Pillar Two side by side safe harbours reshape 2026 reporting narratives

Why this topic matters for SBR candidates

Pillar Two will change how groups talk about tax in 2026 reports. The rules seek a global minimum tax rate of 15 percent. Safe harbours aim to cut complexity in the first years and reduce duplicate work where domestic rules already collect a top up. That is why side by side safe harbours get attention. They sit alongside core calculations and can simplify compliance. For SBR, this becomes a current issues theme. You may need to explain what the board should disclose, how to present the effects, and how to keep the story consistent with the financial statements. If you want a calm place to start, the ACCA exam success guide gives structure without noise.

Pillar Two in one page

• Aim
  Ensure large multinationals pay at least a 15 percent effective tax rate in each jurisdiction.
• Scope
  Big groups pass a turnover threshold. The calculation is jurisdiction by jurisdiction. A top up tax applies where the effective rate is below 15 percent.
• Mechanics
  Start from financial accounts. Apply GloBE rules to compute a jurisdictional effective rate. If it falls short, a top up applies.
• Domestic interaction
  Some countries adopt a domestic top up tax. This can reduce or remove the amount that needs to be collected by other rules.
• Safe harbours
  Transitional and simplified routes allow lighter work where risk is low or where local rules already address the shortfall. Side by side safe harbours are designed to avoid duplicate burden and focus effort where it matters.

You do not need to memorise every step. In SBR, you need to explain the purpose in plain English and tie the story to the numbers the group reports.

What a side by side safe harbour is trying to achieve

The idea is simple. If a domestic top up tax already collects the gap to 15 percent on a Pillar Two basis, the global rules should not force a second full calculation for the same period and the same profits. A side by side approach lets a group rely on the domestic outcome where quality and consistency tests are met. That reduces duplication and helps management focus on risk areas. For reporting, the effect is cleaner language in the narrative and fewer complex reconciliations in early years.

In an exam, describe the purpose first. Then state the conditions at a high level. Finally, apply to the case in front of you. That sequence earns professional marks.

How this affects your 2026 reporting narrative

You will see questions that ask you to advise a board on what to say about Pillar Two. Keep the answer tight and practical.

• Explain the position at group level
  The group operates in many countries. Pillar Two applies from this year. The group has assessed exposure by jurisdiction.
• Describe the use of safe harbours
  Where a domestic top up tax applies and meets quality tests, the group expects to use a side by side safe harbour. This reduces duplication while achieving the policy aim.
• Set out the impact on the reported numbers
  If a top up is expected, say so. If it is not possible to estimate with precision, give a clear range or a qualitative statement. Tie this to cash flows and timing.
• Link to control and governance
  Identify data owners, review steps, and board oversight. State how the group plans to refine estimates as rules settle.

Short paragraphs in plain English will do the job. Avoid long lectures on policy.

Where this meets IAS 12 and financial statement language

SBR expects you to connect the story to the numbers. Pillar Two interacts with IAS 12 income taxes in a specific way.

• Recognition exception for deferred tax
  Groups do not recognise deferred tax assets or liabilities for top up taxes under the global minimum rules. This keeps deferred tax from being distorted by the new regime.
• Disclosure
  When legislation is enacted or substantively enacted, groups disclose exposure to top up tax for the period, if known or reasonably estimable. Where estimates are not possible, say that clearly and explain why.
• Effective tax rate
  Pillar Two can affect the total tax expense. The narrative should reconcile the story to the rate drivers in the year.

Keep this at the right depth. In most cases, one paragraph on the deferred tax exception and one on disclosure is enough.

A clear frame to answer most SBR questions on this topic

Use the issue – rule – apply – conclude structure.

• Issue
  The board must explain the impact of Pillar Two and the plan to use side by side safe harbours in the 2026 report.
• Rule
  Pillar Two imposes a 15 percent minimum by jurisdiction. Domestic top up taxes can reduce global top up. Side by side safe harbours aim to prevent duplicate work and double collection. IAS 12 sets a recognition exception for deferred taxes on these top ups and asks for exposure disclosures.
• Apply
  Identify jurisdictions with low rates or incentives. State where a domestic top up exists and how reliance on a side by side route will work. Quantify or describe exposure. Set out governance.
• Conclude
  Commit to clear disclosures that are connected to the financial statements, fair, and not misleading. Confirm plans to update estimates as rules settle.

This frame keeps your writing focused and earns professional marks.

Example scenario and answer outline

Scenario
A UK listed group operates in twelve jurisdictions. Two have low statutory rates and significant incentives. Both have enacted domestic top up taxes for 2026. The board wants to explain Pillar Two and avoid confusing users with duplicate calculations.

Applied outline

• The group will assess exposure jurisdiction by jurisdiction.
• Where domestic top up taxes cover the shortfall to 15 percent on a consistent basis, the group expects to rely on side by side safe harbours.
• Early estimates indicate a modest top up in one jurisdiction and no top up in the other due to incentive design and local rules.
• There is no deferred tax recognised for these amounts.
• The report will disclose the exposure, the reliance on safe harbours, and governance arrangements to improve data quality through 2026.

