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Pillar 2 Safe Harbours
- Pillar 2 Minimum Tax Rules are Complex
- Compliance effort is significant and data-intensive
- Safe Harbours facilitate implementation and reduce effort
Complying with minimum tax rules is complex and data-intensive. To simplify this, the OECD has developed Safe Harbours. They reduce the effort and compliance costs.
What are Safe Harbours?
“Safe Harbours” are simplification rules for tax jurisdictions with a low risk of under-taxation. The OECD Safe Harbours were incorporated into German Minimum Tax Law via an opening clause in EU Directive 2022/2523.
Which Safe Harbours exist?
There are several Safe Harbours in the Minimum Tax Act. They differ in duration, purpose, and effect.
Two groups:
- Temporary Safe Harbours
- Apply only for a transitional period
- Facilitate entry into the GloBE rules
- Permanent Safe Harbours
- Offer permanent simplifications
- Some are not yet finalized
In detail:
German Term |
OECD Term |
Purpose |
|
| Temporary | CbCR-Safe-Harbour | Transitional CbCR Safe Harbour | • Simplified calculation of the top-up tax amount • Synergies with CbCR • Reduction of required data points |
| Sekundärergänzungssteuerbetrag-Safe-Harbour | UTPR Safe Harbour | • Reduction of minimum tax for entities in high-tax countries without Pillar 2 implementation • Concession to the USA |
|
| Permanent | Safe-Harbour für vereinfachte Berechnungen | Simplified Calculations Safe Harbour | • Simplified calculation of the top-up tax amount • Ensuring consistent and transparent results within the GloBE rules • Reduction of required data points |
| Safe-Harbour für vereinfachte Ausgangsgrößen bei unwesentlichen Geschäftseinheiten | Simplified Calculations Safe Harbour for Non Material Constituent Entities | • Simplified calculation of the top-up tax amount • Synergies with CbCR • Reduction of required data points |
|
| Safe-Harbour bei anerkannter nationaler Ergänzungssteuer | QDMTT Safe Harbour | Avoidance of duplicate calculations for primary and QDMTT |
How do Safe Harbours work?
The collection of a top-up tax amount from the taxpayer occurs – depending on the constellation – via:
- Income Inclusion Rule – IIR
- Undertaxed Profits Rule – UTPR or
- Qualified Domestic Minimum Top-Up Tax – QDMTT
Safe Harbours apply at different levels. Depending on the Safe Harbour, either
- the entire top-up tax amount of a tax jurisdiction or
- only a specific top-up tax amount
is set to 0 euros.
Do Safe Harbours affect reporting obligations?
The minimum tax report and minimum tax return must still be submitted.
- However, the CbCR Safe Harbour and the Safe Harbour for Simplified Calculations reduce the required data volume.
- The impact on QDMTT declarations depends on the respective foreign tax law. As a rule, the data volume is also reduced here.
