What the January 2026 package changes
Approved on 5 January 2026, this 88-page OECD package introduces the permanent Simplified ETR Safe Harbour, extends the transitional CbCR safe harbour, adds relief for substance-based tax incentives and establishes the Side-by-Side and UPE safe harbours. It supplements the common GloBE approach rather than replacing domestic implementation. This independent explanatory article follows the source edition and does not state which jurisdictions currently appear in the OECD Central Record. This is an adaptation of an original work by the OECD. The opinions expressed and arguments employed in this adaptation should not be reported as representing the official views of the OECD or of its Member countries.
QDMTTs remain central to every part of the package
Side-by-Side and UPE relief do not turn off QDMTTs. All groups, including groups eligible for those safe harbours, remain subject to domestic top-up taxes wherever they operate, calculated without pushing down foreign CFC or branch-owner taxes. Members commit to crediting QDMTTs on the same terms as other creditable foreign income taxes. Conditional or discriminatory taxes are not recognised as covered taxes, and qualified domestic minimum taxes must apply consistently regardless of a group’s Side-by-Side election. The package schedules an evidence-based stocktake by 2029, addressing inversions, low-tax profit shifts, competitive risks and opportunities for alignment.
The permanent simplified test and its starting date
Elect annually for each tested jurisdiction. Top-up tax is deemed zero if simplified taxes divided by simplified income is at least 15%, or if there is a simplified loss subject to the negative-tax rules. The general commencement is fiscal years beginning on or after 31 December 2026. Optional early access begins on or after 31 December 2025 where the QDMTT safe harbour applies, only one jurisdiction has GloBE taxing rights, or every taxing jurisdiction has adopted early access and the group elects in all of them. Domestic implementation and the specified conditions remain necessary.
A country can contain several tested jurisdictions
A tested jurisdiction is the entity or blending group requiring a separate GloBE ETR, not simply a country name. Ordinary constituent entities form one group; each JV group, standalone JV, minority-owned subgroup and standalone minority-owned entity is separate. Eligible investment or stateless entities also retain separate treatment. The source’s example of ten ordinary entities, two JV groups, one standalone minority-owned entity and one eligible investment entity creates five tests in one country. An annual election can blend eligible same-country investment entities with ordinary non-minority entities only where all constituent owners are local and none uses Article 7.5 or 7.6. Excluded entities do not enter income or tax calculations unless a relevant election removes their excluded status.
Use reliable accounting data with consistent standards
Use the data required by Articles 3.1.2 and 3.1.3, including appropriate data for JVs or entities not consolidated line by line. Reliable jurisdictional aggregate data may replace entity-by-entity calculations only if it produces the correct allocation; PE and residence tests can still require entity detail. Fiscal-period and currency rules remain applicable. A QDMTT using local financial accounting normally requires that local standard for the simplified test, unless it expressly allows a recognised alternative. Electing the CFS standard in one jurisdiction requires it in all jurisdictions offering that choice, consistently in later years and after re-entry. This does not override an Article 3.1.3 alternative data source.
Calculate the income starting point before basic adjustments
Jurisdictional profit before income tax starts with aggregate financial accounting net income plus the relevant income-tax expense. Do not add consolidation-only deferred tax to that profit starting point. Reverse consolidation eliminations except for a valid same-tested-jurisdiction Article 3.2.8 election. Remove PPA effects unless the M&A simplification applies. Basic adjustments remove excluded dividends and equity gains or losses, and add back illegal payments and each fine or penalty of at least EUR 250,000. The higher fine threshold is specific to this safe harbour. Insurance reserve expenses economically corresponding to excluded dividends or equity gains must also be removed.
Financial-services and shipping adjustments retain conditions
Apply insurance policyholder-tax recharge rules unless an annual election opts out. AT1 and RT1 payments and receipts follow Article 3.2.10 regardless of accounting debt or equity classification, with matching equity-reported tax. International shipping and qualified ancillary income are excluded with their taxes unless a five-year election includes them in profitable combined shipping years. That election does not include combined loss years or full-GloBE years, but those years count towards its five-year duration. Thus an election in year one continues on re-entry in year four; revocation from year six bars a new election for the next four years.
Equity-reported income and losses are treated differently
No adjustment is required for qualifying revaluation or prior-period-error expenses and losses recorded in equity or OCI. Positive income must be added unless taxed at least at 15% and the corresponding tax is also in equity or OCI. If that tax is a DTL, it must be a recapture-exception accrual. The waiver is therefore not a general exclusion of all OCI: untaxed or low-tax income must enter the test, and a non-exempt DTL cannot qualify merely because it sits outside the income statement.
