Tax Update

On 5 January 2026, the OECD released a comprehensive "side-by-side arrangement" package for Pillar Two global minimum tax rules. This package introduces four new safe harbours and extends the Transitional Country-by-Country Reporting Safe Harbour (the “Transitional CBCR Safe Harbour”) by one year.

Safe Harbours

1. Side-by-Side Safe Harbour

A side-by-side safe harbour is introduced which will apply to multinational enterprise (“MNE”) groups that are headquartered in jurisdictions that impose minimum tax requirements both on domestic and foreign income. The side-by-side safe harbour will apply to in-scope groups with an ultimate parent entity (“UPE”) located in the US.

In order to benefit from this safe harbour, the UPE of the group must be located in a jurisdiction with:

An eligible domestic tax system which satisfies three conditions:

• a statutory nominal rate of at least 20%;
• a Qualified Domestic Minimum Top-Up Tax (“QDMTT”) or a corporate alternative minimum tax at 15% minimum (based on financial statement income); and
• there must be no material risk of domestic profits being taxed at an effective rate below 15%; and

An eligible worldwide system which satisfies three conditions:

• a comprehensive tax regime that taxes resident entities on all foreign income whether active or passive and must include a controlled foreign company (“CFC”) regime that taxes all income for CFCs whether active or passive;
• it must incorporate anti-BEPS mechanisms; and
• there must be no material risk of the overall global profit being taxed at an effective rate that is below 15%.

MNE groups that are headquartered in jurisdictions with an eligible side-by-side regime (eg, the US) will be excluded from the Income Inclusion Rule (“IIR”) and Undertaxed Profits Rule (“UTPR”) on their domestic and foreign profits and will have more limited Pillar Two filing requirements. The side-by-side safe harbour will apply from 1 January 2026.

The US has been identified as the only jurisdiction with a qualified side-by-side regime, applicable as of 1 January 2026. MNE groups with a UPE in the US will remain subject to global minimum tax rules in 2024 and 2025. The Irish QDMTT will continue to apply to Irish subsidiaries of US-headquartered companies.

2. UPE Safe Harbour

The UPE Safe Harbour provides relief from the UTPR for domestic profits of MNE groups headquartered in jurisdictions with a pre-existing eligible domestic tax regime which satisfies the three conditions described above (ie, minimum 20% statutory rate on domestic profits, etc). Jurisdictions that believe they satisfy the criteria must apply to be included on a Central Register that will be maintained by the OECD. The first jurisdictions will be listed on that register before the end of June 2026. The UPE safe harbour will apply from 1 January 2026.

3. Substance-Based Tax Incentive Safe Harbour

Under the Pillar Two rules, most tax incentives have the effect of reducing covered taxes and therefore reducing the effective tax rate and increasing top-up taxes due. The exception are qualified refundable tax credits which are instead treated as increasing GloBE income – this has the knock-on effect of increasing the effective tax rate for Pillar Two purposes and decreasing top-up taxes due.

Under the new rules, a new category of qualified tax incentives (“QTIs”) are recognised. This safe harbour allows MNE groups to treat QTIs as an addition to covered taxes in the jurisdiction, enabling MNE groups to benefit from certain tax incentives without incurring a Pillar Two top-up tax in respect of that benefit. The improved treatment is subject to a substance cap that limits allowances for QTIs to the greater of 5.5% of payroll costs or depreciation of tangible assets, with an alternative cap of 1% of carrying value of tangible assets available on an elective basis. This safe harbour is available on a jurisdictional basis for fiscal years beginning on or after 1 January 2026.

4. Simplified ETR Safe Harbour

A new safe harbour will be available from 2027 (intended to replace the Transitional CBCR Safe Harbour). This permanent safe harbour substantially reduces compliance burden by determining an MNE group's effective tax rate (“ETR”) under a simplified calculation. It will permit the ETR in high tax jurisdictions to be calculated using a simplified set of rules (with fewer adjustments being required to the amounts recorded in the financial statements). If the jurisdiction has a simplified ETR of at least 15%, the top-up tax is deemed to be zero and no detailed GloBE calculations are required. The safe harbour will be available for fiscal years beginning on or after 31 December 2026 or in certain circumstances as of 2026 if jurisdictions choose.

