OECD Publishes September 2026 Pillar Two Guidance

On 11 September 2026, the OECD released a package of guidance and implementation materials that provides for the exclusion of Explicitly Conditional Taxes from Covered Taxes, clarifies the treatment of mismatched fiscal periods under the Qualified Domestic Minimum Top-up Tax Safe Harbour, updates the GloBE Information Return and establishes the detailed framework for full legislative reviews of domestic minimum tax rules. 

The package has consequences for both Pillar Two liability and compliance. A local tax that is conditional on exposure to another jurisdiction’s GloBE rules may no longer increase the Covered Taxes numerator. A mismatch between local and consolidated accounting periods may require a group to test QDMTT Safe Harbour eligibility across more than one local period. The revised GIR translates the January 2026 Side-by-Side package into reporting obligations, while the legislative review framework explains how jurisdictions’ qualified status will be assessed, maintained and, where necessary, withdrawn.

The legal setting and the different application dates

The September Administrative Guidance supplements the GloBE Commentary and is to be incorporated into it. The GloBE rules remain a common approach implemented through domestic legal systems. The legislative review framework expressly recognises that the application of Administrative Guidance under Article 8.3.1 is subject to domestic law and that some jurisdictions need legislation or regulations to give it effect. Publication of the package therefore does not, by itself, establish an identical domestic commencement date in every jurisdiction. 

Several dates require particular care. The revised GIR is to be used for fiscal years commencing on or after 31 December 2025, subject to a separate rule for clarificatory notes concerning existing fields. The local-accounting-period clarification does not have to be applied strictly to fiscal periods beginning before the guidance’s approval on 2 September 2026. The conditional-tax provisions contain narrowly framed protection for certain pre-2025 fiscal years. Separately, any loss of qualified status under the legislative review framework operates prospectively by fiscal-year commencement. 

Explicitly Conditional Taxes and the Covered Taxes calculation

The condition targeted by the guidance

The first part of the Administrative Guidance implements the principle, stated in the January 2026 Side-by-Side package, that conditional or discriminatory taxes should not be recognised as Covered Taxes. The September text addresses Explicitly Conditional Taxes. It targets taxes whose application depends on whether a local entity is exposed to a Qualified Income Inclusion Rule or Qualified UTPR in another jurisdiction and whether the Side-by-Side Safe Harbour is available. The rule expressly covers Constituent Entities, Joint Ventures and members of JV Groups.

The definition captures both ways of drafting that condition. A tax may apply only where a foreign Qualified IIR or Qualified UTPR applies in respect of the entity and the entity is not eligible for the SbS Safe Harbour. Alternatively, the legislation may disapply the tax where those foreign rules do not apply, or where the SbS Safe Harbour is available. Changing an inclusion condition into an exemption does not change the result. 

The concern is that a jurisdiction could collect revenue that would otherwise arise under another jurisdiction’s IIR or UTPR while relieving groups that do not face that foreign top-up tax exposure. Such a measure could absorb another jurisdiction’s taxing rights without imposing the same burden on comparable groups outside that exposure. The OECD describes the resemblance to soak-up taxes in explaining the policy behind the exclusion. A consolidated-revenue threshold alone, however, does not make a tax explicitly conditional. 

A severable surcharge can be separated from the underlying tax

Where the condition attaches to a separate, severable levy or surcharge, that component is treated as a separate tax. The OECD gives the example of a generally applicable 10% tax with a separate conditional 5% surcharge: the ordinary tax remains a Covered Tax, while the surcharge does not. If the conditional feature is not imposed through a separate, severable levy or surcharge, the tax as a whole is an Explicitly Conditional Tax. The guidance therefore does not permit taxpayers to assume that every discriminatory element can simply be carved out arithmetically.

The exclusion affects both taxes and income

An Explicitly Conditional Tax must be excluded from Adjusted Covered Taxes. It also falls outside the Net Taxes Expense adjustment under Article 3.2.1(a), so it is not added back to Financial Accounting Net Income or Loss when calculating GloBE Income. Accordingly, where the tax expense has reduced financial accounting income, it remains reflected in that starting amount, subject to other applicable adjustments. 

An illustrative calculation shows the effect. Assume accounting profit before tax of 100, an ordinary Covered Tax of 10 and a separate Explicitly Conditional Tax of 5, both expensed in the accounts. Assume no other adjustments, no substance-based income exclusion and no applicable safe harbour. Net accounting income is 85. Adding back only the ordinary tax produces GloBE Income of 95 and Adjusted Covered Taxes of 10. The ETR is approximately 10.53%, and the resulting top-up tax is 4.25. Total taxes in this simplified example are therefore 19.25.