M&A simplification requires unchanged tax basis and matching deferred tax
For acquisitions of controlling interests and GloBE reorganisations, normally remove the gap between GloBE and book carrying values from income and tax. Simplification is available where all relevant assets and liabilities, except goodwill, retain the same tax basis before and after the transaction and have corresponding deferred tax recorded at least at 15%. Keep the book depreciation or other income effect, exclude the initial deferred-tax accrual, and include its reversal even if that DTL is not a recapture-exception accrual. Add back goodwill impairment or amortisation unless supported by an adequate corresponding DTL; exclude the related inadequate reversal. Records remain necessary for subsequent full-GloBE years.
Fair-value elections and the acquisition example
Where a current tax triggering event adjusts tax basis to fair value, Article 6.3.4 may be elected. A prior M&A transaction can also qualify if the election was unavailable then and some or all tax bases were stepped up; the election applies to every transferred asset and liability. Recognise the beginning-of-election-year difference immediately or over five years, including years outside the safe harbour. In the example, price 1,000 less net assets 800 gives PPA 200, allocated to a tangible asset, DTL 30 and goodwill 30. Five years of additional depreciation 40 and DTL reversal 6 give 144/960 = 15% instead of 150/1,000. Year-five goodwill impairment 30 must be added back; otherwise 144/930 falsely raises the ETR to approximately 15.5%.
Income elections and their continuity
Available Chapter 3 elections cover portfolio dividends, equity investment inclusion, excluded-equity FX hedges, debt release, share compensation, realisation, five-year capital-gain spread and local consolidation. Existing multi-year elections continue across safe-harbour and full-GloBE years. NMCE annual simplification uses relevant CbCR total revenue as income and current-year accrued income tax as taxes, for selected or all NMCEs. A capital-gain allocation to an earlier safe-harbour year requires recalculating that year’s simplified ETR; if it falls below the minimum, perform the full calculation. Asymmetric-FX and pension adjustments are required unless separately waived by five-year elections, which also continue in full-GloBE years.
Simplified taxes exclude unsupported or unrelated amounts
Start with current and deferred income tax in entity accounts plus attributable consolidation-level deferred tax. Remove non-covered taxes and taxes on excluded income, adjust credits and refunds, and exclude uncertain or disallowed accruals until paid. Exclude current tax not expected to be paid within three years. Do not create a positive tax adjustment just because a current loss or expense is tax-deductible but absent from simplified income. Deferred tax excludes valuation allowances, recognition adjustments, rate-change effects and credit-generation/use items, except the permitted substitute-loss DTA.
Recast deferred taxes and remove non-exempt DTL movements
Net included deferred-tax expense is recast only where its accounted rate exceeds 15%, using expense multiplied by 15% divided by that accounted rate. A rate below 15% is not increased automatically. Different bases or rates require a methodology consistent with GloBE principles. Generally exclude non-recapture-exception DTL accruals and reversals, avoiding five-year tracking. Include reversals linked to qualifying M&A simplification and reversals of DTLs actually counted in a previous qualified IIR, UTPR or QDMTT calculation; otherwise the group would obtain a double benefit. A GloBE loss election replaces accounting deferred tax with the deemed loss-DTA method.
Negative-tax losses must be carried into later years
For a simplified loss and negative taxes, compute the negative excess as simplified taxes minus loss multiplied by 15%. Carry it forward and use it like an excess-negative-tax carry-forward, including when returning to full GloBE. An alternative loss-DTA adjustment is available during five consecutive years from transition only if the transition year and every preceding year in that period had a tax loss, simplified loss and nil or negative adjusted tax. It adds the recast loss DTA attributable to permanent differences and DTLs for goodwill or indefinite-life intangibles. Carry it forward to reduce later loss-DTA reversals, never below zero. A taxable-profit, simplified-profit or positive-tax year ends access to that transitional alternative.
Optional tax adjustments and unused tax credits
Annual choices permit including covered taxes recorded outside income-tax expense, taxes on included equity income, and qualifying QRTCs or MTTCs recorded as tax reductions. The default avoids reclassification of those credits. If elected, add the relevant credit to both taxes and income; for an older partly unused credit, add only the unused amount to income in the election year and continue the election until full use. SBTI relief and the GloBE loss election are available. Unclaimed-DTL treatment, immaterial tax-decrease treatment and omission of cross-border deferred-tax allocation already follow the simplified defaults and do not require redundant elections.
