- The recent binding interpretative guidance on the Global Minimum Tax helps ensure that the OECD’s global rules can work smoothly alongside national tax systems that apply a 15% minimum tax.
• They also reduce administrative burdens, protect the domestic tax base, and ensure that incentives linked to real economic activity remain compatible with the system.
• For Latin America and the Caribbean, this is an important step forward because it acknowledges the role these incentives play in attracting investment.
In January 2026, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreed on an administrative guidance package that recalibrates several aspects of the Global Minimum Tax. The package is designed to ensure a minimum effective tax rate of 15% on the income of multinational enterprises (MNEs) with consolidated revenues above EUR 750 million.
This agreement, known as the “Side-by-Side Package”, establishes a practical mechanism that allows the OECD Inclusive Framework to operate alongside existing national regimes that apply a 15% effective minimum corporate tax, fully respecting the sovereignty of these national jurisdictions (recognized as Qualified SbS Regimes within the Inclusive Framework).
The primary objective is to create a pragmatic coexistence between the U.S. tax system and the OECD rules, allowing both to operate “side-by-side”: together, but not intermingled. At the same time, the package reduces compliance burdens, safeguards the domestic tax base, and ensures that tax incentives linked to real economic activity remain compatible with the new rules. All of this is unequivocally good news for Latin America and the Caribbean (LAC).
The Side-by-Side Package introduces new safe harbors (exemptions or simplifications linked to the BEPS framework), promotes simplification for low-risk jurisdictions, and provides more favorable treatment for certain substance-based tax incentives.
The package will be incorporated into the Commentary on the GloBE (Global Anti-Base Erosion) Model Rules and forms part of the soft-law package that jurisdictions must implement domestically. The following section summarizes the main changes and their implications for LAC.
1. Coexistence between the global framework and existing national regimes
The Inclusive Framework on BEPS (148 members), established in 2016, represents an unprecedented milestone in global tax governance. This forum designed a two-pillar solution to tackle the tax challenges posed by digitalization and base erosion.
For LAC, the Inclusive Framework has been essential. A large group of countries from the region actively participates in both global and regional discussions. Nearly all have already implemented BEPS 1.0 reforms, including Country-by-Country Reporting (CbCR) and anti-avoidance rules. Some countries are moving forward with BEPS 2.0 reforms, including introducing a global minimum tax on corporate income as part of Pillar Two.
The 2026 package introduces a new approach that allows global and national minimum tax systems to operate side by side. Under this approach, in-scope multinational enterprise (MNE) groups headquartered in jurisdictions listed by the Inclusive Framework as having a Qualified Side‑by‑Side (SbS) Regime can opt into a special arrangement known as the “Side‑by‑Side Safe Harbor.”
This option eliminates additional “top‑up” taxes under the global minimum tax rules. In practice, it sets to zero the application of the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) under the Inclusive Framework. Importantly, this choice does not affect the application of domestic minimum taxes (known as qualified domestic minimum top-up taxes, or QDMTTs) that countries may impose in the jurisdictions where the company operates. For further background, see our article “The Global Minimum Tax is a Game Changer”.
The package also introduces the less generous “UPE Safe Harbor”, which exempts only domestic profits from the Undertaxed Profits Rule (UTPR) for MNE groups headquartered in jurisdictions that meet the criteria of an eligible domestic tax system.
2. Simplification for low-risk jurisdictions
One of the most important elements is the “Simplified Effective Tax Rate (ETR) Safe Harbor”, designed to drastically reduce compliance burdens in jurisdictions posing a low risk of top-up tax.
If the simplified ETR of a “Tested Jurisdiction” is ≥15%, or if the jurisdiction reports a simplified loss, the top-up tax for that fiscal year is deemed zero under this safe harbor. This significantly lowers compliance costs for MNEs operating in high-tax jurisdictions.
This permanent safe harbor applies to fiscal years beginning on or after Dec. 31, 2026 (with an optional early application for 2025). MNEs may calculate the ETR using:
- Consolidated financial statements with minimal adjustments.
- Simplified jurisdictional calculations of income and taxes.
- Exclusion of complex deferred tax adjustments requiring multi-year tracking.
For LAC, where most countries already apply effective rates above 15%, this simplification is particularly valuable. It reduces administrative costs without eroding revenue collection, enabling tax administrations with limited resources to focus on higher-risk cases.
