Tax Treaties: Context and Challenges

Tax treaties have played a critical role throughout the years as mechanism to promote cross-border trade and investment. The existence of over 3000 existing tax treaties reflects the success of these agreements offering stability and predictability for businesses operating internationally. However, tax treaties have also been prone to abuse. The OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, particularly Action 6, represents a coordinated effort to embed anti‑abuse standards directly into treaty practice. BEPS Action 6[1] established a minimum standard requiring treaties to include either a Principal Purpose Test (PPT), a Limitation on Benefits (LOB) clause, or a combination of both. In addition, the widespread adoption of the Multilateral Instrument (MLI), now implemented by more than 100 jurisdictions, has further strengthened consistency in treaty application and curtailed opportunities for aggressive treaty shopping. This has been coupled with a wide-scale adoption by countries of General Anti-Abuse Rules (GAARs) and other anti-avoidance mechanisms in domestic legislation. Therefore, it is not surprising that, in recent years, there has been increased scrutiny over access to treaty benefits and attempt to distinguish legitimate tax planning from treaty abuse, due to its impact on source-country revenues. Recent case laws reveal that tax authorities are adopting a more aggressive approach challenging tax treaty benefits, either by making use of domestic GAARs, a broad interpretation of the beneficial ownership requirement or otherwise in the early stages of making use of the PPT.

Treaty‑Abuse Structures and Applicable Principles

At its core, treaty abuse, under its most common form of treaty shopping, involves structures created mainly to minimize taxes by exploiting gaps or mismatches in treaty provisions and their application. Unlike genuine tax planning, which is undertaken in a manner consistent with the object and purpose of tax treaties, treaty abuse often involves artificial arrangements with limited economic substance and seeks to obtain tax advantages which are contrary to the treaty intent.

Closely linked to treaty shopping is the issue of economic substance. Recent treaty related disputes have often involved entities with Tax Residency Certificates but with no real functions, personnel, or decision-making authority. Although these shell, letterbox, or conduit entities may satisfy domestic residency thresholds on paper, courts and tax authorities have increasingly placed emphasis on substantive evaluations, focusing on the commercial and economic reality of the arrangements rather than solely relying on documentation.

Another relevant concept is the beneficial ownership requirement. Introduced into the OECD Model Tax Convention (MTC) in 1977 to address the very particular issue of nominee or agency arrangements, beneficial ownership was originally intended to have a very narrow scope, excluding intermediaries that lacked ownership attributes over the income. Over time, the concept has evolved through judicial interpretation, with beneficial ownership increasingly forming part of a broad abuse assessment that places significant emphasis on economic substance. Despite the OECD efforts with the 2014 amendments introduced in the Commentary to the OECD MTC, the fact is that more than five decades later, beneficial ownership still lacks a settled meaning, and courts continue to diverge in their approaches, now under the growing influence of the Court of Justice of the European Union’s (CJEU) Danish cases jurisprudence.

More recently, the PPT functions as a purpose‑based filter, denying treaty benefits where obtaining such benefits constitutes one of the principal purposes of an arrangement, unless granting the benefits is consistent with treaty objectives. It enables tax authorities to examine arrangements that rely on legal form rather than substance through a holistic assessment of commercial rationale and underlying economic activity.

In parallel, LOB provisions continue to play an important role in treaty practice. Originally developed in U.S. treaties through Article 22 of the U.S. MTC, LOB clauses rely on objective nexus tests, such as public listing, ownership thresholds, base erosion rules, and active trade or business requirements, to restrict treaty benefits to ‘qualified persons’. While LOB provisions offer greater certainty through objective criteria, they are increasingly applied alongside the PPT as part of a layered approach to addressing treaty related abuse.

Judicial Interpretations and Evolving Enforcement approaches

The judiciary has played an important role in shaping how treaty anti‑abuse standards are applied in practice. Courts across jurisdictions have examined arrangements that comply with the formal requirements of applicable tax treaties, while also considering whether such arrangements align with the object and purpose of the relevant treaty provisions. As mentioned earlier, emerging case laws reflect an increased focus on beneficial ownership, economic substance and purpose‑based limitations. This reflects the trend of tax administrations which are looking to beneficial ownership and treaty abuse as central elements in their analysis of entitlement to treaty benefits.

