The Side-by-Side System explained: How Thailand could benefit and what comes next

What is a Side-by-Side System under Pillar Two? 

The Side-by-Side System (often referred to as the SbS System) is part of the OECD Inclusive Framework on a comprehensive package for a “side-by-side arrangement” (the Package). It allows multinational enterprise (MNE) groups whose Ultimate Parent Entity (UPE) is located in a jurisdiction with a “Qualified Side-by-Side regime” to receive Top up tax relief benefits. Under this regime, two new permanent safe harbors have been introduced, which are the Side-by-Side Safe Harbors (SbS Safe Harbors) and Ultimate Parent Entity Safe Habor (UPE Safe Habor). Both required the jurisdiction adoption of the “Qualified Side-by-Side regime”.  

How does the Side-by-Side system work? 

The SbS Safe Harbor offers the broadest relief. MNE groups that elect it are fully exempt from IIR and UTPR for fiscal years starting on or after 1 January 2026, while still being required to pay QDMTT in the UPE’s jurisdiction. The United States is the first jurisdiction listed in the Central Record as a Qualified SbS regime, enabling U.S.-headquartered groups to avoid IIR/UTPR globally through this safe harbor. In contrast, the UPE Safe Harbor is narrower and applies to jurisdictions that have a domestic minimum tax (DMT) but have not implemented full Pillar Two GloBE rules. It protects the UPE jurisdiction from foreign UTPR, preserving its taxing rights, but does not exempt the group from IIR in other jurisdictions. 

How does Side-by-Side System benefit Thailand?  

• Reduced compliance burden for Thai MNEs as they could elect the SbS Safe Harbor and avoid IIR and UTPR globally.  
• Retention of top-up tax revenue in Thailand through QDMTT mechanism. Even though QDMTT already allows the country to collect top-up tax domestically, joining the Side-by-Side Arrangement would strengthen Thailand’s ability to retain tax revenue by switching off foreign IIR and UTPR for Thai-headquartered groups. Without SbS, other low-taxed income jurisdictions without QDMTT present to collect top-up tax, such jurisdiction IIR or UTPR would be applied to collect the top-up tax elsewhere in the group, which may lead to Thailand to increase the compliance burden of top-up tax collect of other jurisdictions and shifting the taxing rights of Thailand to other jurisdiction.  

However, the tax impacts of the SbS Safe Harbor, including its potential benefits for Thailand, will only be recognised once the necessary legislative steps are substantively enacted in Thailand, as the OECD’s Administrative Guidance is generally not considered tax legislation.  

Expected next steps by Thai revenue department 

To promote Thailand’s Qualification Under OECD Rules, the Revenue Department should evaluate Thailand’s readiness and existing tax regimes prior to seeking inclusion in the OECD’s central registry of Qualified SbS regimes since the Inclusive Framework will assess upon request by a member jurisdiction that jurisdiction’s existing tax regimes against the eligibility criteria for a Qualified SbS or UPE Regime by the end of the first half of 2026.