Understanding the Substance Based Tax Incentive Safe Harbour

In this episode, Matt Andrew and Ruairi Lamb discuss the Substance‑Based Tax Incentive Safe Harbour and its role within the Pillar 2 global minimum tax framework. The conversation explores how the safe harbour is designed to preserve certain qualified tax incentives that are demonstrably linked to real economic activity, while also highlighting the practical implications for multinational groups and policymakers navigating the evolving Pillar 2 landscape.

Key topics covered include:

• How the Substance‑Based Tax Incentive Safe Harbour under Pillar Two aims to prevent GloBE top‑up tax from neutralising qualifying tax incentives.
• The key criteria for incentives to qualify—general availability and a clear link to local economic substance such as payroll and tangible assets.
• Treatment of refundable and transferable tax credits, including elective approaches and substance‑based caps.
• Implications for multinationals and governments, particularly for investment decisions, effective tax rate modelling, and asset‑intensive versus IP‑light business models

Chapters

• (00:00:00) - Understanding the Substance Based Tax Incentive Safe Harbour