The Netherlands implements Side-by-Side package

The legislative proposal introduces four new safe harbours under Pillar Two, extends the transitional Country-by-Country Reporting Safe Harbour and provides for more favourable treatment of certain tax incentives, subject to conditions. Although the legislation will enter into force on 1 January 2027, several measures will apply retrospectively from 31 December 2025 or 1 January 2026.

Key points

• The legislative proposal implements the international Side-by-Side package in the Dutch Minimum Tax Act 2024.

• Four new safe harbours will be introduced: the Simplified ETR Safe Harbour, the Side-by-Side Safe Harbour, the UPE Safe Harbour and the Substance-based Tax Incentive Safe Harbour. 

• The transitional CbCR Safe Harbour will be extended by one year.

• The new rules may reduce the calculation and reporting burden for multinational groups.

• The Side-by-Side Safe Harbour and the UPE Safe Harbour do not affect the application of a Qualified Domestic Minimum Top-up Tax (QDMTT).

• Several measures will apply retrospectively from 31 December 2025 or 1 January 2026. 

• Multinational groups should assess which safe harbours may be available from 2026 and whether they wish to elect to apply them.

Implementation of international Pillar Two agreements

The Dutch Minimum Tax Act 2024 contains the Dutch rules for the global minimum tax for large multinational enterprises. The rules are based on the EU Minimum Tax Directive and the OECD Model Rules.

Pillar Two is intended to ensure that multinational groups are subject to an effective tax rate of at least 15%. If the tax rate in a jurisdiction is below that level, additional tax — referred to as top-up tax — may become due.

The Side-by-Side package further develops the global minimum tax framework. The Inclusive Framework recognises that certain jurisdictions already have their own minimum tax systems pursuing objectives similar to those of Pillar Two. It also recognises that jurisdictions wish to continue using tax incentives, for example to support innovation and specific sustainability investments. 

The package consists of three main elements:

1. safe harbours for sufficiently robust domestic and worldwide minimum tax systems;

1. more favourable Pillar Two treatment of certain tax incentives; and

1. simplification of Pillar Two calculations and reporting. 

The legislative proposal translates these international agreements into Dutch legislation.

Four new safe harbours

The new safe harbours will be included in Chapter 8 of the Dutch Minimum Tax Act 2024. They will apply in addition to the existing safe harbour provisions.

The four new safe harbours are:

1. the Simplified Effective Tax Rate Safe Harbour; 

1. the Side-by-Side Safe Harbour;

1. the Ultimate Parent Entity Safe Harbour; and

1. the Substance-based Tax Incentive Safe Harbour.

In addition, the transitional Country-by-Country Reporting Safe Harbour — the CbCR Safe Harbour — will be extended.

1. Simplified ETR Safe Harbour

The Simplified Effective Tax Rate Safe Harbour allows multinational groups, subject to certain conditions, to avoid the full calculation under the detailed Pillar Two rules.

The calculation is based on simplified financial reporting data, supplemented by specific adjustments. The safe harbour applies at the level of a jurisdiction.

The top-up tax is deemed to be zero if:

• the simplified effective tax rate is at least 15%; or

• the jurisdiction has a simplified loss.

The safe harbour is intended to be a permanent simplified safe harbour under Pillar Two. It may reduce the administrative burden for groups that can establish, based on the simplified data, that no top-up tax is due.

The safe harbour is subject to various technical conditions. For example, rules apply to the allocation of income, expenses and taxes to jurisdictions. Various integrity safeguards also apply.

Re-entry rule

The Simplified ETR Safe Harbour includes a re-entry rule. If a group does not meet the conditions in a particular year, the safe harbour may be applied again in a later year if no top-up tax was due during the relevant 24-month period.

Subject to conditions, a fiscal year for which no top-up tax is calculated is treated as a fiscal year in which no top-up tax was due. The re-entry rule reflects the permanent nature of the Simplified ETR Safe Harbour.

