On 5 January 2026, the OECD/G20 Inclusive Framework published the SbS Package, an 88-page set of administrative guidance introducing new safe harbours and simplifications to the Pillar Two global minimum tax rules.

The Package was the product of extended negotiations between the United States and the OECD, following the US rejection of Pillar Two implementation in early 2025 and a subsequent agreement reached at the G7 in June 2025 to accommodate the US tax system alongside the GloBE framework. Australia’s Budget announcement formally commits to legislating these changes domestically.

The SbS Package contains five key components:

.Side-by-Side Safe Harbour. MNE groups with an Ultimate Parent Entity (UPE) in a jurisdiction with a "Qualified SbS Regime" can elect to have their Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) top-up tax deemed as zero. The United States is currently the only jurisdiction listed on the OECD’s Central Record as having a Qualified SbS Regime. Importantly, Qualified Domestic Minimum Top-up Taxes (QDMTTs) remain fully applicable. The safe harbour does not override a host jurisdiction’s right to collect domestic top-up tax.

.UPE Safe Harbour. A complementary safe harbour that allows MNE groups with a UPE in a jurisdiction meeting domestic (but not worldwide) minimum taxation requirements to exclude that jurisdiction’s profits from the UTPR. No jurisdiction currently qualifies, but the framework is designed to accommodate future additions.

.Permanent Simplified ETR Safe Harbour. A new permanent safe harbour replacing the transitional CbC Reporting Safe Harbour over time. Where a jurisdiction’s Simplified Effective Tax Rate is at least 15%, the Pillar Two top-up tax for entities in that jurisdiction is deemed to be zero. This is expected to meaningfully reduce compliance burdens for a significant share of jurisdictions.

.Extension of the Transitional CbCR Safe Harbour. The existing Transitional Country-by-Country Reporting Safe Harbour is extended by one year, now applying to fiscal years beginning on or before 31 December 2027 and ending by 30 June 2029.

Substance-Based Tax Incentive (SBTI) Safe Harbour. A new elective safe harbour that allows MNE groups to treat certain qualified tax incentives (such as R&D credits) as an addition to Covered Taxes, reducing the risk that substance-based incentives inadvertently trigger top-up tax exposure.

•       Eligible to elect the SbS Safe Harbour from 1 January 2026, effectively removing IIR and UTPR exposure across all jurisdictions.
•       QDMTTs remain fully applicable, including Australia’s Domestic Minimum Tax (DMT). The safe harbour does not reduce Australian DMT obligations.
•       GloBE Information Return (GIR) filing obligations continue, though the data required may be limited to information necessary for local QDMTT purposes.
•       2024 and 2025 compliance obligations remain unchanged. The SbS Safe Harbour does not apply retrospectively.

•       Benefit from the Simplified ETR Safe Harbour and the extension of the Transitional CbCR Safe Harbour, both of which reduce compliance complexity.
•       May benefit from the SBTI Safe Harbour where group entities claim qualifying tax incentives in other jurisdictions.
•       Full IIR and UTPR obligations continue to apply where the group has low-taxed entities overseas.

• Australian subsidiaries of non-US-parented groups remain subject to the full GloBE framework, including potential IIR and UTPR exposure.    
• Simplified ETR and SBTI Safe Harbours may provide compliance relief at the jurisdictional level.

Transfer pricing outcomes remain a key determinant of where profits are recognised, how effective tax rates are calculated, and whether top-up tax exposure arises at the jurisdictional level. For MNEs operating across Australia and the Asia-Pacific region, several dynamics remain front of mind:

      Margin sustainability under a minimum tax lens. Even modest transfer pricing adjustments can shift jurisdictional ETRs above or below the 15% threshold. This is particularly relevant where Australian entities earn returns at the lower end of benchmarked ranges.

      Intercompany financing and intangibles. Intragroup loans, guarantee fees, IP licensing and centralised services arrangements are already ATO focus areas. Under Pillar Two, these arrangements also affect GloBE ETR outcomes, increasing the likelihood of dual scrutiny from tax authorities in multiple jurisdictions.

      Documentation quality and cross-border consistency. Master File and Local File documentation is increasingly being relied upon beyond traditional transfer pricing audits. Inconsistent narratives or functional characterisations across jurisdictions now carry broader consequences, including for Pillar Two modelling, QDMTT calculations and dispute risk.

      Safe harbour eligibility and TP alignment. Groups seeking to rely on the Simplified ETR Safe Harbour or the SBTI Safe Harbour will need to ensure that their transfer pricing outcomes and underlying documentation are consistent with the data used in their GloBE calculations.

•       Assessing whether US-parented groups within the organisation are eligible for the SbS Safe Harbour and understanding the interaction with Australia’s DMT
•       Evaluating the availability of the Simplified ETR and SBTI Safe Harbours for non-US jurisdictions within the group
•       Reviewing current transfer pricing policies and benchmarking results to ensure they remain defensible under both arm’s length principles and the Pillar Two minimum tax framework
•       Stress-testing intercompany arrangements, particularly financing, IP licensing and service fee structures, against GloBE ETR thresholds
•       Ensuring Master File and Local File documentation is consistent with the data and narratives used in GloBE Information Returns and QDMTT filings
•       Confirming that 2024 and 2025 compliance obligations remain on track, as these are unaffected by the SbS Package

Early action is particularly important for groups operating across Australia, the United States and Asia, where misalignment between regimes can amplify risk rather than reduce it.