The impact of Pillar 2 rules and the side-by-side framework: Are companies considering redomiciling to the US?

Understanding Pillar 2 and the Side-by-Side Framework

Pillar 2 proposes a coordinated global 15% minimum tax regime under a set of global base erosion (GLoBE) rules, adopted by the European Union in December 2022 along with several other countries. The system operates through three primary mechanisms:

1. Income Inclusion Rule (IIR): Requires parent entities to pay top-up tax if foreign subsidiaries are taxed below 15%
2. Undertaxed Profits Rule (UTPR): Acts as a backstop when the IIR doesn't apply
3. Qualified Domestic Minimum Top-up Tax (QDMTT): Allows jurisdictions to collect the top-up tax on their own low-taxed profits

The Side-by-Side System breakthrough

In a significant development, the OECD announced on January 5, 2026, that US-parented multinational groups would be excluded from the IIR and UTPR on the grounds that existing US law is sufficiently robust in its taxation of domestic and foreign profits. This arrangement, effective for fiscal years beginning January 1, 2026, fundamentally changes the compliance landscape for US-headquartered companies. 

The side-by-side system recognizes the US tax framework, including a domestic tax rate of 21 percent and a separate corporate alternative minimum tax (CAMT) of 15 percent, as meeting Pillar 2 objectives without requiring full GloBE rule implementation.

The US advantage under the Side-by-Side framework

The side-by-side framework creates several potential advantages for US-domiciled companies:

• Reduced Compliance Burden
  While the side-by-side package does not eliminate Pillar 2 compliance for US MNEs entirely, it materially reduces double-taxation risk and should significantly simplify ongoing compliance once effective. US companies benefit from a streamlined approach compared to their foreign-parented counterparts who must navigate full GloBE compliance.
• Competitive Positioning
  The SbS Safe Harbor operates by allowing multinational enterprise groups with an Ultimate Parent Entity located in a jurisdiction with a "Qualified SbS Regime" to elect a deemed Top-up Tax of zero under both the IIR and UTPR across all domestic and foreign operations. This creates a competitive advantage for US-parented groups in global operations.
• Protection of Tax Incentives
  The January 2026 guidance introduced a Substance-based Tax Incentive (SBTI) Safe Harbor that allows groups to treat qualified tax incentives as an addition to adjusted covered tax, helping mitigate potential top-up tax exposure from incentives like US R&D credits.

Emerging Redomiciliation Activity

Recent market activity suggests companies are indeed considering US redomiciliation more seriously.

The Inversion Question

Interestingly, it remains to be seen whether the SbS Safe Harbor will materially influence behavior by encouraging certain non-US MNE groups to redomicile their UPE or "invert" into the United States. This represents a significant reversal from the pre-2017 era when US companies sought to invert out of the United States.

Challenges and Considerations

• Not a Complete Exemption
  It's crucial to understand that the side-by-side system doesn't provide blanket immunity from Pillar 2. The side-by-side package makes clear that qualified domestic minimum top-up taxes (QDMTTs) remain and GloBE information return (GIR) reporting obligations will continue even when the SbS safe harbor applies. US companies with foreign subsidiaries must still comply with QDMTTs imposed by other jurisdictions.
• Compliance Complexity Remains
  The OECD's side-by-side package does not exempt US MNE groups from the full Pillar 2 rules for 2024 and 2025, nor does it eliminate ongoing compliance or QDMTT obligations in later years. Companies must plan for substantial compliance efforts, particularly during the transition period. 

Conclusion

The evidence suggests that the Pillar 2 framework, particularly with the January 2026 side-by-side system, has indeed made the United States a more attractive jurisdiction for corporate domicile. Recent redomiciliation announcements indicate growing interest in US incorporation.

However, this is not a simple story of US exceptionalism. The side-by-side system creates advantages, but it also comes with requirements, maintenance of the 21% corporate rate and 15% CAMT, that could change with future legislation. Moreover, the system doesn't eliminate all Pillar 2 compliance burdens, particularly regarding foreign QDMTTs.

The key transformation is the reversal of pre-2017 dynamics. Where once US companies sought to invert to foreign jurisdictions to escape a 35% corporate rate and worldwide taxation, the combination of TCJA reforms and now the side-by-side system has made the United States competitive, if not advantaged, in the global domicile competition.

For multinational enterprises, the decision to redomicile to the United States now involves a complex calculus of tax efficiency, compliance burden, market access, and strategic positioning. The side-by-side system has undoubtedly shifted this calculus in favor of US domicile, but whether this translates into a wave of redomiciliations will depend on how the global tax architecture evolves, how other jurisdictions respond, and whether the United States maintains the tax framework that qualified it for side-by-side status.

What is clear is that Pillar 2 and the side-by-side system have fundamentally reshaped the global tax landscape, and the United States currently enjoys a unique position within this new architecture. One that appears to be attracting renewed interest from companies worldwide seeking an optimal corporate domicile. 

More information

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