Retrospective application

 The Simplified ETR Safe Harbour will apply retrospectively from 31 December 2025. However, for fiscal years commencing between 31 December 2025 and 31 December 2026, the safe harbour may only be applied if one of the following situations applies:

• a Qualified Domestic Minimum Top-up Tax Safe Harbour applies to the jurisdiction concerned;

• no more than one jurisdiction is entitled to impose top-up tax in respect of the jurisdiction concerned under the Dutch Minimum Tax Act 2024 or comparable legislation based on the OECD Model Rules; or

• in all jurisdictions that are entitled to impose top-up tax in respect of the jurisdiction concerned under the Dutch Minimum Tax Act 2024 or comparable legislation based on the OECD Model Rules, the Simplified ETR Safe Harbour can be applied and the group elects to apply that safe harbour in all those jurisdictions.

   

2. Side-by-Side Safe Harbour

The Side-by-Side Safe Harbour — referred to in the legislative proposal as the Qualifying Equivalent Minimum Tax System Safe Harbour — is intended for multinational groups whose Ultimate Parent Entity is located in a jurisdiction with a qualifying domestic and worldwide minimum tax system.

If this safe harbour is elected, the top-up tax under both:

• the Income Inclusion Rule (IIR); and 

• the Undertaxed Profits Rule (UTPR),

is deemed to be zero.

The safe harbour is intended to prevent a group from being subject both to Pillar Two and to another minimum tax system recognised as equivalent to Pillar Two.

Qualification requirements 

A jurisdiction must satisfy various conditions to qualify as a jurisdiction with a qualifying equivalent minimum tax system.

The conditions for the domestic tax system include the following:

• the statutory corporate income tax rate is at least 20%;

• a qualifying domestic minimum top-up tax or alternative minimum profit tax applies; 

• the tax is based on the result determined under a financial accounting standard;

• the rate of the domestic minimum tax is at least 15%;

• the tax applies to a substantial part of the domestic profits of relevant multinational groups; and

• there is no material risk that the domestic profits of relevant groups will be subject to an effective tax rate below 15%. 

The conditions for the worldwide tax system include the following:

• the system applies to income from activities outside the jurisdiction, including income of permanent establishments and controlled entities;

• the system applies to both active and passive foreign income;

• only limited exceptions are permitted; 

• the system contains sufficient measures to address base erosion and profit shifting risks; and

• there is no material risk that the foreign profits of relevant multinational groups will be subject to an effective tax rate below 15%.

In addition, the jurisdiction must have a mechanism under which foreign income tax, including a Qualified Domestic Minimum Top-up Tax, may be credited.

The Inclusive Framework assesses whether a jurisdiction qualifies. Qualifying jurisdictions are included in the Central Record, which is available on the OECD website. At present, the United States is included in the Central Record as a jurisdiction with a Qualified Side-by-Side Regime. 

No impact on domestic minimum top-up tax

The Side-by-Side Safe Harbour does not affect the application of a Qualified Domestic Minimum Top-up Tax (QDMTT).

The domestic top-up tax takes priority over the extraterritorial top-up tax rules under Pillar Two. Accordingly, electing the Side-by-Side Safe Harbour does not mean that all Pillar Two obligations in the relevant jurisdictions will cease to apply.

The Side-by-Side Safe Harbour may also apply to interests in joint ventures and entities connected with joint ventures. Subject to conditions, the top-up tax relating to such interests is also deemed to be zero.

3. Ultimate Parent Entity Safe Harbour

The Ultimate Parent Entity Safe Harbour — the UPE Safe Harbour — is narrower than the Side-by-Side Safe Harbour.

This safe harbour is intended for groups whose Ultimate Parent Entity is located in a jurisdiction with a qualifying domestic minimum tax system, but without a qualifying worldwide minimum tax system.

If the UPE Safe Harbour is elected, only the UTPR top-up tax attributable to Constituent Entities located in the jurisdiction of the Ultimate Parent Entity is deemed to be zero. 

The safe harbour does not affect:

• the application of the Income Inclusion Rule;

• the UTPR top-up tax relating to activities outside the jurisdiction of the Ultimate Parent Entity;

• a QDMTT in other jurisdictions; or 

• reporting obligations applicable elsewhere within the group.

The UPE Safe Harbour also requires, among other things, that:

• the statutory corporate income tax rate is at least 20%;

• a qualifying domestic minimum top-up tax or alternative minimum profit tax applies at a rate of at least 15%; and 

• there is no material risk that relevant domestic profits will be subject to an effective tax rate below 15%.

