Side-by-Side Package through two new safe harbours: § 81a MinStG, the Side-by-Side Safe Harbour, and § 81b MinStG, the UPE Safe Harbour. The draft also extends the transitional CbCR safe harbour by one year, while deliberately not extending the transitional penalty relief period.

Article 24 of the draft JStG 2026 amends the German Minimum Tax Act (MinStG), which was originally enacted in December 2023 and was last amended on 22 December 2025. Article 24 is the main MinStG amendment article, Article 26 contains a related amendment to the EU Administrative Assistance Act concerning statistics on automatic exchange of minimum-tax reports.

The explanatory memorandum states that the new §§ 81a and 81b MinStG implement point 5 of the OECD Administrative Guidance of 5 January 2026, and that the one-year extension of the transitional CbCR safe harbour implements the Side-by-Side Package adopted by the Inclusive Framework on the same date.

The draft provides that §§ 81a and 81b MinStG are to apply for the first time to fiscal years beginning after 31 December 2025.

New § 81a MinStG: Side-by-Side Safe Harbour

The new § 81a MinStG introduces a German law safe harbour for groups whose ultimate parent entity is located in a jurisdiction with a recognised ‘Side-by-Side’ regime.

Under the draft, on application by the filing constituent entity, the top-up tax amount is reduced to zero for the purposes of the Income Inclusion Rule and Undertaxed Profits Rule where the ultimate parent entity is located throughout the fiscal year in a jurisdiction with a recognised Side-by-Side regime. The safe harbour does not apply where there is an additional top-up tax amount.

A jurisdiction has a recognised Side-by-Side regime only if it has both a suitable domestic tax regime and a suitable international tax regime, and those regimes must be in force by the statutory cut-off. The German draft requires, among other things, that the jurisdiction recognise qualified domestic minimum top-up taxes in the same way as other foreign income taxes.

The domestic-regime requirement is built around three core tests: a corporate income tax rate of at least 20%, adjusted for preferential regimes and subnational taxes; a qualified domestic minimum top-up tax or alternative minimum tax of at least 15% that applies to the principal part of the income of in-scope MNE groups; and no material risk that groups headed in that jurisdiction are taxed below 15% on domestic profits.

The international-regime requirement requires a broad foreign-income tax base, including foreign permanent establishments and controlled foreign companies, active and passive income, and income whether distributed or not. The regime may contain only limited exclusions consistent with the global minimum tax, must contain anti-base-erosion mechanisms, and must not pose a material risk that UPE-headed groups are taxed below 15% on foreign profits.

This ties in with the OECD Side-by-Side Safe Harbour requirements, 

It should be noted that the Side-by-Side Safe Harbour does not displace qualified domestic minimum top-up taxes. 

New § 81b MinStG: UPE Safe Harbour