Domestic minimum tax qualification and the limited transition

A DMTT that is an Explicitly Conditional Tax cannot be a QDMTT. The guidance also states that an explicitly conditional DMTT, IIR or UTPR is not a Covered Tax. Its introduction explains that conditional IIRs and UTPRs are similarly not qualified because they do not deliver outcomes consistent with the Model Rules’ scope, although the detailed qualified-status treatment of those rules is not addressed in this guidance.

Two transition provisions should be kept separate. First, the Covered Taxes exclusion does not apply for a fiscal year beginning before 1 January 2025 if the offending condition was enacted before 30 November 2024 and the tax is no longer conditional for any fiscal year beginning on or after 1 January 2025. Secondly, the specified QDMTT derogation recognises a conditional DMTT applying from 1 January 2024 where it was enacted before 30 November 2024 and included a sunset clause ensuring unconditional application to all in-scope groups for fiscal years beginning on or after 1 January 2025. The latter derogation is also recorded in the Central Record. Neither provision is a general protection for conditional taxes introduced subsequently.

The September document does not complete the work on discriminatory taxes. Further guidance on other tax features, or benefits provided in respect of a tax, is due by 31 December 2026 and is intended to apply prospectively. 

QDMTT Safe Harbour treatment of different accounting periods

The relevant comparison is the entity period used in consolidation

The second part of the Administrative Guidance resolves an ambiguity in the QDMTT Safe Harbour’s Accounting Standard. The relevant comparison is ordinarily between the entity’s local financial-accounting period and the period used for that entity in preparing the consolidated financial statements. It is not necessarily a comparison with the UPE’s own fiscal year. An entity’s September year-end can therefore be consistent with the period used for it in a December-year-end consolidation. A difference from the UPE’s year-end does not, on its own, trigger the clarified requirement to use the UPE’s accounting standard.

There are qualifications. New paragraph 18.1 preserves the ability of relevant QDMTT jurisdictions to require the UPE’s accounting standard where the local-accounting period differs from the UPE’s fiscal year. The package also provides exceptions to the mismatch rule where domestic legislation prescribes a Required QDMTT Fiscal Period, or where the difference arises because the entity joined or left the group through an acquisition, disposal, dissolution, merger or similar restructuring in the current or immediately preceding fiscal period. The restructuring provision includes the establishment of a permanent establishment.

Where a jurisdiction uses the option to prescribe a Required QDMTT Fiscal Period and the other Local Financial Accounting Standard conditions are met, the QDMTT must be calculated using the local standard. If an entity’s own accounts cover a different period, the local standard’s period rules and the relevant principles in the Commentary to Article 1.1.1 determine the data included. The UPE’s consolidation timetable does not replace that analysis. These rules also extend to Joint Ventures and JV Subsidiaries in the specified mismatch cases. 

Safe harbour eligibility may depend on two local periods

Where the Required QDMTT Fiscal Period differs from the period used in consolidation, the general rule tests every Required QDMTT Fiscal Period that begins, and every such period that ends, during the UPE’s fiscal year. Each relevant period must qualify for the QDMTT Safe Harbour for jurisdictional top-up tax to be deemed zero for that UPE year. Checking only the local period ending within the consolidated year is insufficient. 

For example, a calendar-year group with a required local QDMTT period ending on 30 September must consider both the period ending on 30 September 2026 and the period beginning on 1 October 2026 when assessing its 2026 safe harbour position. A failure in the latter period can affect the group’s calendar-year 2026 position, even though that local period does not end until 2027. This is an immediate reason for compliance systems to record both the beginning and ending dates of local periods.

Specific relief for the UPE’s 2024 fiscal year

A special rule applies to UPE fiscal years beginning on 31 December 2023 or during 2024. The safe harbour can reduce jurisdictional top-up tax to zero for the whole UPE year where it applies to a Required QDMTT Fiscal Period beginning during that year, even though it did not cover every day of the UPE year. The OECD illustrates a calendar-year 2024 group benefiting where the relevant local QDMTT period starts on 1 October 2024. The explanation confirms that the relief also applies where the UPE’s qualifying 2024 year is longer or shorter than 12 months. 

That relief is subject to an express override. If the Switch-off Rule applies to any Required QDMTT Fiscal Period starting or ending in the UPE year, the safe harbour does not apply for that UPE year, including the UPE’s 2024 year. The transition should therefore not be described as unconditional full-year protection whenever a QDMTT starts during 2024.

Attribution of QDMTT when the safe harbour is unavailable