The qualifying domestic minimum tax must have entered into force and be applicable on 1 January 2026. The UPE Safe Harbour effectively replaces the transitional UTPR Safe Harbour, but is subject to stricter conditions.

4. Substance-based Tax Incentive Safe Harbour

The legislative proposal also introduces the Substance-based Tax Incentive Safe Harbour — the Qualifying Tax Incentive Safe Harbour. This safe harbour applies to certain tax incentives linked to substantive economic activities in a jurisdiction.

The relevant tax incentive must be generally available and its amount must either:

• be calculated based on expenditure incurred, with the amount not exceeding that expenditure; or 

• be determined by reference to the quantity of tangible goods produced in the jurisdiction.

The incentive may, for example, support innovation or specific sustainability investments.

Subject to conditions, the effect of such an incentive may be neutralised for Pillar Two purposes. As a result, the application of the incentive will not automatically result in a Pillar Two top-up tax liability.

Technical operation 

For Pillar Two purposes, the effective tax rate is calculated by dividing adjusted covered taxes by relevant income.

A tax incentive may reduce the numerator of this fraction. As a result, the effective tax rate may fall below 15% and top-up tax may become due.

Subject to conditions, the safe harbour neutralises this effect. The reduction in the numerator is wholly or partly reversed for Pillar Two purposes. Consequently, the tax burden is presented as higher for Pillar Two purposes than the tax burden actually borne by the entity.

The safe harbour is not a general exemption for tax incentives. It applies only to qualifying tax incentives and only to the extent that the additional conditions are satisfied. 

Substance Cap

The favourable treatment is subject to a Substance Cap. The purpose of the cap is to ensure that the safe harbour only applies to the extent that there is substantive economic activity and investment.

Multinational groups may choose between two calculation options per jurisdiction. The maximum amount is:

• 5.5% of the higher of the relevant payroll costs or depreciation on tangible assets; or 

• 1% of the carrying value of eligible tangible assets located in the jurisdiction, excluding land and other tangible assets that are not depreciated.

An election for the second option is binding for five years.

Extension of the CbCR Safe Harbour

The transitional Country-by-Country Reporting Safe Harbour will be extended by one year. The safe harbour will therefore remain available for fiscal years commencing on or before 31 December 2027 and ending before 1 July 2029. 

Subject to conditions, the transitional safe harbour allows multinational groups to establish, based on a qualifying CbC report and financial reporting data, that no Pillar Two top-up tax is due. Instead of performing a full Pillar Two calculation, the group may apply a simplified test. Different minimum rates apply for the relevant fiscal years:

• 16% for fiscal years commencing in 2025;

• 17% for fiscal years commencing in 2026 or 2027.

The extension provides a transition towards the permanent Simplified ETR Safe Harbour. 

Technical amendments for 52- or 53-week fiscal years

The legislative proposal also contains a technical amendment for multinational groups with 52- or 53-week fiscal years.

As a result, the transitional UTPR Safe Harbour may also be applied to a fiscal year that commences on or before 31 December 2025 and ends on or before 3 January 2027. This prevents multinational groups with a 53-week fiscal year from falling outside the scope of the safe harbour solely because of the length of their fiscal year.

Reporting obligations continue to apply 

Electing a safe harbour does not eliminate all Pillar Two reporting obligations.

Multinational groups must continue to file a GloBE Information Return. The reporting may, however, be simplified because certain data points relating exclusively to the IIR and UTPR calculations may not need to be completed, subject to the applicable reporting rules, when a relevant safe harbour is applied.

QDMTT reporting obligations continue to apply separately. Groups operating in a jurisdiction with a QDMTT must therefore continue to comply with the relevant local filing and reporting obligations.

Groups should also consider the financial reporting implications of electing a safe harbour. The timing of the recognition of the effects of the legislative changes in the financial statements depends on the applicable accounting framework and on when the legislation is substantively enacted or formally enacted. 

The impact of the Side-by-Side package will differ per group and per jurisdiction. Multinational groups should consider at least the following points.