The recent decision of the Spanish Supreme Court’s ruling in Spain vs Velcro Europe S.A.[2] demonstrates how the CJEU’s rulings in the 2019 Danish cases are now shaping the interpretation of beneficial ownership in the European Union (EU). In those cases, the CJEU concluded that the Interest and Royalty Directive (IRD) and the Parent-Subsidiary Directive (PSD) must be denied where recipient entities function as conduits lacking sufficient economic substance and merely transmit income to ultimate third‑country owners. More questionably, the CJEU went to conclude that the beneficial ownership concept in the IRD and PSD Directives was to be interpreted in line with the Commentary to the OECD MTC[3], thereby ended up entangling the beneficial ownership meaning with abuse, effectively treating it as part of abuse analysis. Consequently, several domestic courts in EU Member States have, in recent years, made reference to the CJEU’s Danish cases and also adopted their reasoning when dealing with tax treaty entitlement, with beneficial ownership being effectively treated as an element of a broad assessment of abuse. In the Spanish Supreme Court’s ruling in Spain vs Velcro Europe S.A., the Court examined royalty payments from Spain to a Dutch group entity that were claimed to be exempt under the IRD Directive. In assessing the availability of withholding‑tax relief, the Court considered that the intellectual property was owned by a non‑EU parent entity located in Curaçao, with the Dutch entity functioning as an intermediary between Spain and Curaçao. Accordingly, the Court denied directive‑based withholding‑tax relief, concluding that the Dutch company was not the beneficial owner of the royalties and lacked any real economic activity. Identical reasoning has been followed in other EU Member States also in the context of tax treaties, demonstrating how this broad meaning of beneficial ownership appears to have drifted somewhat from its original meaning[4].

This approach can be contrasted with the one followed by the Tax Court of Canada in the recent C & W Offshore Ltd. v. The King[5]. The case dealt with a back-to-back leaning structure, where the Court concluded, in line with the prior Canadian jurisprudence in the Prévost case, that beneficial ownership is assessed based on the right to use and enjoy the income received. This narrower approach followed by the Canadian court suggests an interpretation more consistent with the 2014 Commentary to the OECD MTC.

The Indian Tribunal’s decision in the S.C. Lowy P.I. (Lux)[6] S.A.R.L case is arguably the first decision dealing with the PPT. In this case, decided in favor of taxpayer, the Tribunal held that treaty benefits cannot be denied solely on allegations of treaty shopping by the tax authorities and observed that the tax authorities must establish, on the basis of the relevant facts and circumstances placed on record, that obtaining the treaty benefit was one of the principal purpose of the arrangement.

Subsequently, the Supreme Court of India issued a landmark ruling in Tiger Global International III Holdings and others[7]. This case aligns with the Commentary to the OECD MTC, which suggests that domestic GAAR provisions may be relied upon to deny treaty benefits in situations involving formally valid arrangements where the primary purpose is to inappropriately secure tax advantages[8]. The case involved indirect share transfers of an Indian company, where exemption from capital‑gains taxation was claimed by invoking the grandfathering provisions under Article 13(3A) of the India–Mauritius tax treaty. Applying GAAR, the Supreme Court denied treaty benefits to Mauritian entities, holding that the transactions constituted impermissible tax-avoidance arrangements involving shell company structure lacking economic substance and undertaken primarily to obtain a tax advantage.

However, global jurisprudence has also here not moved uniformly in one direction. A significant contrast is provided by the Supreme Court of Canada’s decision in Canada v. Alta Energy Luxembourg S.A.R.L.[9], which involved the sale of shares of a Canadian company by a Luxembourg‑resident parent entity claiming treaty protection under the Canada–Luxembourg tax treaty. Although the structure had been challenged by tax authorities as treaty shopping, the Court declined to apply domestic GAAR and allowed treaty protection, holding that the taxpayer satisfied the express requirements of the applicable tax treaty and that mere selection of a treaty to minimize tax, on its own, does not constitute abuse.

Beyond judicial decisions, tax administrations have also adopted proactive approaches in identifying and reviewing arrangements that result in claiming unintended treaty benefits. For instance, the Australian Taxation Office’s Taxpayer Alert 2022[10] on treaty‑shopping arrangements highlights interposed‑entity structures, where entities resident in treaty jurisdictions are inserted between an Australian payer and the ultimate recipient to obtain reduced withholding‑tax on royalty or dividend payments from Australia. The Alert illustrates how tax authorities are using administrative guidance to address potential treaty abuse cases.

In similar fashion, the Polish Ministry of Finance published official guidance addressing the application of the beneficial owner clause for Polish withholding tax purposes[11]. The guidance sets cumulative conditions for the application of withholding tax benefits in the context of domestic law (including the IRD and PSD Directives) and tax treaties, requiring that: (i) the entity must receive the payment for its own benefit, demonstrating economic control over the income; (ii) the entity must not be under any obligation to transfer the payment, either partially or fully, to another entity and (iii) the entity must engage in genuine business activities supported by sufficient human, technical, and financial resources (i.e. adequate business substance). Again, here linking the beneficial ownership to substance requirements, the Polish authorities are effectively importing the Danish cases doctrine, thereby blurring the beneficial ownership analysis with abuse for the application of both the EU Directives and tax treaties.

Conclusion

These developments reflect a shift in the application of tax treaties, reassessing how treaty benefits are accessed and applied. The growing emphasis on substance and economic reality reflects an effort to align treaty outcomes more closely to genuine cross‑border economic activity.