5. Extended Transitional CbCR Safe Harbour

The Transitional CbCR Safe Harbour has been extended for one year into 2027 for high tax jurisdictions provided the tax rate is at least 17%. This provides MNE groups with the choice between the new Simplified ETR Safe Harbour or the Transitional CbCR Safe Harbour during the transition period (ie, during 2027).

Ongoing Assessment

The OECD will conduct a comprehensive assessment by 2029 to evaluate:

• Global minimum tax and side-by-side system effects;

• QDMTT implementation levels across jurisdictions; and

• Unintended competitive imbalances.

The European Commission will conduct a parallel assessment examining:

• Implementation and effects of the side-by-side system; and

• Impact on EU competitiveness.

Implementation Status

European Union

On 12 January 2026, the European Commission issued a notice in the Official Journal confirming the consent of all EU Member States to the side-by-side package.

Ireland

The Tánaiste and Irish Minister for Finance, Simon Harris, welcomed the certainty and stability that adoption of the side-by-side package delivers to stakeholders and tax administrations in relation to the international tax architecture and broader macroeconomic environment. It is expected that Ireland will legislate for changes before the end of the year in the Finance Bill 2026 and that the changes will apply for the 2026 financial year.

EU Tariffs – Current Status

Status of the Framework Trade Agreement

As mentioned in our prior updates, the EU and US joint statement on trade set a ceiling of 15% on a number of EU exports to the US. This political agreement remains to be ratified by the European Parliament. On 17 January 2026, the US President announced plans to impose a new 10% tariff from 1 February 2026 on certain goods imported into the US from Finland, Norway, Sweden, Denmark, the Netherlands, France, Germany and the UK. Although this proposal has been withdrawn, the threat of additional US tariffs on certain EU Member States resulted in the European Parliament suspending the ratification process for the EU / US Framework Trade Agreement. The suspension will be revisited by the European Parliament in early February.

Status of EU Package of US Tariffs

Following the announcement of the proposed US tariffs, the EU contemplated revisiting the tariff package it put on hold last year when the EU/US framework for a trade agreement was announced. That package would impose tariffs on imports from the US to the EU on a range of US products including aircraft and medical devices. However, following the removal of US tariff threats, the European Commission confirmed that the EU package of tariffs would be suspended for a further 6 months.

EU Consultation on Recast DAC

The EU has launched a public consultation on improving the series of directives that require exchange of tax related information (known as the “DACs”, including DAC6). The responses to this consultation will feed into evaluation reports and influence any proposals to amend the DACs.

DAC6 requires certain cross-border tax arrangements to be reported to tax authorities where the arrangements meet certain “hallmarks”. Questions are included in the consultation paper on DAC6 with regard to the reporting deadlines, the hallmarks and who should be responsible for reporting. The consultation also looks at practical challenges such as the costs associated with reporting under each DAC.

Responses must be submitted by 10 February 2026. If you would like to discuss any aspect of the consultation, please speak to your usual Matheson Tax contact.

Law Reform Commission Consultation on Non-Court Bodies

On 22 December 2025, the Law Reform Commission issued a consultation paper on Reform of Non-Court Adjudicative Bodies and Appeals to Courts. The proposals are also relevant to the Tax Appeals Commission and possibly, in some cases, Revenue. The consultation paper considers the procedural rules adopted by non-court adjudicative bodies (eg, rules of evidence) and the powers of those bodies (eg, compelling witnesses). It also considers whether a super tribunal model should be adopted (ie, a unified administrative body that consolidates multiple specialised tribunals into a single entity with broad jurisdiction over a variety of cases). Responses are requested by 23 June 2026. If you would like to discuss any aspect of the consultation, please speak to your usual Matheson Tax contact.

What's on the Tax Horizon this Quarter

• As announced in Budget 2026, a R&D compass will soon be published by the Irish Government, setting out targeted changes designed to better align the credit with current industry practices, for example in the areas of outsourcing and qualifying expenditure definitions.
• It is also expected that a consultation on the taxation of savings and investments will be issued by the Department of Finance before the end of Q1, 2026.