How Pillar Two affects IRA transferable tax credits

Two OECD developments — the 2023 MTTC guidance and the 2026 Side-by-Side framework — have narrowed Pillar Two's practical exposure for IRA transferable tax credit buyers, making it a secondary concern for most US-parented buyers and a well-defined, manageable one for foreign-parented buyers.

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Since the Inflation Reduction Act (IRA) created transferable tax credits under Section 6418, multinational corporations have become an important source of liquidity in the clean energy financing market. For tax credit buyers and investors to optimize their outcomes, tax teams need to assess how transferable tax credits interact with the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two global minimum-tax framework.

Two OECD developments have significantly narrowed the practical exposure for transferable tax credit buyers and sellers: 

• The July 2023 marketable transferable tax credit (MTTC) guidance, which addressed how to characterize these credits within the context of the core Global Anti-Base Erosion (GloBE) concept. 
• The Side-by-Side framework, finalized in January 2026 alongside the One Big Beautiful Bill (OBBB), eliminated Pillar Two’s extraterritorial reach into US activities for US-parented groups. For foreign-parented groups with US operations, the framework introduced a separate fix: a substance-based tax incentive (SBTI) safe harbor that lets those groups treat expenditure-based or production-based tax incentives they receive as an addition to covered taxes without increasing income, as limited by a so-called “substance cap,” neutralizing much of the effective tax rate (ETR) effect certain IRA tax credits would otherwise have.

This article explains where Pillar Two and transferable tax credits stand today, what the two OECD developments changed, and what corporate buyers and investors should model going into 2026 and beyond. For most buyers and investors, the practical question is no longer whether transferable tax credits work under Pillar Two, but how any Pillar Two constraints fit within a broader tax-planning framework.

Key takeaways

• Can multinational companies still buy transferable tax credits? Yes. For most buyers, OECD guidance has significantly reduced Pillar Two concerns and ambiguity.
• Does Pillar Two still matter? Yes, but it is no longer a significant planning constraint for most US-parented buyers.
• Who still needs to pay close attention? Foreign-parented buyers, particularly those operating close to Pillar Two’s 15% ETR threshold in the United States.
• What changed? The OECD's 2023 administrative guidance clarified the role of transferable tax credits within the Pillar Two regime, and the 2026 Side-by-Side framework generally eliminated exposure for US-parented groups in their domestic operations.
• How should buyers model the impact of transferable tax credits going forward? Modeling of tax credit capacity should incorporate the full set of minimum tax regimes (Pillar Two, CAMT, and BEAT), not just one framework in isolation.

What is Pillar Two?

Pillar Two is the OECD’s global minimum-tax framework. It applies to multinational enterprises (MNEs) with €750 million-plus in consolidated revenue and requires those groups to pay at least a 15% effective tax rate in every country in which they operate. Where the ETR in a particular jurisdiction falls short of 15%, a top-up tax is collected through one of three mechanisms: 

• The Income Inclusion Rule (IIR): A rule that lets a parent jurisdiction tax low-taxed foreign income up to the 15% minimum rate.
• The Undertaxed Profits Rule (UTPR): A backstop rule that lets other jurisdictions collect top-up tax when the IIR does not apply.
• A qualified domestic minimum top-up tax (QDMTT): A domestic minimum tax that allows a jurisdiction to collect its own Pillar Two top-up tax first.

The top-up tax can be collected by the source country, the parent’s home jurisdiction, or another jurisdiction in the group, depending on which rule applies and which countries have adopted Pillar Two into local law.

The most important mechanical point for a transferable tax credit buyer is that the ETR is generally calculated country by country. For example, foreign-headquartered MNEs’ US operations are evaluated on their own. Items that reduce US covered taxes can pull the US ETR down toward the 15% floor even when the group’s global ETR remains well above 15%.

What changed in Pillar Two’s treatment of transferable tax credits? 

The July 2023 MTTC guidance

Before July 2023, the GloBE rules did not provide specific characterization for transferable tax credits, which created uncertainty. MNEs whose US subsidiaries operated near the 15% floor were particularly exposed, because absent a favorable characterization, transferable tax credits could materially compress the US ETR under default GloBE mechanics.