Introduction

In January 2026, the OECD introduced a new Substance-Based Tax Incentive (SBTI) Safe Harbor as part of the Side-by-Side (SbS) package issued as administrative guidance under the Pillar Two Rules. This safe harbor allows certain tax incentives that meet the OECD’s definition of Qualified Tax Incentives (QTIs) to reduce the Top-up Tax (TuT) payable in a jurisdiction where, and to the extent, the TuT is attributable to the use of QTIs in that jurisdiction.

From January 01, 2026, a Multinational Enterprise (MNE) group may elect to apply the SBTI Safe Harbor. Where elected, any TuT attributable to QTIs in a jurisdiction is deemed to be zero,[12] which is achieved through a jurisdictional Effective Tax Rate (ETR) adjustment. Under the Safe Harbor, QTIs are added to Covered Taxes, subject to a Substance Cap, calculated as the greater of 5.5% of eligible payroll costs, or 5.5% of depreciation and depletion expenses on eligible tangible assets. Alternatively, a five-year election may be made, to apply a cap of 1% of the carrying value of tangible assets. Thus, the ETR adjustment will be lower than the QTI amount or the Substance Cap.

What Is Considered as a “Qualified” Tax Incentive?

To be treated as a “Qualified” Tax Incentive, incentives must meet the following requirements regarding:

1. Types of Incentives
2. Amount of Incentive and “Direct Link”
3. Timing
4. General Availability 

1. Types of Incentives

The QTI definition covers two broad categories: (i) expenditure-based tax incentives, and (ii) certain production-based tax incentives.

Expenditure based incentives qualify as where the benefit is directly linked to actual qualifying expenditure. Examples include tax credits calculated as a percentage of eligible expenditure, super-deductions in excess of 100% of qualifying costs, enhanced capital allowances and expenditure linked Corporate Income Tax (CIT) exemptions.

Production based incentives can qualify as QTIs only where the benefit is tied to volume of tangible production within the jurisdiction. Examples include units produced, tonnes extracted, kilowatt-hours generated, or emission reductions. Incentives based on the value of production (e.g., credit based on percentage of revenue) are excluded from QTIs.

2. Amount of Incentive and “Direct Link”

A fundamental condition for QTI treatment is the “direct link” between the tax benefit and the underlying qualifying expenditure (or, for production-based incentives, qualifying output). In practical terms, the incentive amount must be calculated using a mechanical formula, for example, ‘10% of qualifying R&D spend’ or ‘a fixed amount for each unit produced’, ensuring a clear and traceable connection between the expenditure/production input and the incentive output.

To satisfy the direct link requirement, the process for determining the incentive amount must be objective and reproducible, with no governmental discretion determining the amount of the benefit. The qualifying expenditure (or output) must be the determinative base for the calculation. Incentives that are linked to income, profits, or revenue (rather than expenditure or output) do not meet the direct link requirement and therefore cannot be treated as QTIs.

3. Timing

The QTI rules also require that the incentive amount be determined with reference to the actual timing of expenditure incurred or output produced. An administrative process that confirms eligibility in advance, for example, project pre-approval does not, in itself, prevent an incentive from qualifying, provided the benefit amount is ultimately calculated only once the relevant costs have been incurred (or the output has been produced).

Pure timing advantages (for example, accelerated depreciation or immediate expensing) are excluded from QTI treatment, since these mechanics affect only the timing of deductions rather than increasing the overall amount of relief over the asset’s life. However, where an incentive creates a permanent benefit (a permanent difference), that permanent element may qualify as a QTI even if the incentive also accelerates the timing of deductions.

4. Meaning of “Generally Available”

One of the critical elements for QTIs is the requirement for the incentive to be generally available to taxpayers, meeting statutory objective and published criteria, without being restricted to a particular class of taxpayers or dependent on governmental discretion in selecting beneficiaries.

Under the SBTI Safe Harbor, an incentive fails the general availability test if:

• Eligibility is limited to in-scope MNE Groups (first condition); or
• The incentive is granted through a discretionary government arrangement, for example, a ruling, agreement, decree, or grant (second condition).

The first condition appears to relate to already existing references on the qualified status of rules, such as the Domestic Minimum Top-up Tax (DMTT), the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR). In all these cases, the Commentary clarifies that a condition for the rules to be ‘qualified’ is that a jurisdiction does not provide any ‘related benefits.’[13] This approach is carried forward into the SBTI Safe Harbor, with the OECD indicating that additional clarification may be issued. In this context, ‘related benefits’ capture incentives that are limited to in‑scope MNE groups or otherwise intended to neutralize the impact of the TuT and, thus, would not qualify as QTIs.

