The global minimum tax system received a short-term boost in early January with agreement reached by jurisdictions in the Inclusive Framework to the ‘side-by-side’ system. While the deal offers short-term certainty for corporate tax planning, the changes call into question the longer term prospects for Pillar Two.
2025 saw a number of major, even existential, developments regarding the OECD’s BEPS project including a near collapse of Pillar Two in the face of new demands from the US. The panel review these developments, including the recent agreement by the Inclusive Framework signatories on the ‘side-by-side’ (SbS) deal that has, for now, avoided a disorderly dissolution of the OECD’s global minimum tax regime. The deal has the benefit of giving Irish corporate tax payers certainty for the coming period but there are fears, expressed by the panel, that the changes may be a compromise too far that could ultimately lead to Pillar Two becoming ineffective.
The SbS package, writes Forvis Mazars’ Khatuna Baratashvili, includes new permanent and transitional safe harbours and ‘formal accommodation’ of the US minimum tax regime which has prevented Pillar Two’s collapse amid US opposition with the package scheduled to be reviewed in 2029 to ensure it meets the global minimum tax objectives.
Walkers’ Michael Tansley outlines the changes as follows, ‘Under the G7 side by side (SbS) solution US-parented groups will be exempt from the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) in recognition of the existing US minimum tax rules to which they are subject...In practical terms, the SbS System is a solution to accommodate the US which is otherwise not part of the OECD global minimum tax system. The withdrawal of US support undermined the goals and credibility of the OECD global minimum tax project, however the SbS system allows the US minimum tax system to co-exist with the OECD global minimum tax system.’
From an Irish perspective the agreement underpins the competitiveness of Ireland’s headline 12.5% corporate tax regime, and as outlined by McCann FitzGerald’s Deirdre Barnicle who writes, ‘The development is welcome for any Irish MNEs with US subsidiaries, who will no longer be hit by Pillar Two taxes.’
Looking at the longer term picture Barnicle says it is unclear yet if the SbS deal ‘is a strategic success for the OECD or a resounding defeat for the BEPS project while PwC’s Paraic Burke predicts further changes and instability for the regime. ‘Although a disorderly breakdown of Pillar Two has been avoided for now, the presence of five safe harbours highlights ongoing instability within the framework. It is unlikely this will be the last call for safe harbours and further changes, so stability of the Global Minimum Tax is not guaranteed.’
With Ireland’s Presidency of the European Council on the horizon the panel have given their recommendations on tax priorities. Simplification of tax legislation, per McCann FitzGerald’s Barnicle, ‘with a view to reducing the reporting burdens for both tax authorities and taxpayers, eliminating outdated and overlapping tax rules, and streamlining the application of tax procedures and reporting requirements’ is a sentiment shared by the panel. Forvis Mazars’ Emilie Sibi notes the taxation omnibus is likely to still be on the EU agenda during Ireland’s H2 2026 Presidency and represents ‘an opportunity for the Irish government to show its continued focus on improving the EU’s competitiveness and business environment within the bloc by simplifying the taxation system, especially for cross border transactions.’
On domestic matters, the Department of Finance’s recent ‘Strawman’ proposal on the taxation of interest containing a number of welcome elements to improve Ireland’s complicated rules in the area but the panel unanimously sees the novel approach of a ‘profit motive’ test (which aims to link interest deductibility to profits) links as a major stumbling block that could add, rather than reduce complexity. BDO’s Angela Fleming writes ‘digging into the details of the proposal it would appear to create a cumbersome requirement on taxpayers to look at both the intention and the actual application of funds, and to do so on an ongoing basis’ while Forvis Mazars Joe Walsh describes the profit motive test as ‘commercially unviable’ while McCann FitzGerald’s Barnicle sees it as unnecessary given protections already in place to prevent aggressive tax planning.
The proposals require a rethink in a number of areas with PwC’s Burke particularly concerned about the overall uncertainty the Strawman proposals would create if implemented.
This article appeared in the January 2026 edition of the Irish Tax Monitor.