The simplified safe harbour does not postpone transition
The transition year is the earlier applicable transition year or first simplified-safe-harbour year, and does not reset on re-entry. For CbCR relief in 2024–2026, simplified relief in 2027, full rules in 2028–2029 and re-entry in 2030, transition stays 2027. Articles 9.1.1–9.1.3 govern prior deferred tax and asset transfers. Relevant seller-tax evidence can support a 15% DTA or fair-value basis under the stated conditions without reconstructing asset-by-asset tax paid. Transfers from a seller already using this permanent simplified safe harbour are not pre-transition transfers merely because safe-harbour relief applies.
Post-year-end adjustments normally belong to the accrual year
Include later income and tax changes in the year accrued. A group-wide five-year election can move non-transfer-pricing adjustments accrued within twelve months back to the transaction year; transfer-pricing has a separate election. On starting the election, include preceding-year accruals in the election year; on revoking it, remove items already counted in the preceding transaction year. Later than twelve months, there is no such election. A tax adjustment linked to income must bring that income into the accrual-year test even if the accounts recorded only the tax.
Refund relief uses cumulative prior-year testing
If a tax decrease more than twelve months later would depress the accrual-year ETR, it may be excluded from that year if the original year remains at least 15% after all refunds and corresponding deferred effects. In the source, year-one taxes 300/income 1,200 become 200/1,200 after refund 100, still 16.7%; year-two 250/1,500 become 200/1,500 after refund 50, below 15%. The third year starts with tax 100/income 1,000 after both refunds. Adding back the eligible 100 mathematically gives 200/1,000 = 20%. Page 52 instead prints 15% using [50+100]/1,000: that is an original numerical inconsistency, not a valid recalculation. An additional year-four refund of 80 reduces cumulative year-one tax to 120/1,200 = 10%, so that further refund cannot be added back.
Default cross-border allocation follows domestic priority
Allocate PE and transparent-entity income and taxes under the prescribed articles. Generally exclude owner or main-entity taxes allocable to a subsidiary or PE from both tested jurisdictions, retaining source-jurisdiction withholding on local distributions. A group-wide five-year election can restore all specified cross-border categories where the recipient jurisdiction has no QDMTT; it cannot select only one category. Where the recipient has a QDMTT, the allocated taxes remain excluded everywhere. PE taxes covered by the separate PE simplification cannot also be pushed down under that election.
PE simplification includes branch income and a capped credit
An annual jurisdictional PE election is available to main entities in taxable-branch systems with BEPS Action 2-consistent anti-hybrid rules, provided domestic deferred taxes are not recorded below 15%. Include branch income or loss to the extent taxed domestically, related main-entity tax and the used foreign-tax credit, capped by domestic nominal rate times included branch income. Allocate blended credits by branch income divided by total foreign income. Continue the election after claiming a branch loss until the year after equivalent branch income has been included. The branch’s own source calculation is not inflated by owner tax. In the example, total income 100 includes branch 20, domestic rate 20%, source tax 2 and credit 2: simplified tax stays 20 and ETR 20%. If source tax and credit were 5, the add-back cap is 4. Credits 15 on foreign income 150, including branches 100, allocate 10 to branches.
Transfer prices must match tax and counterparty records
Later TP taxable-income adjustments and related tax normally enter the accrual year, with an equal counterparty income adjustment if none was recorded. A group-wide five-year election moves those accrued within twelve months to the transaction year. A seller recording a cross-tested-jurisdiction transfer at cost must use its taxable transfer price, or arm’s-length price if untaxed. The buyer generally keeps book carrying value and the corresponding recast DTA, but intangibles must use the seller’s arm’s-length value. Transfers within the same tested jurisdiction that create non-arm’s-length losses also require adjustment; a disallowed loss is treated as a TP adjustment. Different blending groups in one country are treated like cross-border parties.
Tax-neutral entities can have deemed-zero results
Flow-through UPEs and relevant PEs follow Article 7.1; deductible-dividend UPEs and relevant entities follow Article 7.2. Deem their income and taxes zero where all owners are qualified persons, and for deductible-dividend cases all income is distributed as qualifying dividends. If other local entities remain, test their residual income and tax. A non-UPE transparent entity is zero where all attributes are allocated to PEs or constituent owners. Investment entities are zero where every constituent owner treats them as transparent under Article 7.5 or the applicable definition. These exceptions do not admit every stateless or investment entity into the safe harbour.
Eligibility restrictions and first-entry conditions
Stateless and investment entities are generally ineligible except the specified transparency cases. A jurisdiction using Article 7.3 cannot enter while its deemed-distribution recapture account has an opening balance; eligibility returns in the year after it reaches zero. First entry requires no top-up-tax liability in every fiscal year beginning within the preceding 24 months. Non-scope years, full-rule years with no liability and valid safe-harbour years can satisfy that initial test. Any top-up liability in either relevant year prevents entry; a blended same-country investment election requires both sets to pass.