The second condition focuses on transparency in the design and operation of a regime, which was already one of the four key factors used to determine whether a preferential tax regime is potentially harmful in the 1998 OECD report on harmful tax competition.[14] This was later incorporated into the preferential tax regimes assessment under BEPS Action 5.[15] Non‑transparency arises when a regime allows taxpayers to negotiate terms or obtain preferential treatment that is not grounded in statute. For an incentive to meet the “generally available” requirement, the eligibility conditions must be clearly prescribed in law and applied on an objective, non‑discriminatory basis. The mere fact that authorities verify compliance with these statutory conditions does not undermine transparency.

Administrative practices that are consistent with legislation and do not override statutory rules are acceptable. However, bespoke or discretionary incentives, such as individually negotiated tax holidays or concessionary rates, are not considered generally available. Sector specific incentives may still qualify, provided they are established in law and open to all taxpayers engaged in the relevant activity, rather than tailored to specific companies or groups.

Conclusions and Practical Considerations

The SBTI Safe Harbor is a significant enhancement to the Pillar Two framework, as it now allows non‑refundable, substance-based tax incentives to receive favorable treatment previously limited only to Qualified Refundable Tax Credits (QRTCs) and Marketable Transferable Tax Credits (MTTCs). It is critical that existing and future tax incentives meet the requirements to be treated as QTIs.

For MNE Groups, a qualifying incentive can increase Covered Taxes (rather than reducing them), which may reduce or eliminate TuT particularly where the jurisdictional ETR would otherwise fall below 15%. However, the benefit is limited by the Substance Cap, meaning the Safe Harbor is most effective in jurisdictions with significant payroll and tangible asset bases.

In light of the above, MNE Groups should consider the following practical next steps:

• Review existing incentives across jurisdictions and assess them against QTI criteria.
• Model the interaction between the QTI treatment and the Substance Cap.
• Consider whether re‑characterizing existing QRTCs/MTTCs as QTIs yields a more favorable Global Anti-Base Erosion (GloBE) outcome.
• Monitor local jurisdictions’ implementation timelines for applying the SBTI Safe Harbor.

On February 17, 2026, the OECD released additional materials for facilitating the implementation of Amount B of Pillar One, including a set of Frequently Asked Questions (FAQs)[16] on Amount B pricing and the 2026 edition of the pricing automation tool[17].

The Amount B Pricing FAQs address technical questions raised by stakeholders on the practical operation of Amount B. The FAQs inter-alia provides clarifications on treatment and relevance of intercompany debtors and creditors in the working capital calculation, interpretation of ±0.5% tolerance band. The FAQs also address application issues for start‑ups or new companies and provide clarification on definition of “net revenue” and the industry groupings in the Amount B pricing matrix.

Alongside the FAQs, the OECD issued the revised 2026 version of Amount B Pricing Automation Tool, an excel‑based mechanism that facilitates the automated determination of the Amount B return for in‑scope tested parties. This version of the tool updates the information required for the application of Amount B in 2026, including data on sovereign credit ratings.

An OECD update issued in April 2026[18] confirms continued expansion of the GloBE Information Return Multilateral Competent Authority Agreement (GIR MCAA) during Q1 2026. The agreement was signed by Gibraltar and Australia in January 2026, followed by Canada in February 2026, and Greece in March 2026. These additions were followed by the Isle of Man and Singapore in April 2026, bringing the total number of GIR MCAA signatories to 31 jurisdictions as at mid‑April 2026. The expanding signatory base further strengthens the framework for the automatic exchange of Pillar Two information and increases the scope for centralized GIR filing by multinational groups.

Tax developments across North America in Q1 2026 focused on implementation, administration, and enforcement rather than broad legislative reform. In the US, activity centered on Treasury and IRS guidance addressing key provisions of the One Big Beautiful Bill Act, including full expensing for qualified production property, changes to business interest deduction elections, interim CAMT rules and energy credit restrictions, alongside state‑level responses to federal conformity and notable developments related to excise taxes and tariffs. In Mexico, reforms significantly enhanced the audit and enforcement powers of the tax authorities, with a particular emphasis on digital platforms, real‑time access to taxpayer information, enhanced invoice verification procedures and expanded enforcement mechanisms. Overall, the quarter reflected a regional trend toward strengthening tax administration and enforcement frameworks.

US

Key Policy Update in Q1:

