The OECD/G20 Inclusive Framework has released new September 2026 Administrative Guidance on Pillar Two, focusing on two areas: Explicitly Conditional Taxes and the treatment of mismatching fiscal periods under a QDMTT. The guidance will be incorporated into the Commentary to the GloBE Model Rules.
First, the OECD confirms that Explicitly Conditional Taxes will not qualify as Covered Taxes where they are designed to apply only because an MNE group is subject to an IIR or UTPR elsewhere. A DMTT operating on such a conditional basis will also not qualify as a QDMTT. Limited transitional relief is available for certain taxes applying to fiscal years beginning before 1 January 2025, subject to specific conditions.
Second, the guidance clarifies the treatment of QDMTTs where fiscal periods do not align. A Constituent Entity does not automatically need to use the UPE’s accounting standard merely because its fiscal year differs from the UPE’s. The key comparison is with the fiscal period actually used for that entity in the consolidated financial statements. Jurisdictions may also prescribe a separate Required QDMTT Fiscal Period, with detailed rules governing the QDMTT Safe Harbour and allocation of top-up tax where periods overlap. Tax Challenges
In summary, the guidance tightens the rules around taxes designed to capture Pillar Two liabilities and provides greater certainty where QDMTT and group reporting periods differ. The OECD has also indicated that further guidance on other potentially discriminatory tax features is expected by 31 December 2026.
Do you want to learn more about UAE Corporate Tax and an introduction to International Tax and UAE DMTT rules? Order the Fundamentals of UAE Corporate Tax Book from here.
