The Inclusive Framework's agreement, reached at the start of 2026, on a US-proposed side-by-side arrangement for the global minimum tax marks the most significant departure from multilateral tax coordination since the OECD's Base Erosion and Profit Shifting (BEPS) project began just over a decade ago. For tax practitioners advising multinational groups, the arrangement alters the compliance landscape, shifts the competitive calculus and raises urgent questions about data readiness, entity structure and long-term planning.
Background: from convergence to coexistence
The BEPS project set in motion a sustained push toward common international tax standards. Over a decade, governments moved, however unevenly, toward shared norms of transparency, substance requirements and minimum effective taxation. Pillar Two was the culmination of that effort: a multilateral framework designed to impose a 15% global minimum tax applied consistently across adopting jurisdictions.
That convergence story has now fractured. When the United States Congress enacted the One Big Beautiful Bill Act (OBBBA) in 2025, it reinforced the approach established by the 2017 tax reforms and signalled that the US intended to engage with Pillar Two on its own terms, not subordinate its domestic regime to it.
The OBBBA's principal provisions include the restoration of full expensing of research and development (R&D) costs, renewal of bonus depreciation, a reduction in the effective rate on foreign-derived intangible income (FDII) through limits on expense allocation, and retention of the 21% corporate tax rate. Together, these measures are designed to make the US a highly attractive location for capital and intellectual property.
What the side-by-side arrangement does
In January 2026, the OECD announced that Inclusive Framework members had agreed to a US-proposed side-by-side arrangement for assessing compliance with the global minimum tax. The agreement was the outcome of six months of intensive negotiations within the Inclusive Framework. It incorporates three principal elements: a permanent simplified compliance mechanism, new rules on substance-based tax incentives, and the core side-by-side arrangement itself.
At its heart, the arrangement recognises that a jurisdiction's tax system may be treated as producing outcomes equivalent to Pillar Two without conforming precisely to the model rules. For US-parented multinational groups, this means that entities subject to the US corporate tax regime on US and foreign income will not also be subject to Pillar Two top-up taxes imposed by other Inclusive Framework jurisdictions, provided the US system meets the agreed equivalence criteria. Full Pillar Two reporting obligations remain in place for 2024 and 2025; from the point at which the side-by-side system takes effect, reporting obligations for qualifying US-headquartered groups will be reduced.
The OECD's Director of the Centre for Tax Policy and Administration, Manal Corwin, described the agreement at an OECD webinar on 13 January 2026 as "a testament to the strong commitment among Inclusive Framework members" to international cooperation. Corwin emphasised that members shared "a common appreciation for the value and importance of cooperation for promoting certainty and stability over unilateral actions" and understood that "the stakes of failure to reach consensus were far broader than the impact on Pillar Two itself."
A shift in the architecture of cooperation
The arrangement is significant not merely for its technical content but for what it signals about the direction of international tax policy. Pillar Two was conceived as a universal floor: a common standard applied identically across adopting jurisdictions. The side-by-side approach reflects a different philosophy, one rooted in the view that national tax systems can be recognised as equivalent without being identical. It is, in effect, a move from multilateralism to selective cooperation.
That shift has been registered by governments worldwide. In Asia-Pacific, Europe and Latin America, policymakers are reassessing how far global tax cooperation can realistically extend and are renewing their focus on national competitiveness. Some jurisdictions that have enacted qualifying Pillar Two rules are reviewing whether to modify their systems to qualify as eligible tax regimes under the side-by-side arrangement. Others that have relied on competitive tax policies but have already adopted domestic minimum tax rules may reconsider those commitments in order to attract investment. Both trends risk accelerating divergence.
The near-enactment of a proposed new Section 899, which would have imposed taxes on businesses from countries applying extraterritorial or discriminatory taxes on US multinationals, adds to the atmosphere of uncertainty. The provision was withdrawn before passing into law, but its introduction altered boardroom behaviour and demonstrated that US legislative activity can reshape planning even when proposals do not ultimately succeed.
