This is a new Safe Harbour included in the January 2026 OECD Side-by-Side Tax Package (see: Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), Side-by-Side Package) that deems the top-up tax for a jurisdiction to be zero insofar as it relates to ‘Qualified Tax Incentives’ (QTIs).
The Top-up Tax that relates to QTIs is the difference between:
(i) the Top-up Tax for the jurisdiction calculated with the amount of QTIs used in the year being added to covered taxes (subject to a cap), and
(ii) the Top-up Tax if the SBTI Safe Harbour election hadn’t been made.
A QTI is defined as a generally available tax incentive calculated based on expenditure incurred, or on the amount of tangible property produced in the jurisdiction.
The SBTI Safe Harbour is to apply from fiscal years beginning from January 1, 2026.
Aside from the main election for the SBTI Safe Harbour to apply, the detailed rules for this contain two additional elections.
Tax Credits Election (Art 4)
An MNE group can make an annual election to treat a Qualified Refundable Tax Credit or a Marketable Transferable Tax Credit as a QTI.
Substance Cap Election (Art 4)
The substance cap referred to above for determining the amount added to covered taxes is generally 5.5% of the higher of (1) Eligible Payroll Costs in the jurisdiction or (2) the depreciation and depletion recorded in FANIL for Eligible Tangible Assets located in the jurisdiction.
However, an MNE group can make a 5 year election for the jurisdiction for the substance cap to be 1% of the carrying value of Eligible Tangible Assets located in the jurisdiction (excluding land and other non-depreciable assets) for that Fiscal Year
On January 19, 2026, South Korea issued a Draft Law to amend the Enforcement Decree to the International Tax Adjustment Act. This provides for detailed provisions for the application of the QDMTT and will also extend the Transitional CbCR Safe Harbour by 1 year (as provided in the January 2026 OECD Side-by-Side Package).
On January 19, 2026, the Hong Kong Inland Revenue Department opened its E-filing portal for the submission of Top-Up Tax Notifications
On December 31, 2025, Israel enacted Law No. Law 5776-2025 on the Minimum Corporate Tax for Multinational Groups. The enacted law contains some significant changes from the previous draft law.
On December 29, 2025, Uruguay’s President issued Decree No. 325/025, to provide for exemptions from the QDMTT for entities covered by a tax stability agreement. Note that Law N° 20446 to enact the QDMTT was published in the Official Gazette on January 8, 2026.
On December 23, 2025, Korea enacted Law number 21215 to implement the 2026 Tax Reform. This includes a QDMTT from January 1, 2026.
On January 5, 2026, the OECD Released Guidance on amendments to the Pillar 2 rules for the Side-by-Side Tax Package. This includes a new Simplified ETR Safe Harbour from December 31, 2026 (December 31, 2025 in certain cases). We provide an excel overview and a sample calculator for the key elements of the Safe Harbour calculation.
On January 5, 2026, the OECD Released Guidance on amendments to the Pillar 2 rules for the Side-by-Side Tax Package. This includes a new Substance-based Tax Incentive Safe Harbour. This online tool shows how the new safe harbour operates.
On January 5, 2026, the OECD Released Guidance on amendments to the Pillar 2 rules for the Side-by-Side Tax Package. This article looks at a number of the new elections that arise from this.
On January 5, 2026, the OECD Released Guidance on amendments to the Pillar 2 rules for the Side-by-Side Tax Package.
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