Re-entry is more restrictive than first entry
After a year without the election, re-entry requires no top-up liability in the relevant 24-month years under full GloBE or a specified safe harbour. NMCE simplified calculation is specified; transitional CbCR and QDMTT safe harbours are not. CbCR has its once-out rule, while QDMTT relief can coexist with actual domestic top-up tax. The tables confirm re-entry after two no-tax full years, or no-tax plus specified relief, but not when either year had top-up tax. Additional current top-up tax attributable to an earlier fiscal year is disregarded for this test.
Four integrity principles prevent missing or duplicate attributes
Match intra-group income and expenses in amount and timing, allocate all income, deduct each expense or loss only once, and count each tax only once. Remove duplicated expense or tax from all affected jurisdictions and allocate missing income to the correct jurisdiction. A mismatch solely from permitted local-versus-CFS standards can satisfy matching, but instruments must use the issuer’s debt/equity classification consistently. An expense of 100 recharged for income 100 and deducted by the recipient is economically deducted once, not twice. The PE simplification has its stated exception. Further anti-arbitrage and continuity work is described as future work in this edition.
CbCR transition extends through 2027 starting years
The transitional CbCR safe harbour now covers fiscal years beginning on or before 31 December 2027, excluding any ending after 30 June 2029. The simplified-ETR transition rates remain 15% for 2023–2024, 16% for 2025 and 17% for 2026 and 2027. The existing de minimis, routine-profit and qualified-data framework continues. This is an extension of a different safe harbour, not the permanent 15% simplified-ETR test. The source describes development of replacement routine-profit and de minimis tests and reporting changes as work scheduled for the first half of 2026.
SBTI relief applies only to qualified actual incentives
For years beginning on or after 1 January 2026, an election increases adjusted covered taxes by the lower of qualified tax incentives (QTIs) used and the substance cap. It relieves only corresponding top-up tax, not all local profits. A QTI is generally available and based directly on incurred expenditure or locally produced tangible-property units. Grants, subsidies, non-covered-tax reductions and incentives for excluded GloBE income are outside scope. Purely accelerated deductions are timing differences, not QTIs; the additional permanent super-deduction portion can qualify. Combined benefits on the same expenditure cannot exceed that expenditure. Production incentives must be volume-based, not sale-value or revenue-based, and can include electricity, extraction and refining.
Published conditions, actual activity and timing govern QTI eligibility
The expenditure or output must exist when the final incentive amount is determined. Earlier-period costs or units can qualify, but not those predating the incentive’s entry into effect or merely promised future activity. Advance project approval is permissible if the final amount follows actual costs. Accrued or paid expenditure, acquisition of a non-depreciable asset and later depreciation can meet the expenditure condition. Later utilisation does not disqualify the incentive. It cannot be restricted to GloBE-sized groups or depend critically on discretionary government arrangements; ordinary acknowledgement of published criteria is allowed. Related-benefit monitoring can exclude formally qualifying incentives designed to return minimum tax.
QRTC conversion and the capped-credit example
An annual election can treat qualifying QRTCs or MTTCs, or only part of them, as QTIs. Remove the elected part from GloBE income and treat it as a tax reduction before applying the capped QTI tax increase. Unelected parts retain ordinary income treatment; remove tax attributable to any elected taxable credit income. In the example, income 11,000 includes QRTC 1,000, pre-credit tax is 1,500 and a further non-refundable credit 500 leaves adjusted covered tax 1,000 and ETR 9.1%. With cap 1,100, restoring the non-refundable 500 gives tax 1,500 and 13.6%. Electing 600 of QRTC as QTI uses the remaining cap, removes income 600 and yields 1,500/10,400 = 14.4%; it does not automatically eliminate all top-up tax.
Measure used incentives in tax-value terms
For credits, use the actual tax-liability reduction, including previously carried credits used now: reduction 60 plus carried credit 20 gives 80, without reviving excluded credit-DTA reversals. For enhanced deductions or expenditure-based exemptions, multiply the additional claimed deduction or exempt income by the statutory rate. A 150% deduction ordinarily has additional value of 50% of costs times the rate. If expenditure would otherwise be non-deductible, the qualifying additional amount can be the full allowance. A preferential 15% rate instead of 20% on expenditure-linked income 2,000 gives a benefit of 100.