Compliance complexity
For non-US-headquartered multinational groups, the side-by-side arrangement adds a layer of complexity rather than removing one. These groups must navigate the Pillar Two model rules as implemented by each adopting jurisdiction while also assessing whether, and how, the side-by-side arrangement affects their US-sourced income and their exposure to top-up taxes imposed in jurisdictions where they operate.
The practical risk is a patchwork of overlapping safe harbours, divergent filing obligations and inconsistent dispute-resolution mechanisms across jurisdictions that are all nominally implementing the same 15% minimum tax but are doing so in ways that measure the same income differently. For tax teams, this means modelling multiple effective tax rates simultaneously and reconciling the outputs against different frameworks.
Data infrastructure is the critical pressure point. Multinational groups need to pull consolidated, jurisdiction-level data from across their subsidiary networks, not only to satisfy compliance requirements but to engage credibly with tax authorities and, where appropriate, with policymakers as rules continue to evolve.
Investment and planning decisions
The OBBBA's combination of a stable 21% corporate rate, full R&D expensing, FDII rate reduction and bonus depreciation creates a materially more attractive environment for high-value assets in the US. In a post-Pillar-Two world where most jurisdictions are constrained by a 15% minimum floor, holding intellectual property in the US has become as attractive, or arguably more so, than in the traditional low-tax hubs that multinationals previously favoured.
Early indications suggest that some multinational groups, particularly in manufacturing, energy and life sciences, are evaluating whether to redomicile intellectual property or capital to the US. The picture is not uniform, however. US-headquartered investors see greater incentives to onshore activity, while multinationals headquartered in Asia-Pacific or elsewhere and investing into the US weigh those same incentives against perceived uncertainty and geopolitical risk.
Governments outside the US, especially those in Asia-Pacific, face a narrowing window in which to remain competitive. Fiscal constraints, including the legacy of post-COVID-19 pandemic debt, aging populations and rising defence spending, limit the scope for broad corporate rate reductions. The policy response is increasingly one of targeted and conditional incentives: qualified refundable credits, sectoral reliefs in energy, pharmaceuticals and advanced manufacturing, and tailored regimes designed to comply with Pillar Two while preserving competitive advantage. The broadened flexibility to offer incentives under the side-by-side package provides greater scope for such approaches.
Strategic responses
Multinational tax directors are currently splitting into two broad camps. Some are acting on the stability the OBBBA and side-by-side arrangement provide, bringing intellectual property back to the US and committing to new investments. Others are deliberately deferring major decisions until the Pillar Two and side-by-side frameworks settle into more predictable operational form.
That caution is well-founded. Agreement at the level of the Inclusive Framework and implementation by individual countries are distinct processes. Much of what businesses are currently relying upon is guidance rather than enacted law. The model rules become operational tax law only when individual countries translate them into domestic legislation, and that process is proceeding at different speeds across jurisdictions.
For CFOs and tax directors, the practical imperative is to build control frameworks capable of satisfying two distinct regulatory logics simultaneously: a Pillar Two-aligned framework applicable across most adopting jurisdictions and a US-centric framework applicable to US operations. Entity structures, data architectures and disclosure controls all require reassessment. Some groups are investing in real-time data infrastructure capable of producing jurisdiction-level effective tax rate calculations on demand. Others are expanding policy and government-relations functions to participate directly in ongoing rulemaking.
The broader trajectory
What began as a decade-long push toward common international standards is now producing a more pluralistic system in which coexistence, rather than alignment, is the defining characteristic. The immediate practical question for multinational tax teams is not which framework will prevail but how to operate effectively across both.
The data imperative is constant regardless of how individual frameworks evolve. The ability to produce accurate, timely, jurisdiction-level effective tax rate data is the prerequisite for compliance, for policy engagement and for credible disclosure. As the rules themselves remain in flux, the organisations best placed to manage the transition will be those that have invested in the underlying data infrastructure and can interpret regulatory change early enough to respond coherently.