Pillar 2 update: The Side-by-Side package

January 12, 2026

Introduction
As previously communicated(see this article), the Curaçao Government has recently formally submitted the draft National Ordinance for the implementation of the Pillar Two Global Minimum Tax (hereinafter referred to as “Pillar Two”) to the Parliament.

The draft National Ordinance implementing Pillar Two is based on the so-called GloBE Model Rules, which were developed by the Organisation for Economic Co-operation and Development (OECD) / G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

Earlier this week, the OECD/G20 Inclusive Framework on BEPS published a package of administrative guidance commonly referred to in the tax community as the Side-by-Side Package. This package introduces far-reaching changes to the original GloBE Model Rules.

For purposes of clarity and context, we first briefly outline the core concept of Pillar Two. Pillar Two aims to ensure that in-scope multinational enterprise (MNE) groups are subject to a minimum effective tax rate (ETR) of 15% in each jurisdiction in which they operate. Where the ETR of entities in a particular jurisdiction falls below 15%, the MNE group may be subject to a top-up tax to bring the taxation of those profits up to the minimum level. This top-up tax can be imposed through different mechanisms, which are not further elaborated on here.

While the policy objective of Pillar Two is relatively straightforward, the technical framework designed to achieve this objective is exceptionally complex. In fact, Pillar Two is widely regarded as one of the most complex sets of tax rules ever developed, involving intricate calculations, multiple layers of interaction between domestic and international tax regimes, and a high degree of interdependence between jurisdictions. The Side-by-Side Package further adds to this complexity by introducing additional concepts, conditions, and coordination mechanisms.

Changes

The changes introduced by the Side-by-Side Package can be summarized as follows. For each category, a brief explanation is provided of its main scope and purpose:

• Simplification of the original GloBE model rules;
• Introduction of substance-based tax incentive (“SBTI”); and
• Introduction of Side-by-Side System.

Simplification

The OECD/G20 Inclusive Framework has introduced a program aimed at structurally simplifying both the GloBE Model Rules and the administrative aspects of their application. As part of this initiative, the Side-by-Side Package extends the deadline for applying the Transitional Country-by-Country Reporting (CbCR) Safe Harbour by one additional year. Under this Safe Harbour, in-scope entities may, subject to the applicable conditions, satisfy their Pillar Two obligations by relying on information disclosed in their CbCR.

In furtherance of this simplification agenda, the OECD/G20 Inclusive Framework has also decided, through the Side-by-Side Package, to introduce a permanent safe harbour, referred to as the Simplified Effective Tax Rate (ETR) Safe Harbour. This Safe Harbour provides an alternative mechanism for complying with Pillar Two obligations through the use of a simplified ETR calculation, thereby reducing both computational and compliance complexity.

Substance based tax incentive

The Package also introduces the possibility to take qualifying substance-based tax incentives into account when calculating the effective tax rate (ETR) for Pillar Two purposes. In practice, this means that, through the use of such qualifying incentives, jurisdictions may enable taxpayers to increase their Pillar Two ETR, thereby reducing or eliminating exposure to a top-up tax.

Side-by-side system

The Package also introduces the Side-by-Side system, under which qualifying tax regimes that meet specific conditions and are formally recognized as such may, in effect, displace the application of the Pillar Two rules. The underlying rationale is that where a multinational enterprise group is already subject to a credible minimum tax system in its jurisdiction of residence, the application of Pillar Two is unnecessary and therefore set aside.

At the time of writing, the United States of America is the only jurisdiction whose minimum tax regime has been formally recognized in this context by the OECD. Specifically, the US Global Intangible Low-Taxed Income (GILTI) regime is regarded as meeting the relevant criteria. As a result, the Side-by-Side Safe Harbour allows US-headed multinational groups to remain subject primarily to the US tax system, without being exposed to additional Pillar Two top-up taxes imposed by other jurisdictions.

Implications for Curaçao

At the time of writing, the Side-by-Side Package has no direct implications for Curaçao. However, the measures introduced by this Package may be implemented by Curaçao at a later stage. It is further noted that the Parliament is expected to discuss the draft National Ordinance implementing Pillar Two later this month.

Accordingly, it cannot be ruled out that the changes described above may be incorporated into the Curaçao legislative framework once the National Ordinance is adopted and enters into force.

How can we help?

The exceptional complexity of the matters discussed above should not be underestimated. Our professionals have been closely and proactively monitoring the development and implementation of Pillar Two and have extensive practical experience with Pillar Two regimes in other jurisdictions.

Should you have any questions or require further information, please do not hesitate to contact us.