The package also extends the “Transitional CbCR Safe Harbor” by one year (maintaining the 17% threshold for 2026–2027). It also commits the Inclusive Framework to further simplifications, including streamlining the GloBE Information Return (GIR) and completing routine profit and de minimis tests (to reduce compliance and administrative burden for taxes with limited impact), expected to be finalized in the first half of 2026.
3. Incentives based on real economic impact
The most relevant development for LAC is the “Substance-Based Tax Incentive (SBTI) Safe Harbor”. It recognizes the importance of certain incentives for attracting investment and introduces greater flexibility than the previous strict approach under the Global Minimum Tax.
The package creates a new category of “Qualified Tax Incentives” (QTIs) that are not penalized in the effective tax rate calculation and offer a broader scope than the existing Qualified Refundable Tax Credits (QRTCs).
These Qualified Tax Incentives must meet the following conditions:
- Be expense-based (R&D, payroll, training) or production-based (linked to produced tangible assets);
- Be available to the public (no bespoke bilateral government-company agreements);
- Relate to taxes covered under the GloBE Rules (i.e., taxes on income or profits, and certain equivalent taxes, that form part of the numerator in the Pillar Two ETR calculation).
A substance-based cap applies: the benefit is limited to the higher of 5.5% of payroll costs or tangible asset depreciation in the jurisdiction, or 1% of the book value of tangible assets (election valid for five years).
These changes create opportunities for LAC to design investment-attraction policies in strategic sectors that are fully compatible with the QTI standard:
- Extractive and renewable energy sector: incentives for sustainable mining, critical minerals, or solar/wind generation that meet the QTI criteria.
- Bioeconomy and agroindustry: incentives for value-added processing of soy, coffee, cocoa, and proteins to strengthen regional value chains.
- R&D and technology: credits for innovation centers, biotechnology, and digital services to position LAC as a technology hub, particularly in countries with strong digital infrastructure.
- Advanced manufacturing: payroll- and tangible-asset-linked incentives for nearshoring to attract investment from the United States, Asia, and Europe and diversify supply chains.
The QTI-compatible design enables LAC to compete on a level playing field by prioritizing real economic impact - employment, infrastructure, R&D - over simply offering low tax rates without tangible activity. The framework shifts the paradigm from “tax rate competition” to “competition based on substance”: jobs, tangible assets, R&D investments, and production. Instead of tax holidays or ultra-low nominal rates (neutralized by the global minimum tax rules), it rewards instruments with verifiable real-economy impact and traceability.
Impact on Latin America and the Caribbean
The strategic message for the region is clear: the package not only resolves geopolitical frictions that threatened the implementation of Pillar Two but also shifts the center of gravity toward the “domestic floor”.
In practice, Qualified Domestic Minimum Top-up Taxes (QDMTTs) within the Inclusive Framework become the primary tool for simultaneously protecting tax bases and competing for high-quality foreign direct investment.
On incentives, the new agreement is more flexible, allowing countries to use investment-attracting policies that create a stable and competitive environment without weaking public finances.
In terms of the overall framework, the global minimum tax is evolving toward an interoperable standard that allows different fiscal sovereignties to coexist, so long as they meet equivalent criteria. Put differently, the 15% rate increasingly operates as an upward benchmark for certifying robust domestic minimum tax floors, rather than as a uniform, top-down imposition.
Conclusion and next steps
The Side-by-Side Package marks a conceptual reorientation, establishing the 15% global minimum tax as a shared benchmark while broadening acceptable implementation approaches through equivalence and coexistence mechanisms, subject to the preservation of BEPS integrity objectives and competitive neutrality.
LAC should adopt a pragmatic approach to seizing the opportunities this change offers:
Tax revenue: continued ability to capture income via QDMTTs that would otherwise accrue to other jurisdictions.
- Quality investment: attraction of capital in high-value sectors (critical minerals, bioeconomy, advanced manufacturing, R&D) tied to real employment and infrastructure.
- Stability and predictability: a globally implemented minimum tax regime reduces investor uncertainty, minimizes disputes, and strengthens LAC’s alignment with international standards, improving the business climate.
We encourage the region to pursue a practical implementation agenda that the Inter-American Development Bank (IDB) can support through technical assistance and financing. This agenda includes diagnostic mapping of incentive exposure and compatibility; the design of domestic minimum tax and incentive strategies, and capacity-building in analytics, management, and coordination.
In sum, the Side-by-Side Package is not the end of the journey but the beginning of a new phase in global tax governance. The IDB will continue to work hand in hand with its member countries to navigate these challenges and seize the opportunities ahead.