The OECD’s July 2023 administrative guidance largely resolved that uncertainty by providing favorable guidance with respect to transferable tax credits. It introduced the marketable transferable tax credit (MTTC) framework, under which a tax credit qualifies as an MTTC at origination if it is:

• Legally transferable to unrelated parties within 15 months of the origination year.
• Sold at a market-based price (generally at least 80% of the credit's present value).¹

Section 6418 transferable tax credits that qualify as MTTCs at origination receive favorable treatment under the OECD’s 2023 guidance. For buyers, because §6418 credits generally cannot be re-transferred, the credits are treated as non-marketable transferable tax credits in the buyer’s hands.

The buyer reduces covered taxes only by the discount between the face value of the credit and the purchase price. The net ETR impact therefore tracks the discount, not the full face value of the tax credit. This is a Pillar Two-specific limitation: the buyer still applies the full face value of the credit against its regular US tax liability, and only the GloBE covered-tax calculation caps the reduction at the discount. In other words, Pillar Two generally focuses on the buyer's economic cost of acquiring the credit rather than treating the entire credit amount as an ETR reduction.

The January 2026 Side-by-Side framework

The OECD finalized the Side-by-Side framework in January 2026, following a mid-2025 G7 statement signaling agreement on the framework and the passage of the OBBB in the United States.

The framework recognizes the US international tax system — comprising the federal corporate income tax, the Global Intangible Low-Taxed Income (GILTI) regime, and the Base Erosion and Anti-Abuse Tax (BEAT) — as operating alongside Pillar Two in a coordinated way. For US-parented MNEs, the Side-by-Side framework eliminates future foreign UTPR top-up tax exposure on US activities. It also limits the reach of foreign IIRs into US operations of foreign-parented groups.

The more significant practical change from the Side-by-Side framework is for US-parented groups. By largely eliminating foreign UTPR exposure on US activities, the framework effectively eliminates the likelihood that US-parented buyers will face Pillar Two top-up tax consequences as a result of credit purchases. As a result, Pillar Two has become a secondary planning consideration for many US-parented buyers. 

For most foreign-parented buyers, the 2023 MTTC framework had already substantially mitigated the direct Pillar Two exposure associated with transferable tax credits. The substance-based tax incentive regime provides some further certainty for foreign-parented potential sellers of transferable tax credits. Foreign-parented buyers still need to model US subgroup ETR carefully, with the 2023 MTTC guidance as the primary analytical framework.

What does this mean for tax credit buyers?

The practical Pillar Two exposure associated with transferable tax credits is substantially narrower today than it was when the Section 6418 market was first developing. For most US-parented buyers assessing their US ETRs, Pillar Two’s role has largely vanished. Foreign-parented buyers should continue to model US subgroup ETR carefully, but the MTTC framework has significantly reduced the likelihood that there is a Pillar Two impact associated with tax credit investments.

Before committing capital or purchase size, tax credit buyers and investors should work with their tax counsel to evaluate the implications of the various minimum tax regimes that have been modified or expanded in recent years (e.g., Pillar Two, BEAT, CAMT). 

While Pillar Two exposure has narrowed, tax planning still requires understanding how the credits interact with the buyer’s broader minimum-tax position. In particular, foreign-parented groups should run the post-purchase US ETR scenario against two thresholds: 

1. The 15% Pillar Two floor. 
2. The 17% simplified ETR threshold, where relevant, used for the OECD's transitional country-by-country reporting safe harbor in reporting years beginning in 2026. The safe harbor allows qualifying MNEs to skip the full GloBE calculation in a jurisdiction, but the higher threshold leaves less ETR headroom for tax credit usage than the substantive 15% floor. 

Pay particular attention to concentrated purchase years and to sub-groups whose pre-credit ETR was already close to either threshold.

Further reading

Explore how the corporate alternative minimum tax (CAMT) interacts with transferable tax credits. 

Understand the ins and outs of tax credit purchases with our comprehensive guide for tax credit buyers. 

Ready to discuss how transferable tax credits fit into your tax-management strategy? Contact us.

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^1. Sold above a marketable price floor, calculated as 80% of the net present value (NPV) of the tax credit, where the NPV is determined based on the yield to maturity on a debt instrument issued by the government that issued the tax credit with equal or similar maturity issued in the same fiscal year as the tax credit is transferred or originated (if not transferred).