Deep Dive: CbCR Safe Harbour
Overview
| Period of Application |
|
| Level of Consideration | Tax Jurisdiction |
| Application |
|
| Prerequisites | Fulfillment of at least one of three CbCR Safe Harbour tests (see below) |
| Calculation Basis |
|
| Effect | Top-up tax amount = 0 euros |
| Benefits |
|
CbCR Safe Harbour Tests
| Test | Prerequisite |
| CbCR De Minimis Test | Revenue < 10 million euros and Profit (or Loss) before Income Tax < 1 million euros |
| CbCR Effective Tax Rate Test | CbCR Effective Tax Rate* ≥ Transitional Tax Rate**
*CbCR Effective Tax Rate: (simplified covered taxes) / (Profit (or Loss) before Income Tax) **Transitional Tax Rates: |
| CbCR Routine Profit Test | Profit (or Loss) before Income Tax ≤ Substance-based Income Exclusion*
*Substance-based Income Exclusion: Payroll Costs × (a)%** + (Tangible Assets T1 – Tangible Assets T0) / 2 × (b)%*** ** (a): |
Deep Dive: Safe Harbour for Simplified Calculations
Overview
| Period of Application | No time limit |
| Level of Consideration | Tax Jurisdiction |
| Application | Yes (annually) |
| Prerequisites | Fulfillment of at least one of three Safe Harbour tests (see below) |
| Calculation Basis |
|
| Effect | Top-up tax amount = 0 euros |
| Benefits |
|
Safe Harbour Tests
| Test | Prerequisite |
| De Minimis Test | Average minimum tax revenue < 10 million euros and average minimum tax result < 1 million euros
Calculation guidelines not yet known |
| Effective Tax Rate Test | Simplified effective tax rate ≥ 15%
Calculation guidelines published in the OECD Side-by-Side Package, but not yet implemented into national law |
| Routine Profit Test | Simplified calculated minimum tax profit ≤ substance-based income exclusion
Calculation guidelines not yet known |
Safe Harbour for Simplified Inputs for Non-Material Constituent Entities
| Period of Application | No time limit |
| Application | Yes (annually) |
| Prerequisites |
|
| Effect | Use of CbCR data for Safe Harbour for Simplified Calculations |
| Advantages | Further simplification for non-material constituent entities with missing consolidated financial statement data |
Deep Dive: Safe Harbour for Qualified Domestic Minimum Top-Up Tax
| Period of Application | No time limit |
| Level of Consideration | Tax Jurisdiction |
| Application | Yes (annually) |
| Prerequisites |
|
| Effect |
|
| Advantages | No duplicate calculation effort |
Deep Dive: UTPR Safe Harbour
| Period of Application |
|
| Level of Consideration | Tax Jurisdiction |
| Application | Yes (annually) |
| Prerequisites | Corporate tax rate in the tax jurisdiction ≥ 20% |
| Calculation Basis | Combined nominal corporate tax rate |
| Effect | UTPR amount = 0 euros |
| Advantages | Reduction of minimum tax |
Outlook
On January 5, 2026, the OECD published the Side-by-Side Package. It implements the Side-by-Side approach agreed by the G7 and expands the Safe Harbours.
- New Safe Harbours for the implementation of the Side-by-Side approach
- Side-by-Side Safe Harbour
- Setting the primary and UTPR amounts of all constituent entities of an MNE Group to 0 euros, provided the ultimate parent entity is located in a qualified Side-by-Side tax jurisdiction
- Prerequisite: The tax jurisdiction of the ultimate parent entity has a tax system that effectively ensures a minimum level of taxation for the domestic and foreign constituent entities of the MNE Group
- So far, only the USA is recognized as a qualified Side-by-Side tax jurisdiction
- Application from fiscal year 2026
- UPE Safe Harbour
- Replacement for UTPR Safe Harbour
- Setting the UTPR amounts for constituent entities located in the tax jurisdiction of the ultimate parent entity to 0 euros
- Prerequisite: The tax jurisdiction of the ultimate parent entity already has a tax system as of January 1, 2026, that effectively ensures a minimum level of taxation for the domestic constituent entities
- Application from fiscal year 2026
- QDMTT remain applicable
- Side-by-Side Safe Harbour
- CbCR Safe Harbour
- Extension of the application period: Fiscal years beginning by December 31, 2027, and ending no later than June 30, 2029
- Transitional tax rate 2027: 17%
- Safe Harbour for Simplified Calculations
- Calculation guidelines for the effective tax rate test published; data basis are HB II reporting packages
- Application from fiscal year 2027; under certain conditions already from fiscal year 2026
- Calculation guidelines for the de minimis test and routine profit test are still pending
- New Substance based Tax Incentive Safe Harbour: Application from fiscal year 2026
The regulations are not yet applicable in Germany. They must first be implemented into national law. The extension of the temporary CbCR Safe Harbour as well as the introduction of the Side-by-Side Safe Harbour and the UPE Safe Harbour are planned within the framework of the Annual Tax Act 2026 (draft bill of May 19, 2026).