• Business Taxes:
  • Treasury and the IRS issued guidance regarding several provisions of the One Big Beautiful Bill Act (OBBBA), which included:
    • Clarifying eligibility to elect the 100% special depreciation allowance for qualified production property (certain domestic non-residential real property used in manufacturing, production, or refining activities) under new § 168(n). The provision applies to capital projects for which construction begins after January 19, 2025, and before January 01, 2029. Companies, including multinational companies considering whether to bring manufacturing operations into the US, wanting to take advantage of the full-expensing option will need to consider numerous factors in deciding whether to make the election, including the interaction with other provisions. (See A&M Tax Alert for additional insights.)
    • Procedures allowing taxpayers to revoke the real property trade or business (RPTOB) election and the controlled foreign corporation (CFC) group election under the § 163(j) business interest deduction limitation regime. However, companies must carefully evaluate both the potential benefits under OBBBA’s changes to § 163(j) and bonus depreciation under § 168(k), and the potential collateral consequences of making or revoking the election entity-by-entity and across multiple years. (See A&M Tax Alert for additional insights.).
    • Rules regarding restrictions that apply to certain energy tax credits (§§ 45X, 45Y, and 48E) when a prohibited foreign entity (PFE) provides “material-assistance” related to facility construction or component production. The guidance provides three interim safe harbors for taxpayers to calculate the material-assistance cost ratio that could yield materially different results, requiring careful modeling and analysis. (See A&M Tax Alert for additional insights.)
  • Treasury and the IRS also released guidance intended to reduce complexity and compliance burdens, with generally taxpayer-favorable results, most notably, additional interim rules for the corporate alternative minimum tax (CAMT), which clarify the treatment of several book-tax differences that could otherwise increase CAMT liability. Treasury and the IRS also previewed simplified rules for determining the taxable income or loss, and foreign currency gain or loss, of a taxpayer with a “qualified business unit” that has a functional currency different from its owner. The forthcoming proposed regulations under § 987 would generally reduce complexity and limit the impact on ordinary-course transactions. For additional insights, see our February 2026 edition of A&M Tax Policy Insights.
  • State jurisdictions continued to update their rules regarding conformity with the Internal Revenue Code, addressing whether they will follow the OBBBA or selectively decouple from certain provisions (such as immediately expensing of R&E costs, business interest expense deductions, and bonus depreciation). (See A&M Tax Alert for certain state updates during Q1).
• Personal Taxes:
  • Treasury and the IRS issued proposed regulations regarding Trump Accounts, a new type of non-Roth individual retirement account (IRA) under OBBBA for individuals who have not turned 18 in the year the account is opened. Eligible contributions can be made by individuals or certain entities, including employers, subject to statutory limits and other restrictions. The proposed regulations address the $1,000 federal contribution pilot program and the general requirements for establishing a Trump Account.
  • At the state level, Washington enacted a 9.9% tax on household earnings over $1 million, effective beginning in 2028. The state historically has not taxed wages or ordinary income, though certain long-term capital gains are taxed. Opponents argue that the tax violates the state constitution because it is not uniformly applied to all wage earners. Washington joins a few other states that impose a similar tax on millionaires.
• Indirect Taxes:
  • As a result of the OBBBA, beginning January 01, 2026, a 1% federal excise tax is imposed on cash or similar remittance transfer that a US consumer requests to be sent to a foreign country that is not either (1) withdrawn from an account held in or by certain financial institutions or (2) funded with a debit or credit card issued in the US. The excise tax is imposed on the sender; however, the intermediary financial institution has secondary liability if it fails to collect and remit the tax on a quarterly basis. On April 10, 2026, Treasury and the IRS issued proposed regulations that would clarify the scope and application of the tax, generally adopting definitions from “Regulation E” (implementation of the Electronic Fund Transfer Act) with some modifications.
  • On April 02, 2026, President Trump issued two Section 232 proclamations substantially expanding tariffs on pharmaceuticals and metals on national security grounds. In the pharmaceutical sector, the proclamations impose a new 100% ad valorem tariff on specified patented drugs and active pharmaceutical ingredients, with limited relief available for companies that commit to US manufacturing and pricing agreements. These tariffs will take effect for covered products in either late July or late September 2026. Separately, the existing Section 232 tariffs on aluminum, steel, and copper were expanded to apply to the full customs value of covered articles and derivatives, rather than only to metal content, resulting generally in tariffs of 25% to 50% on a broad range of metal products. Reduced rates apply to certain UK-origin products and derivatives given ongoing discussions. The expanded metal tariffs apply to covered goods beginning April 06, 2026.
  • Litigation over refunds of the International Emergency Economic Powers Act (IEEPA) tariffs is proceeding at the Court of International Trade under a new lead case. After Atmus Filtration voluntarily dismissed its refund case, the Euro-Notions Florida litigation became the lead action. The Court of International Trade again directed US Customs and Border Protection (CBP) to refund IEEPA tariffs to all importers, including entries that have already liquidated or reached final liquidation. The government’s deadline to appeal runs to June 08, 2026, and CBP continues to develop the refund mechanism pursuant to the court’s orders.

Key Controversy Issues in Q1:

• The US Court of Appeals for the Fifth Circuit issued an important and favorable decision on January 16, 2026, in Sirius Solutions, L.L.L.P. v. Commissioner (No. 24-60240) that may affect owners of entities treated as partnerships for US federal income tax purposes. The court held that, for purposes of the self-employment tax exemption, a “limited partner” is simply a partner in a state-law limited partnership who has limited liability. That is a meaningful development, with an effective tax savings for limited partners of 1.9% of certain income. However, the Fifth Circuit’s opinion leaves several questions unresolved and creates uncertainty for certain taxpayers. The Justice Department has requested a rehearing en banc.
• In Continental Grand Limited Partnership v. Commissioner (166 T.C. 3), the US Tax Court held that a partner’s contribution of its own promissory note to a partnership resulted in zero basis for both the partner’s partnership interest and the partnership’s basis in the note. The case involved a German parent that issued a note to its subsidiary, which contributed the note to a partnership that later became a disregarded entity retroactive to before the contribution. The note was satisfied, and the subsidiary exited the partnership. The court found that the maker had no cost in creating its own obligation. The court also rejected reliance on Lessinger and Peracchi because they involved contributions to corporations rather than to partnerships.

