The Pillar Two Side-by-Side Package, approved by the OECD/G20 Inclusive Framework on 5 January 2026 and confirmed for EU application by Commission Notice C/2026/253 on 12 January 2026, introduces a set of targeted simplifications and safe harbours that materially affect how EU subsidiaries of US-parented groups calculate and report their GloBE tax liability. For groups with consolidated revenue of EUR 750 million or more, the package creates both compliance relief and new analytical complexity, particularly where US entities sit outside the EU Minimum Tax Directive (EU) 2022/2523 regime. Understanding the interaction between the Directive, the OECD administrative guidance and each Member State's implementing legislation is now a prerequisite for sound tax risk management across EU structures.
Background: The Minimum Tax Directive and the US Asymmetry
Directive (EU) 2022/2523 transposed the OECD GloBE model rules into EU law, obliging Member States to apply a qualified domestic minimum top-up tax (QDMTT) and, where needed, an income inclusion rule (IIR). The Directive applies to groups with consolidated annual revenue of EUR 750 million or more in at least two of the preceding four fiscal years. For EU subsidiaries of US-parented multinational groups, a structural asymmetry immediately arises: the United States has not enacted legislation equivalent to the GloBE rules, so the ultimate parent entity (UPE) sits outside any qualifying IIR jurisdiction at the UPE level.
This asymmetry means that the EU subsidiaries – and, critically, the EU Member States in which they operate – become the primary enforcement point for minimum tax. An EU-resident subsidiary may face a top-up tax collected by its home jurisdiction under the QDMTT, or, where no QDMTT exists or it is not qualified, under the IIR applied by another EU Member State higher in the ownership chain. Anti-avoidance rules embedded in the Directive add a further layer: the undertaxed profits rule (UTPR) functions as a backstop where neither the IIR nor a QDMTT collects the full shortfall.
For legal counsel and finance teams, this creates a multi-jurisdictional compliance obligation that spans EU corporate law, local implementing statutes, transfer pricing documentation and, increasingly, the new administrative guidance issued by the OECD. Firms advising on corporate law matters in any EU Member State must now factor GloBE mechanics into entity structuring and governance advice.
What the Side-by-Side Package Changes
The Side-by-Side Package is a consolidated set of OECD administrative guidance addressing four principal areas: the UPE safe harbour, simplifications for domestic top-up tax calculations, the treatment of substance-based income exclusions (SBIEs) and substance-based incentives, and a revised methodology for certain consolidated filing scenarios. Commission Notice C/2026/253 of 12 January 2026 confirms that these measures are consistent with Directive (EU) 2022/2523 and should be applied by EU groups and tax authorities accordingly.
UPE Safe Harbour
The UPE safe harbour is directly relevant to US-parented groups. Under the package, where the US parent entity is subject to a recognised minimum tax regime at the UPE level – even one that does not fully replicate GloBE – certain adjustments may reduce the top-up tax otherwise due at the level of EU constituent entities. However, because the US has not enacted a qualifying IIR, the safe harbour's conditions are demanding and its application to any specific structure requires careful analysis. Groups should not assume the safe harbour is available without a fact-specific review.
Substance-Based Incentives and SBIEs
The treatment of substance-based incentives was one of the most contested open questions before the package was released. The package clarifies how payroll and tangible asset carve-outs interact with certain national investment incentives, including those in Member States that have introduced tax structuring measures designed to attract manufacturing and R&D activity. EU subsidiaries engaged in substantial real economic activity may benefit from refined SBIE calculations, but the details depend on how each Member State has implemented the underlying rules and whether any notified incentive regimes qualify under the package's criteria.
Romania is one example where national rules on investment deductions and employment incentives intersect with GloBE SBIE calculations in ways that require group-level modelling. Advice on tax structuring in Romania increasingly involves assessing whether local incentives remain effective after GloBE adjustments.
Simplified Domestic Top-Up Tax Calculations
For jurisdictions that have enacted a qualified QDMTT, the package introduces simplified calculation methodologies intended to reduce administrative burden. These simplifications affect how effective tax rate (ETR) computations are conducted for QDMTT purposes, potentially aligning them more closely with local financial accounting standards. EU subsidiaries operating in multiple Member States should assess whether their current compliance processes can accommodate these simplifications without introducing inconsistencies between jurisdictions.
GloBE Information Return: Filing Obligations and Current Deadlines
The GloBE Information Return (GIR) is the primary reporting instrument under the GloBE framework. First GIRs for fiscal year 2024 were due by 30 June 2026 in most implementing jurisdictions. Several EU Member States have announced extensions or penalty waivers:
- France extended its FY2024 GIR deadline to 1 September 2026, as announced on 8 July 2026.
- Portugal issued Order 76/2026-XXV of 3 June 2026, providing that GIRs may be filed without penalties until 30 September 2026.
- Belgium extended its GIR notification deadline to 30 September 2026.
On 11 September 2026, the OECD released an updated GIR applicable to fiscal years beginning on or after 31 December 2025. Groups filing for FY2025 and beyond will need to use the updated form, which incorporates changes reflecting the Side-by-Side Package and earlier administrative guidance. For US-parented groups, the updated GIR introduces additional disclosure fields relevant to the UPE safe harbour and to the treatment of any US minimum tax positions.
Groups that have not yet completed their FY2024 GIR should note that the extensions noted above are jurisdiction-specific and time-limited. Ireland, for example, maintains its own key dates schedule, published by Irish Revenue (Irish Revenue – Pillar Two key dates). Where a group has constituent entities across multiple EU jurisdictions, filing co-ordination between local advisers is essential to avoid inconsistent reporting positions.