Super deductions can relieve both present and future tax
The adjustment is made when the super deduction is claimed, even if it creates a tax loss used later. The example has income 1,000, additional deduction 1,500 and tax rate 15%, creating a loss DTA 75. Without relief, year one top-up is 150 with negative-tax carry-forward 75, and year two income 500 gives further top-up 75 after the DTA reversal is offset: total 225. With sufficient cap, QTI value 225 raises year-one tax from −75 to 150, giving ETR 15% and no negative carry-forward. Year-two DTA reversal 75 over income 500 also gives 15%. The example assumes sufficient cap and ignores SBIE; neither assumption should be omitted.
The substance-cap wording needs careful verification
The formal box on page 71 states 5.5% multiplied by the greater of eligible local payroll or local eligible-asset depreciation and depletion. The introductory summary and page 78 commentary instead describe the greater of 5.5% of payroll or depreciation and depletion. Those expressions are mathematically different; this original document does not provide a numerical cap example resolving the inconsistency. Check the corrected OECD text and applicable domestic rule before using either expression in a live calculation. The alternative is clear: a jurisdictional five-year election uses 1% of eligible tangible-asset carrying value, excluding land and non-depreciable assets. Payroll for the default measure can include capitalised payroll. After revoking the carrying-value election, exclude depreciation on assets whose values previously counted, preventing switching methods for the same asset’s benefit.
Side-by-Side relief depends on the UPE jurisdiction
A group can elect Side-by-Side relief only if its UPE is located under Article 10.3 in a jurisdiction with a qualified regime listed in the Central Record. It deems IIR and UTPR top-up tax zero for controlled domestic and foreign operations, including stateless and minority-owned entities and intermediate or partially owned parents. The group’s JV interests also qualify, but another group’s interest in the same JV does not. An entity that is itself another group’s UPE does not acquire relief merely because an eligible group owns 50%. A non-eligible-headquartered group cannot claim relief just for operations in an eligible country. QDMTTs continue without foreign-owner tax pushdown.
Domestic eligibility requires more than a 20% headline rate
The domestic system needs at least 20% generally applicable nominal corporate tax after broad preferential adjustments and the lowest combined sub-national rate, a QDMTT or financial-statement-based corporate alternative minimum tax at least 15% covering a substantial portion of aggregate in-scope income, and no material risk of overall domestic ETR below 15%. A 20% rate with a general 25% income deduction, exemption or equivalent 5% credit counts as 15%, failing the first test. The alternative minimum tax may use consistent depreciation, share-compensation, high-tax exclusions and credits without itself qualifying as a QDMTT. Substantial coverage is assessed across aggregate in-scope income, not necessarily each group. The risk assessment is pragmatic, holistic and over time, not defeated by every hypothetical low-rate item.
Worldwide eligibility and assessment timing
The worldwide system must apply broadly to resident corporations’ active and passive foreign-branch and controlled-company income, even undistributed. Limited exclusions may cover generally high-tax income, but excluding highly mobile royalty income fails. Substantial unilateral BEPS protection must prevent high-tax active-income credits sheltering low-tax passive income. There must be no material risk of overall foreign ETR below 15%, and QDMTT credits must be available on the same terms as other creditable covered tax, subject to ordinary credit limits. The source schedules review of requested pre-existing regimes by the first half of 2026 and requests from other members in 2027 or 2028, considering effective legislation, review time and the stocktake.
Side-by-Side commencement, reporting and changes
Relief applies to fiscal years beginning on or after 1 January 2026, or a later Central Record date, not earlier years. Later-adopting jurisdictions are expected to give retrospective relief unless superior law prevents it, then adopt at the earliest practical date. GIR Section 1 records the election; Section 1.4 high-level summary is not required. An IIR/UTPR jurisdiction without local QDMTT receives that general section, while a QDMTT jurisdiction also receives its jurisdictional section. Local QDMTT obligations remain. Material regime changes must be notified within three months, including foreseeable changes to eligibility and material expansion of incentives; monitoring also contemplates anonymised aggregate data.
UPE relief is narrower than Side-by-Side relief
The UPE safe harbour applies from fiscal years beginning on or after 1 January 2026 where the UPE jurisdiction has a qualified domestic regime enacted and effective by that date and recognised in the Central Record. It uses the same three domestic criteria, without requiring the worldwide regime. The election deems only UTPR top-up tax on the group’s UPE-jurisdiction constituent entities zero. Foreign operations, IIR exposure and all QDMTTs are unaffected. GIR records the election without extra proof beyond its existing UPE and structure information. The same material-change notification principles apply. The package describes this as replacing transitional UTPR relief; it is not simply permanent relief for every country with a 20% headline tax rate.
Official source
This article independently explains the substantive contents of the official PDF, including the relevant conditions, procedures and annexes. The linked document remains the authoritative source for its original wording, and later changes should be checked separately.
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