Mexico

Key Policy Update in Q1:

• Corporate Taxes: No significant update.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• Tax reforms approved by the Legislative Branch for 2026 strengthen the audit and review powers of the tax authorities, in a manner consistent with the revenue-collection objective of the Tax Administration Service (Servicio de Administración Tributaria, or SAT), which has been set at MXN 5.8 trillion.
• The SAT’s Master Plan establishes audit and enforcement lines of action, particularly targeting taxpayers who engage in transactions with parties involved in the sale of false tax invoices, report recurring tax losses; simulate or unlawfully apply deductions, obtain undeclared income, abuse tax incentives, present discrepancies between imports or purchases and sales, import goods at prices below market value, fail to comply with nontariff regulations or restrictions, fail to remit withholdings attributable to their employees, carry out transactions through tax havens, request improper tax refunds, or pay taxes at an effective rate lower than that of their respective sector.
• Specifically, with respect to digital platforms, as of April 01, 2026, the tax authorities, with the support of the Digital Transformation and Telecommunications Agency, are empowered to access, on a permanent, online, and real-time basis, the information necessary to verify due compliance with tax provisions contained in the systems or records of entities that provide digital services for the download of or access to images, films, text, information, video, audio, music, games, as well as other multimedia content, multiplayer environments, mobile ringtones, online news viewing, traffic information, weather forecasts and statistics; intermediation services between third parties acting as suppliers of goods or services and the corresponding demanders thereof; online clubs, dating platforms, and distance learning services, among others.
• A technology platform’s denial of granting such access to the authorities shall result in the temporary blocking of access to the digital service, in accordance with the provisions already established under the Value Added Tax Law. It is relevant to note that the SAT has already disclosed, through general administrative rules, the specific information to which platforms must grant access to the authorities.
• Another example of the expanded scope of the authorities’ powers for 2026 is reflected in the amendments granting them a new audit ability, in the form of an onsite inspection, aimed at verifying that tax invoices evidence existing, genuine transactions or real legal acts, whether the authorities presume that such invoices were issued without complying with the obligation to support existing, genuine transactions or real legal acts. This procedure, which is intended to be conducted within a shortened timeframe (with a conclusion period of 24 business days), will represent a challenge for taxpayers because, once initiated, the taxpayer is prohibited from issuing tax invoices during the onsite inspection.
• The filing of an administrative appeal (recurso de revocación) before the tax authorities no longer prevents collection of a tax assessment, as was the case until December 2025. Furthermore, amendments were introduced to establish that, to suspend enforcement of a tax assessment, it must be secured in accordance with a specific order of priority, with a cash deposit bond (billete de depósito) being the mandatory primary mechanism. In March 2026, President Sheinbaum proposed a reform to reverse the order of priority for securing the tax assessment. This reform has already been approved by the Legislative Branch and is expected to be published in the Official Gazette (Diario Oficial de la Federación). Although these reforms to the authorities’ powers have a local impact, their implementation and enforcement are expected to have repercussions in the context of conducting business activities in Mexico.
• Additionally, the Federal Court of Administrative Justice (Tribunal Federal de Justicia Administrativa – TFJA) has recently issued rulings that provide new elements regarding the concept of “beneficial owner” in the context of applying preferential withholding tax rates on Mexican-source income, pursuant to the Convention between the United Mexican States and the Kingdom of Spain for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Tax Fraud and Evasion, and its Protocol (the Convention). The TFJA examines the contractual or legal obligation to transfer the income received by a recipient entity to another person and notes that such an obligation may be inferred from facts and circumstances that essentially demonstrate that the recipient of Mexican source income clearly lacks the right to dispose of and enjoy such income without being limited by a contractual or legal obligation to transfer the payment received to another person, among other elements, which will depend on the specific facts of each case. The TFJA also considers that the fact that the equity interest in an entity receiving Mexican source income is 100% owned by a different entity resident in a third State (other than the State of source and the State of residence of the income recipient) leads to the conclusion that the recipient entity is obligated to distribute the dividends obtained to its owner (the resident of the third State), thereby implying that its right to dispose of and enjoy such income is limited by the obligation to assign the payment received to another person, provided that no other elements exist that would lead to a contrary conclusion.

