How the ‘side-by-side’ minimum tax accord will reshape global policy

US political statements, executive actions and passage of the OBBBA are being followed closely around the world for their impact on the global tax and investment landscape. 

“By removing the expiration dates in various key domestic provisions, the US removed a layer of uncertainty that had plagued planning for years,” says Jose Murillo, EY Americas International Tax and Transaction Services Leader. “But an attractive regime at home raises questions abroad — because it shifts the competitive baseline.”

The OBBBA creates a more appealing environment for high-value assets by restoring full R&D expensing, reducing the effective rate on foreign-derived intangible income (FDII) (by limiting the allocation of certain expenses) and maintaining the 21% corporate rate. In a post-Pillar-Two world, where most jurisdictions are constrained by a 15% floor, owning IP in the US now looks as attractive, or even slightly more so, than in traditional low-tax hubs.

A deceptively simple question lies at the center of the current tax debate: How will the US tax system coexist with the OECD’s Pillar Two? While political agreement on coexistence has been reached and Inclusive Framework member jurisdictions have committed to implement that agreement, Kalyanam cautions, “agreement and implementation are very different things.”

Chris Sanger, EY Global Government Tax Leader, sees this as a dynamic moment in the journey of reform. “We’re now in a world that’s not just complex, but where many of the rules haven’t even been fully formalized,” he says. “A lot of what businesses are relying on is guidance, not law, so they’re almost taking on faith the commitments that governments have made. And tax isn’t designed by model rules; it’s designed by actual rules applied by individual countries.”

The burden of that complexity will not be felt evenly. “Once within the side-by-side rules, multinationals headquartered inside the US are sheltered from much of the complexity of the new international system,” Sanger says.

For non-US groups, the challenge is twofold: navigating duplicate reporting and reconciling competing calculations of “minimum tax” under different frameworks. For US multinationals, the reporting obligations under Pillar Two will be reduced for the years when the side-by-side system comes into effect, although the requirement for full reporting remains in place for 2024 and 2025.

Meanwhile, in Asia-Pacific, the ripple effects are already being anticipated. Miller notes that while many economies in the region have enacted or are drafting qualifying Pillar Two rules, some are closely reviewing the side-by-side arrangement and requirements to be considered an eligible tax regime. “We may see jurisdictions modifying their systems to qualify as eligible tax regimes and receive side-by-side treatment,” he says. “Other jurisdictions that have relied on competitive tax policies but have already adopted domestic minimum tax rules could reconsider their commitment to those rules to attract investment. Divergence would accelerate.”

This potential patchwork presents a real-world challenge for multinational CFOs. Each jurisdiction’s system could differ, producing overlapping safe harbors, divergent filing obligations and inconsistent dispute-resolution mechanisms. The compliance burden, already heavy under Pillar Two, could multiply as tax teams are forced to model multiple effective tax rates and reconcile them across systems designed to measure the same income in different ways.

For businesses, the ongoing imperative is to strengthen their data foundations, which is the only constant in an evolving landscape.

“At the heart of all of this is data,” Sanger says. “You need to be able to pull data from across your subsidiaries, not just to comply, but to engage credibly with policymakers. If you’re going to influence how these rules evolve, you need your numbers at hand.”

For all the technical complexity, the strategic reality is simple: The recent decade of emerging global convergence is giving way to a more pluralistic era of coexistence. The challenge for tax leaders is to build the flexibility, systems and insight to operate effectively.

For multinational tax leaders, the implications of new tax law are less about today’s effective rate than tomorrow’s planning horizon. The OBBBA and the side-by-side arrangement provide a degree of stability with respect to the US tax system, something businesses have sought since the US 2017 reform. But volatility remains in the global environment, forcing companies to model for multiple futures at once.

In practice, tax directors are evaluating tax changes and considering their options. The US offers renewed R&D and capital-investment incentives and political momentum around a “made-in-America” industrial strategy, while other countries also are focusing on their own competitiveness. At the same time, the world is still digesting the Pillar Two regime, with jurisdictions moving at different speeds and applying top-up taxes in different ways. The result is strategic tension: where to deploy capital, where to hold intellectual property and how to manage compliance when global alignment may be years away.

Murillo says clients are splitting into two distinct camps. “Some are leaning into US stability — bringing back IP and reassessing where to make new investments,” he says. “Others are deliberately slowing major decisions until they see how Pillar Two and the side-by-side framework settle.”

That hesitation is understandable. CFOs must weigh short-term incentives against long-term geopolitical risk. Many are conducting scenario modeling not only around tax rates but around policy predictability itself, which is now an increasingly valuable commodity.

That engagement, say both Kalyanam and Murillo, is no longer optional. “This is a moment when businesses have to be part of the policy conversation,” Murillo says. “Whether you’re headquartered in New York or Singapore, the decisions being made in Washington and Paris affect you directly.”

The outcome is a new tax approach that fuses compliance with policy advocacy and digital readiness. In a landscape where the rules themselves are in flux, the most resilient organizations will be those that can interpret change early, respond coherently and articulate their position credibly to regulators around the world.

What began with the BEPS project’s push for common standards and transparency has evolved into a return to coexistence, with overlapping regimes and governments redefining cooperation. “We’ve moved from an era of convergence to one of coexistence,” says Sanger. “The next few years won’t be about alignment but about managing difference.”

Even amid divergence, data digitalization offers stability. Real-time data, advanced analytics and AI-enabled compliance are helping companies manage complexity and regulators gain visibility. For Jose Murillo, the opportunity is clear: “Periods of disruption are when systems modernize most rapidly. It will take openness, data and trust.”

Summary

Agreement on a side-by-side system is a major shift in international tax policy. Strengthened US incentives for investment and a redefined understanding of Pillar Two set the stage for renewed global competition and potential fragmentation. For multinational CFOs, the challenge is balancing new opportunities with global uncertainty, while preparing for a renewed focus on competitiveness.