Write this in two or three short paragraphs. Keep it simple.

Practical planning for finance teams in 2026

You may be asked to outline steps a finance director should take this year. Focus on actions with visible outcomes.

• Map jurisdictions and data owners
  Create a clear list of countries, local contacts, and systems. Identify which entities fall into domestic top up rules.
• Check safe harbour eligibility
  Confirm the conditions to rely on side by side treatment. Build a checklist and log evidence.
• Run dry calculations for high risk locations
  Even with a safe harbour, test the numbers. This prevents surprises when auditors ask for support.
• Draft narrative language early
  Prepare a plain English explanation that the audit committee can review in the first half of the year.
• Set a calendar
  Build monthly or quarterly checkpoints. Make one person responsible for each jurisdiction.

This list is exam friendly. It reads like practical advice and will score well.

Linking to other SBR topics without losing focus

Current issues questions invite you to show judgement across the syllabus. Touch other standards only where they add value.

• Impairment and provisions
  If the tax change reduces cash flows in a jurisdiction, note the need to consider impairment triggers or onerous contracts. One sentence is enough.
• Presentation and disclosure
  Explain where the top up sits in the tax expense and how the effective rate bridge will reflect it. Keep it tight.
• Ethics and professional marks
  Emphasise fair, clear, and not misleading communication. No over claims. No selective metrics that hide the effect.

This is how you integrate without wasting time.

A lean one page note you can revise fast

Create a single page for Pillar Two safe harbours. Use your own words.

• Aim
  15 percent minimum per jurisdiction.
• Side by side safe harbour
  When domestic top up taxes collect the shortfall, rely on domestic outcomes where quality tests are met.
• IAS 12
  No deferred tax for top ups. Disclose exposure when rules are enacted or substantively enacted and estimates are known or can be described.
• Narrative
  Explain scope, approach, expected impact, and governance. Tie to ETR and cash flows.
• Exam phrase bank
  “The group expects to rely on side by side safe harbours where domestic top up taxes collect the gap to 15 percent.”
  “No deferred tax is recognised for top up taxes under the global minimum regime.”
  “Exposure is disclosed with a clear basis and linkage to the effective tax rate.”

Read this page out loud. If a sentence feels long, split it.

Two compact drills you can do this week

Drill 1 – 12 minutes
Write eight lines for a board paper explaining why relying on a side by side safe harbour does not weaken compliance and improves focus on real risk.

Drill 2 – 18 minutes
Draft a short disclosure for the 2026 annual report. Include the approach to Pillar Two, use of safe harbours, an exposure description, and a note about no deferred tax recognition.

Practise both. Then rewrite the weakest paragraph using the issue – rule – apply – conclude frame.

Mock question idea and model structure

Requirement
Advise the audit committee on disclosure and governance for Pillar Two in 2026, including reliance on side by side safe harbours and any IAS 12 consequences.

Model structure

• Purpose and policy aim.
• Group exposure and jurisdiction mapping.
• When and how the group will rely on safe harbours.
• Quantification or qualitative ranges.
• IAS 12 treatment and ETR linkage.
• Controls, evidence, and oversight.
• Clear conclusion and next steps.

Keep the tone calm. Use short paragraphs. Finish on time.

Common pitfalls in answers

• Too much theory
  Long explanations of history that do not help the board.
• No financial link
  A narrative with no tie to tax expense, ETR, or cash.
• Ignoring domestic rules
  Advising a full global calculation when a domestic route already solves the problem.
• Over claiming certainty
  Presenting precise estimates when data quality is still developing. Better to describe ranges and commit to updates.
• Missing controls
  No mention of who owns the data or how it will be reviewed.

Avoid these traps. Your answer will stand out.

A two week micro plan to get exam ready

Week 1

• Day 1 – Build your one page note and phrase bank.
• Day 2 – Drill 1 as above.
• Day 3 – Write a six line paragraph on the IAS 12 recognition exception and disclosure.
• Day 4 – Short scenario on two jurisdictions with domestic top ups.
• Day 5 – Rewrite the weakest paragraph.
• Day 6 – Light review of effective tax rate bridges.
• Day 7 – Rest.

Week 2

• Day 1 – Draft a disclosure for a listed group using a safe harbour.
• Day 2 – Practise a 20 minute answer with governance, evidence, and oversight.
• Day 3 – Add one sentence that links the narrative to cash flows.
• Day 4 – Ask a focused question in class or to a tutor.
• Day 5 – Sit a 30 minute mixed set that includes a Pillar Two element.
• Day 6 – Rewrite and tighten.
• Day 7 – Plan next week.

This routine builds clear, applied writing without long evenings.

Where tuition can help

Some candidates prefer a timetable and regular marking. If you want a steady path with deadlines and debriefs, pick a structured run that includes mocks and scheduled submissions. When you are ready to add formal support, browse the ACCA SBR course options and plug these drills into the weekly cycle.