Tax developments across the UK and Europe in Q1 2026 reflected continued legislative and administrative activity, with jurisdictions focusing on reporting frameworks, European Union (EU) and OECD driven initiatives, and clarifying the operation of existing tax rules. In the UK, developments centered on enhanced His Majesty’s Revenue and Customs (HMRC) guidance and expanded disclosure and reporting requirements, including updates to Country‑by‑Country Reporting (CbCR) and the uncertain tax treatment regime, alongside targeted consultations on corporate tax matters and crypto‑assets. The enactment of Finance Act 2026 introduced changes across corporate taxation, employment arrangements and tax‑adviser regulation and selected personal‑tax. Across Europe, countries progressed a range of national updates at different stages, including the implementation of DAC8 and minimum‑tax administration in some jurisdictions, VAT and digital reporting reforms, updates to tax legislation, and targeted corporate and personal tax measures. Judicial decisions and administrative guidance also played a significant role in clarifying treaty interpretation, minimum‑tax mechanics, deductibility rules, and EU law compatibility. Overall, the Q1 developments point to a continued trend toward refinement, operationalization and enforcement focused evolution of tax frameworks and administrative practices across the UK and Europe.

UK

Key Policy Update in Q1:

• Corporate Taxes:
  • The HMRC has issued updated guidance aimed at helping large and complex corporate groups provide clearer information about their organizational structures and key transactions. The guidance is designed to improve cooperation and communication between businesses and HMRC across various engagements, including statutory clearance applications, advance pricing agreements, profit diversion disclosures, compliance checks, and risk reviews. Although following the guidance is voluntary, HMRC encourages businesses to present information in a structured and consistent format, covering aspects such as entity classification, ownership structure, jurisdiction of taxation, and other relevant characteristics. The guidance also extends to partnerships and hybrid entities and provides example templates illustrating the recommended way to present this information. 
  • The HMRC has amended the guidance on CbCR, applicable to multinational enterprises with consolidated revenues exceeding EUR 750 million. The updates cover four areas: registration procedures for CbCR submission; technical guidance on creating and submitting XML-format reports; revised guidance on scoping - clarifying which entities must report and noting that agents must now be separately authorized to file on a client's behalf; and updated agent authorization guidance requiring use of the “digital handshake” process for CbCR-related representation. 
  • HMRC has launched a consultation on proposals to extend the uncertain tax treatment regime, which currently requires large businesses to notify HMRC of uncertain tax positions affecting their liabilities. The proposals seek to broaden the regime by requiring notification of a wider range of legal interpretation uncertainties; expanding the taxes in scope to include stamp duty land tax, National Insurance contributions, the construction industry scheme, inheritance tax, and capital gains tax; and extending coverage to wealthy individuals and trusts where legal interpretation uncertainties generate a tax advantage exceeding GBP 5 million. The consultation closes on June 04, 2026, with a government response expected in summer 2026 and legislation to follow in the next available Finance Bill. 
  • The HMRC has issued a call for evidence on the taxation of stablecoins - crypto assets designed to maintain a stable value relative to traditional currencies. Currently taxed in the same manner as other crypto assets, HMRC is seeking views on whether the existing tax treatment appropriately addresses stablecoin specific characteristics for both individuals and companies. Responses are invited from investors and financial and tax advisory firms. The consultation closes on May 07, 2026. 
  • The UK Finance Act 2026 received Royal Assent on March 18, 2026. Key corporate measures include increases in tax on dividends and capital gains, changes to capital allowances, the introduction of mandatory Making Tax Digital for income tax, stricter umbrella company compliance rules, and new regulations governing tax advisers. The Act is structured across eight parts covering income tax, capital gains tax and corporate taxes; inheritance tax; other existing taxes; vaping products duty; carbon border adjustment mechanism; tax avoidance; tax advisers; and miscellaneous provisions. 
  • His Majesty’s (HM) Treasury and HMRC have launched two consultations on corporate tax matters. HM Treasury is seeking views on whether the residual Advance Corporation Tax (ACT) regime under which companies with pre-1999 ACT balances could offset these against corporation tax liabilities under the "Shadow ACT" rules, now being repealed, can be withdrawn entirely; responses are due by June 11, 2026. Separately, HMRC is consulting on proposals to mandate reporting of transactions between close companies and their participators, covering the scope of reportable transactions and associated format and timing requirements, with the consultation closing on June 10, 2026. 
  • HM Treasury has issued a statutory instrument that aligns social security contribution rules with new income tax provisions introduced by the Finance Act 2026 for umbrella company arrangements. The order amends the Social Security Contributions and Benefits Act 1992 to allow regulations to make another person jointly and severally liable with an umbrella company for employer social security contributions, where that person is already jointly liable for income tax under the new income tax rules. It also ensures that, where a worker is treated as employed by a purported umbrella company for income tax purposes, specified payments and benefits are treated as earnings for social security contributions, with the purported umbrella company treated as the employer, responsible for calculating, deducting, and paying National Insurance Contributions (NICs) on earnings These changes promote consistent treatment between income tax and social security contributions and apply from March 26, 2026.