If your group is managing GIR filing across more than one EU Member State, our team can assist with co-ordination and consistency review. Please write to info@ferrazwhitmore.com or visit our contacts page to arrange an initial discussion.
Interaction with Anti-Avoidance Rules and Transfer Pricing
The Side-by-Side Package does not operate in isolation from existing EU and national anti-avoidance frameworks. EU subsidiaries of US-parented groups must consider the interplay between GloBE top-up tax obligations and measures such as the Anti-Tax Avoidance Directives (ATAD I and ATAD II), controlled foreign company (CFC) rules applied at EU subsidiary level, and hybrid mismatch provisions. Where a group has intercompany financing, IP licensing or services arrangements between US and EU entities, the transfer pricing documentation must be consistent with both the arm's length standard and the GloBE adjusted financial accounts.
The UTPR, in particular, raises questions about whether existing tax treaty provisions can limit its application. This issue remains subject to ongoing OECD guidance and has not yet been definitively resolved by any CJEU or national tribunal ruling. Groups relying on treaty positions to mitigate UTPR exposure should document their analysis carefully and monitor developments at both the OECD and European Commission level, including any EUR-Lex publications amending or supplementing Directive (EU) 2022/2523.
Transfer pricing adjustments that alter the distribution of profit between US and EU entities can also shift the GloBE ETR calculation across jurisdictions, creating a feedback loop between transfer pricing compliance and top-up tax liability. Groups undergoing a tax audit in any EU Member State may find that the auditing authority reviews GloBE calculations alongside transfer pricing documentation, particularly where the group's reported ETR in a given jurisdiction is close to the minimum rate threshold.
Analysis of how tax-neutral reorganisations interact with the GloBE and Merger Directive frameworks is relevant for groups considering structural changes in this environment. Our detailed guide on tax-neutral reorganisations under the Merger Directive addresses several of these cross-cutting issues.
ESMA, EBA and Financial Reporting Considerations
For EU-regulated entities within US-parented groups – including banks, investment firms and funds subject to EBA and ESMA oversight – GloBE top-up tax liabilities must be reflected in financial reporting under applicable accounting standards. The interaction between GloBE deferred tax accounting and regulatory capital calculations has attracted attention from both ESMA and EBA in their supervisory guidance. Groups should ensure that their accounting treatment of current and deferred GloBE liabilities is consistent with International Accounting Standards Board (IASB) guidance and with any supplementary positions taken by national competent authorities.
Strategic Considerations for US-Parented Groups
The Side-by-Side Package does not eliminate the structural challenge facing US-parented groups in the EU; it refines the framework within which that challenge must be managed. Several strategic considerations arise:
- Entity structure review: Groups should assess whether the current distribution of functions, assets and risks across EU constituent entities remains optimal in light of SBIE calculations under the updated package. Entities with significant payroll and tangible assets may achieve a more favourable ETR, reducing top-up tax exposure.
- QDMTT reliance: Where an EU Member State has enacted a qualified QDMTT, top-up tax collected there should prevent additional collection under the IIR or UTPR by another jurisdiction. Confirming the qualified status of each relevant QDMTT – and monitoring any legislative amendments – is an ongoing obligation.
- Safe harbour eligibility: Groups should model UPE safe harbour conditions in light of the Side-by-Side Package and assess whether any US minimum tax measures satisfy the relevant criteria. This analysis will require input from both US and EU counsel and should be documented for potential tax audit purposes.
- Filing co-ordination: Given that the updated GIR applies from fiscal years beginning on or after 31 December 2025, groups should align their internal reporting timetables with the revised form's requirements and with each Member State's deadline schedule.
- Monitoring legislative developments: The European Commission and individual Member States continue to issue guidance on open questions under the Directive. Groups should have a process for monitoring EUR-Lex publications, Commission notices and national implementing measures, and for assessing their impact on existing tax risk management positions.
Our team works with international groups to review GloBE exposure across EU jurisdictions, assess the impact of the Side-by-Side Package on existing structures, and co-ordinate filing obligations. To discuss your group's specific circumstances, please contact us at info@ferrazwhitmore.com or use our contacts page.
Open Questions and Outlook
Despite the clarity introduced by the Side-by-Side Package, a number of issues remain unresolved or subject to national interpretation. The UTPR–tax treaty interaction has not been settled at the international level and may eventually require CJEU or national court rulings to resolve. The treatment of deferred tax assets arising from GloBE adjustments continues to generate divergent views across Member States. The Commission Notice C/2026/253 is a notice rather than a binding legislative act, which means its legal weight in domestic proceedings may be contested.
The release of the updated GIR on 11 September 2026 signals that the OECD Inclusive Framework will continue to issue refinements to the administrative framework as implementation experience accumulates. Groups that have invested in robust GloBE compliance infrastructure will be better positioned to absorb these changes without disrupting their broader tax structuring positions. Those that have deferred detailed analysis should treat the FY2024 filing cycle and the transition to the updated GIR as a prompt to undertake a comprehensive review.
Looking ahead, the trajectory of US international tax policy will remain a key variable. Any US legislative development that creates a qualifying regime at the UPE level would materially alter the GloBE calculus for US-parented groups operating in the EU, potentially activating safe harbour provisions that are currently inaccessible. Groups should build scenario analysis into their planning to account for this possibility.
Sources
- Irish Revenue – Pillar Two key dates: https://www.revenue.ie/en/companies-and-charities/pillar-two/dates/index.aspx
For a detailed assessment of your group's position under the Side-by-Side Package and Directive (EU) 2022/2523, contact Ferraz & Whitmore at info@ferrazwhitmore.com or visit our contacts page.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.