Global minimum tax – what has changed?
Since the introduction of the Pillar 2 global minimum tax rules, the international tax landscape has continued to evolve at pace. Pillar 2 has now been enacted or substantively enacted by around 140 countries, reflecting broad international consensus around a 15% minimum effective tax rate for large multinational groups.
In January 2026, further significant developments were announced by the OECD Inclusive Framework in the form of a “side-by-side” package. This package introduces a series of new and extended safe harbours and simplifications, designed to address practical challenges identified during the initial phase of implementation.
Rather than changing the fundamental policy objective of Pillar 2, these updates focus on making the rules more workable in practice, reducing duplication and compliance costs where the risk of additional top-up tax is low.
Practical impact in reducing Pillar 2 compliance burden
The January 2026 updates are widely seen as a pragmatic response to concerns raised by both businesses and tax authorities. The key theme is simplification, particularly for groups that are already subject to effective levels of taxation close to or above 15%. Many of these new safe harbours bring varying introduction timelines and so Groups must strategically review how they approach Pillar 2.
Key practical changes to Pillar 2 include:
1.New permanent simplified ETR safe harbour
A new permanent safe harbour allows groups to apply a simplified effective tax rate calculation, based largely on financial accounting data. Where the simplified ETR for a jurisdiction is at least 15% (or where the jurisdiction is loss-making), Pillar 2 top-up tax is treated as nil. This reduces the need for full GloBE calculations in many countries and significantly lowers data and reporting requirements.
2. Extension of the transitional CbC safe harbour
The existing transitional country-by-country reporting safe harbour has been extended by one additional year, now applying to accounting periods beginning on or before 31 December 2027. This provides groups with additional time to prepare for the permanent simplified ETR safe harbour while countries complete their legislative processes.
3. Substance-based tax incentive safe harbour
A new permanent safe harbour has been introduced for certain substance-based tax incentives, such as qualifying expenditure-based or production-based incentives.
Where conditions are met, the Pillar 2 top-up tax attributable to these incentives can be reduced to zero, subject to caps linked to payroll costs and tangible assets. This provides greater certainty that genuine, substance-driven incentives can continue to be effective under Pillar 2.
4. Side-by-side and UPE safe harbours
Additional safe harbours aim to reduce duplication where countries already operate robust minimum tax regimes that achieve outcomes like Pillar 2. These are particularly relevant for certain multinational groups headquartered in jurisdictions with established minimum tax systems, although local domestic minimum top-up taxes (QDMTTs) will continue to apply.
Taken together, these measures mean that while Pillar 2 remains complex, many groups may be able to significantly reduce the level of detailed calculation and reporting required, particularly on a jurisdiction-by-jurisdiction basis.
UK reporting and payment obligations
Despite the availability of safe harbours, UK compliance obligations remain extensive, and apply even where no top-up tax is ultimately payable.
In the UK, Groups within scope must consider the following:
- Registration: Required to register with HMRC for Pillar 2 purposes, generally within six months of the end of their first affected accounting period.
- Annual notification / return: Groups must assess what their filing requirements are as we would expect at a minimum the UK will need to file
- QDMTT return of the UK position; and/either
- 2.a GIR of the global position; or a notification of which entity and where the GIR is filed.
Both filings will be due within 15 months of the end of accounting period, extended to 18 months for the first year of filing.
- Tax payment: Ensure that any Pillar 2 top-up tax is paid within 15 months of the accounting period (18 months for the first year of filing).
- Software: A key component is ensuring Groups know how they will comply with Pillar 2 and a critical part is whether they have implemented appropriate software to prepare the GIR calculations.
- Safe harbours: Groups should critically review whether they are able to reduce their compliance obligations and take advantage of any safe harbours. We recommend Groups prioritise this as the reduction unnecessary compliance would be welcomed by most Groups.
What to do next – speak with Menzies
The January 2026 Pillar 2 updates create opportunities for many groups to reduce compliance burdens but only where the rules and safe harbours are applied strategically and supported by robust processes.
Menzies advises UK‑headed and inbound multinational groups on various UK tax planning opportunities such as Pillar 2, including:
- assessing exposure and scope,
- evaluating eligibility for transitional and permanent safe harbours,
- navigating UK registration, filing and payment obligations, and
- practical tax planning advice.
If you would like to understand what the latest developments mean for your group, or to review your Pillar 2 compliance approach ahead of upcoming filing deadlines, please speak to your usual Menzies contact or our corporate tax team.
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