Identify the available safe harbours

Determine in which jurisdictions within the group a safe harbour may be available. Relevant factors include:

• the location of the Ultimate Parent Entity; 

• whether the relevant jurisdiction is included in the Central Record;

• whether a QDMTT applies;

• whether a qualifying domestic minimum top-up tax applies;

• whether the domestic and, where relevant, worldwide tax system qualifies; and 

• whether any tax incentives qualify.

Assess whether an election is desirable

The safe harbours are generally elective. An election may significantly reduce the calculation and reporting burden, but may also affect:

• elections available under the Pillar Two rules; 

• the information required in the GloBE Information Return;

• the application of the rules in subsequent fiscal years; and

• the interaction with a QDMTT or other domestic minimum tax.

An election should therefore be assessed not only from the perspective of the amount of tax due, but also from the perspectives of compliance, data and financial reporting. 

Continue to consider QDMTT obligations

The Side-by-Side Safe Harbour and the UPE Safe Harbour do not switch off domestic top-up tax.

Groups should therefore separately determine:

• in which jurisdictions a QDMTT applies; 

• whether a qualifying domestic minimum top-up tax applies;

• which local filing and reporting obligations arise; and

• how the QDMTT affects the international Pillar Two calculation.

Review tax incentives 

Groups using tax incentives should assess:

• whether the incentive qualifies as a Qualified Tax Incentive;

• whether the incentive is generally available;

• whether the benefit is based on expenditure incurred or on the quantity of tangible goods produced; 

• whether the incentive is linked to substantive economic activities;

• how the incentive affects the effective Pillar Two tax rate;

• whether the Substance-based Tax Incentive Safe Harbour can be applied; and

• how the Substance Cap applies. 

Prepare the data for 2026

Several measures apply retrospectively from 1 January 2026. Groups should therefore determine in good time which data will be required to apply a safe harbour for 2026.

This includes, among other things:

• financial reporting data; 

• payroll costs;

• tangible assets;

• tax incentives;

• CbC report data; and 

• information on domestic minimum taxes.

Do not overlook earlier fiscal years

An election for a safe harbour from 2026 does not change the obligations for earlier fiscal years. For 2024 and 2025, multinational groups must continue to determine their Pillar Two positions, calculations and reporting based on the Pillar Two rules applicable to those years.

Simplification with additional elections 

The Side-by-Side package is intended to make Pillar Two simpler and more workable. The new safe harbours may prevent multinational groups from having to perform the full calculation under the detailed Pillar Two rules every year.

At the same time, the package leads to further differentiation within the system. Groups will need to deal with multiple safe harbours, separate eligibility conditions, elections, jurisdiction lists and transitional rules.

The simplification is mainly achieved by creating alternative routes within the existing system. This may reduce compliance for a particular group, but first requires an assessment of the available routes and the consequences of making an election.

The Side-by-Side package also highlights a broader tension within Pillar Two. On the one hand, the framework pursues a global minimum tax rate of 15%. On the other hand, it provides room for robust national minimum tax systems and certain tax incentives. 

Pillar Two is therefore increasingly developing into a fragmented system in which uniformity and flexibility coexist.

Entry into force and retrospective application

The legislative proposal will enter into force on 1 January 2027.

Several provisions will, however, apply retrospectively:

• the Simplified ETR Safe Harbour and related provisions: from 31 December 2025; 

• the technical amendment to the transitional UTPR Safe Harbour for 52- and 53-week fiscal years: from 31 December 2025;

• the extension of the CbCR Safe Harbour: from 1 January 2026; and

• the Side-by-Side Safe Harbour, the UPE Safe Harbour and the Substance-based Tax Incentive Safe Harbour: from 1 January 2026.

Conclusion 

Through the legislative proposal Safe Harbour Rules Dutch Minimum Tax Act 2024, the Netherlands implements the Side-by-Side package in Dutch domestic law.

The key changes are the introduction of four new safe harbours, the extension of the transitional CbCR Safe Harbour and the more favourable treatment of certain tax incentives.

For multinational groups, the main challenge will not only be understanding the new rules, but also making the right elections. Groups should assess which safe harbours are available, which data will be required and how an election will affect their QDMTT position, reporting obligations, financial reporting and future fiscal years.