On January 5, 2026, the OECD and more than 145 countries agreed that US-headquartered companies stay under US minimum taxes only and are exempt from Pillar Two's cross-border rules. For fiscal years starting on or after January 1, 2026, no Income Inclusion Rule or Undertaxed Profits Rule top-up applies to US groups. Local minimum taxes in foreign countries still apply, and so do US rules like NCTI and the corporate alternative minimum tax.
What the deal says, in plain terms
The agreement is called the side-by-side arrangement, approved by the OECD/G20 Inclusive Framework, the group of more than 145 countries behind the global minimum tax project. The core promise is simple: the United States taxes the worldwide operations of US companies, and other countries tax business activity inside their own borders. Neither side reaches into the other's territory.
For US-parented groups, two Pillar Two mechanisms are switched off for fiscal years beginning on or after January 1, 2026. The Income Inclusion Rule (IIR), which would have let a parent country tax undertaxed foreign profits, does not apply. The Undertaxed Profits Rule (UTPR), which would have let foreign countries tax the US operations of American groups, does not apply either. The groundwork was laid in June 2025, when the G7 agreed on the compromise in principle and Congress dropped the proposed retaliatory Section 899 tax from the One Big Beautiful Bill Act.
If you need a refresher on how the 15% global minimum tax was designed to work, our Pillar Two global minimum tax guide covers the basics.
What you can stop worrying about
First, no foreign country can use the IIR to impose a top-up tax on the profits of your foreign subsidiaries just because those profits were taxed below 15%. That was the scenario US groups feared most, and the side-by-side deal takes it off the table.
Second, no foreign country can use the UTPR to tax your US operations. The UTPR was designed as a backstop that could reach into the home country of the group. For US-headquartered companies, that backstop is now disarmed. Note the timing point here: the transitional UTPR safe harbor expired at the end of 2025, and the US side pushed hard to make sure the side-by-side exemption started right as that safe harbor ended, so there would be no gap.
Third, the retaliatory US tax idea is dead. Section 899 would have punished companies from countries applying Pillar Two to American firms. It was removed from the OBBBA and is not coming back in that form.
What still applies to you
This is the part most summaries skip, and it costs money if you ignore it. The exemption covers the cross-border rules only, not local minimum taxes.
More than 50 jurisdictions have enacted Qualified Domestic Minimum Top-up Taxes (QDMTTs): local versions of the 15% minimum tax on profits earned inside their own borders. If your group has a subsidiary in a QDMTT country, that subsidiary must still calculate the local top-up, file the return, and defend it under audit. The filing burden does not disappear with the IIR and UTPR. One useful ordering rule: a QDMTT paid abroad generally applies before the US NCTI calculation, so it can generate foreign tax credits that reduce your US tax on those profits.
On the US side, your domestic minimum taxes are unchanged. Foreign profits still face NCTI, the regime formerly known as GILTI (see our GILTI tax strategy guide for the calculation). Large groups still face the 15% corporate alternative minimum tax, and the base erosion and anti-abuse tax (BEAT) still applies. If you are unsure whether your foreign entities count as controlled foreign corporations, review our controlled foreign corporation tax overview.
Your 2026 compliance calendar
Do not treat "exempt" as "nothing to do." Here is what belongs on the calendar for a US-headquartered group.
| Item | Key date | Action |
|---|---|---|
| Side-by-side exemption in force | Fiscal years beginning on or after January 1, 2026 | Confirm your group's fiscal year start; the exemption follows that date |
| Transitional UTPR safe harbor | Expired December 31, 2025 | No action, but know it is gone |
| Transitional CbCR safe harbor | Extension ends December 31, 2026 | Plan for fuller calculations for 2027 if you relied on the simplified version |
| GloBE Information Return (GIR) | Commonly 15 months after fiscal year end (18 for the first year) | Watch for the revised return that carries the side-by-side election |
| Local QDMTT filings | Set by each country | File in every jurisdiction where you have entities, even if the top-up is zero |
Two practical notes on this calendar. First, "no tax due" does not mean "no filing." Several countries penalize missed local filings even when the computed top-up is zero. Second, the data burden moved, it did not vanish. Your foreign subsidiaries need entity-level numbers that are audit-ready, because local tax authorities will ask for them. The same ownership and financial data that feeds your Form 5471 compliance is a good starting point for getting those local files in order.
What to keep watching
The deal is agreed, but each country must still write the side-by-side safe harbor into its own domestic law. Until your key jurisdictions have done so, track where the local legislation stands.
Watch the revised GloBE Information Return. Treasury backed a rewrite that creates the mechanism for US groups to elect the safe harbor and sets up standardized local minimum tax reporting with limits on data sharing. Less duplication, fewer fishing expeditions.
Watch the two new safe harbors: an ETR-based compliance safe harbor that can simplify the math for qualifying groups, and one protecting substance-based tax incentives. The deal also preserves the value of the US R&D credit against top-up calculations.
If your group is working through how this fits your structure, our international tax services for multinational companies cover Pillar Two readiness alongside the US-side rules.
Frequently asked questions
Does the January 2026 deal mean Pillar Two is dead for US companies?
Not exactly. The cross-border rules (IIR and UTPR) are switched off for US-parented groups. But local QDMTTs in foreign countries still apply to your subsidiaries there, and US minimum taxes (NCTI, CAMT, BEAT) still apply at home. Think of it as exempt from the international layer, not from minimum taxes altogether.
Do we still have to file anything locally if no top-up tax is due?
In most cases, yes. Countries with QDMTTs generally require the calculation and the return even when the result is zero. Missing a local filing deadline can trigger penalties on its own. Treat every jurisdiction where you have an entity as a separate filing obligation.
What happens to the data we were gathering for the old GloBE return?
Keep gathering it. Your foreign subsidiaries need the same entity-level data for local QDMTT filings and audits. The revised return is expected to reduce duplication, but local tax authorities will still ask for the underlying numbers.
Is the US R&D credit safe under this deal?
The agreement specifically protects the value of the US R&D credit and other congressionally approved incentives from being diluted by top-up taxes. That was one of Treasury's stated goals in the negotiation.
Could Congress still change the US side of this bargain?
Yes. A September 2026 House bill (H.R. 10431) proposes further changes to the US international tax rules, but it has no cosponsors and should be treated as a proposal to watch, not law. The side-by-side arrangement itself rests on current US minimum taxes (NCTI and CAMT) being viewed as sufficient, so big US-side changes could reopen the discussion.
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