The OECD on 5 January 2026 announced the eagerly anticipated political and technical agreement by the Inclusive Framework on a comprehensive package for a "side by side arrangement" (the Package) with respect to the Pillar Two global minimum tax. The Package is in the form of Administrative Guidance that will be incorporated into the Commentary to the Global anti-Base Erosion (GloBE) Model Rules. Inclusive Framework jurisdictions that have incorporated Pillar Two rules into their domestic legislation have committed to implement this Package.

The agreement follows months of negotiations and effectively exempts US multinationals from most BEPS 2.0 Pillar Two global minimum tax rules, in recognition of US minimum tax rules. Under the arrangement, US-parented groups will be exempt from the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) but will continue to be subject to Qualified Domestic Minimum Top-up Taxes (QDMTTs). The US exemption from the global minimum tax rules is applicable for fiscal years beginning on or after 1 January 2026.

More specifically, the Administrative Guidance includes a new Simplified Effective Tax Rate (ETR) Safe Harbour, a one-year extension of the Transitional Country-by-Country Reporting (CbCR) Safe Harbour, a new Substance-based Tax Incentive Safe Harbour and two Safe Harbours related to a Side-by-Side System.

The Side-by-Side (SbS) Safe Harbour provides that multinational enterprise (MNE) Groups with an Ultimate Parent Entity (UPE) in a jurisdiction with a Qualified SbS Regime will not be subject to the IIR or the UTPR if they elect the SbS Safe Harbour. These MNE Groups will remain subject to QDMTTs.

The US tax regime is the only jurisdiction identified in the latest update to the Central Record of Legislation with Qualified Status as having a Qualified SbS Regime, applicable as of the beginning of 2026. MNE Groups with a UPEs in the US will remain fully subject to the global minimum tax rules in 2024 and 2025.

The Inclusive Framework will continue working on technical clarifications and simplifications, including for the application of the GloBE Model Rules, as well as on integrity rules.

A Global Tax Alert provides a summary overview of the Package. A forthcoming EY Global Tax Alert will address these developments in more detail. Click here for registration information on the Global EY webcast on these latest Pillar Two developments, scheduled for 12 January 2026.

The US Congress returned to Washington this week to address unfinished business from the end of last year. Lawmakers had failed to address the expiration of enhanced Affordable Care Act (ACA) premium tax credits and had made little headway on nine of twelve appropriations bills that face a 30 January funding deadline. The House passed a three-year extension of the ACA credits this week, which is not expected to advance in the Senate. A group of Senators reportedly is looking to have a proposal in the coming days that could include a two-year extension of the credits with an income limit and minimum payment requirement.

Both the ACA credits issue and appropriations deadline could provide a vehicle for a bipartisan tax, trade and/or health package. It remains unclear at this time what tax items could be pursued.

A senior Treasury official told a DC Bar tax conference that the 2024 final IRC Section 987 regulations (TD 10016) on foreign currency gains and losses will be modified in soon-to-be-released guidance. The official said taxpayers will be permitted to use a "modified version" of the 1991 proposed regulations' "earnings and capital" method. He said, however, the 2024 final regulations will not be revoked, which likely means that the Foreign Exchange Exposure Pool (FEEP) method for computing and recognizing certain foreign currency gains and losses and current rate methods will still be available for taxpayers that have already updated their systems and processes to apply them. A Tax Alert on the 2024 regulations is available here.

The official also said Treasury plans to deal with controlled foreign corporations (CFCs), given the outstanding question of whether IRC Section 987(3) applies to CFCs. Importantly, there was no indication at the conference (or otherwise) that the sourcing, character, loss deferral or other rules in the 2024 final regulations will be changed.

Also at the DC Bar, an official said Treasury expects to issue final and proposed guidance in 2026 for the One Big Beautiful Bill Act (OBBBA) international tax provisions taking effect in 2026, to allow for retroactive application of the international tax transition rules. Treasury is constrained by IRC Section 7805, which allows the government to retroactively apply rules issued within 18 months of a statute's being enacted; the OBBBA was enacted on 4 July 2025.

The Treasury official specifically referenced four international IRS notices released at the end of 2025 that addressed OBBBA provisions: Notices 2025-72, 2025-75, 2025-77 and 2025-78.

The US Supreme Court returned from its holiday break today (9 January) and could soon issue its opinion in the seminal trade tariff cases (V.O.S Selections Inc. v. United States and Learning Resources, Inc. v. Donald Trump), addressing whether the International Emergency Economic Powers Act (IEEPA) grants the President authority to impose tariffs during national emergencies.

The central question before the Supreme Court is whether the President can unilaterally levy tariffs under IEEPA, or whether this authority remains with Congress.