• Personal Taxes:
  • The UK Treasury has issued two statutory instruments increasing several personal-tax allowances and qualifying care-relief amounts for the 2026/27 tax year. Under SI 2026/38, the blind person’s allowance will rise to GBP 3,250, while the married couple’s allowance will increase to GBP 4,530 (minimum) and GBP 11,700 (maximum), with the net-income limit lifted to GBP 39,200. SI 2026/39 updates the qualifying care-relief thresholds, raising the income threshold to GBP 20,440 and increasing the weekly rates to GBP 515 for adults and older children and GBP 435 for children under 11. Both instruments apply Consumer Price Index-based indexation and take effect from 2026/27. 
  • The Scottish Cabinet Secretary presented the 2026 Budget to Parliament on January 13, 2026. The package raises the income-tax bands for the starter, basic, and intermediate rates from April 06, 2026, while leaving the higher, advanced, and top-rate bands unchanged. It also maintains existing land and buildings transaction tax rates and landfill-tax rates, introduces the Scottish Aggregates Tax (initially aligned with the UK levy) from April 01, 2026, and proposes an air-departure tax including a private-jet supplement, from April 2027. From April 2028, a building-safety levy would apply along with two new high-value council tax bands. 
  • The HM Revenue and Customs has updated its International Manual to outline the tax treatment of deferred employment income, such as bonuses and share-based payments, received after a change in tax residence. Under the Income Tax (Earnings and Pensions) Act 2003, income is generally taxed in the year of receipt, if the individual is UK resident, based on when entitlement arises or payment is made. In cross-border cases, taxing rights are determined under Article 15 of the relevant tax treaties, considering where duties were performed and the individual's residence at the time of payment. Where residence changes before payment, the treaty with the new country applies, and the UK may tax the income only if it qualifies as the source or residence state, subject to specific treaty provisions like "subject-to-tax" clauses. 
  • The Finance Act 2026 enacts several personal tax measures announced in Budget 2025, including a further freeze on personal tax allowances, amendments to inheritance tax treatment of business and agricultural property and pension assets, and a restriction of relief on disposals to employee-ownership trusts.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• The Upper Tribunal (UT) in Mark Benedict Holden and Others v. HMRC [2026] UKUT 25 (TCC) upheld the First-tier Tribunal’s conclusion that payments to Boston Consulting Group UK (BCG UK) partners described as “capital interest” were taxable as income, not as capital gains. The UT found that those rights were not genuine capital interests but contractual remuneration linked to increases in BCG Inc.’s share value. Because the amended mixed membership partnership rules (MMRs) applied for tax years 2014/15–2016/17, amounts allocated to BCG Ltd, and made available to partners met the conditions for reallocation under section 850C of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 and should be reallocated to the partners and taxed as income; for 2012/13 and 2013/14, when the MMRs did not apply, the payments to partners were taxable as miscellaneous income under section 687 of ITTOIA 2005, being rewards for services that formed part of overall remuneration rather than capital.
• The UK Supreme Court has been petitioned for permission to appeal in Timothy Watts v. HMRC (UKSC/2026/0004), concerning whether losses arising from participation in a gilt strip tax avoidance scheme qualify as losses under paragraph 14A of Schedule 13 to the Finance Act 1996. The taxpayer purchased gilt strips for £1.5 million and granted a purchase option to a trust of which he was a life tenant, receiving approximately £1.489 million through a composite arrangement involving Investec Bank. HMRC disallowed the claimed income tax loss of £1.349 million via a closure notice. The First-tier Tribunal (FTT) reduced the allowable loss to £6,300, a decision upheld by both the UT and the Court of Appeal. The Supreme Court has refused permission to appeal, confirming that the application raised no arguable point of law.
• The UT (Tax and Chancery Chamber) refused permission to appeal in Michael Kelly v. HMRC [2026] UKUT 00095 (TCC). The appeal concerned whether consequential amendment notices issued under section 28B(4) of the Taxes Management Act 1970 (TMA) are appealable decisions before the FTT. The FTT had quashed the appeal against HMRC's amendments to his self-assessment returns for tax years 2002-03 to 2005-06, arising from his membership of the Invicta Film Partnership, on the basis that consequential amendment notices are neither closure notices nor tax assessments giving rise to appeal rights under section 31 TMA. The UT found no arguable error of law in the FTT's decision, including its treatment of the potential double assessment claim under section 32 TMA, and refused permission to appeal on all six grounds advanced.

Belgium

Key Policy Update in Q1:

• Corporate Taxes:
  • The Belgian government introduced draft legislation to implement the DAC8 Directive into Belgian law, with the measures proposed to apply from January 01, 2026. The proposal would require crypto-asset service providers to gather and report detailed information on clients and transactions, with the first reporting deadline set for June 30, 2027, for data relating to calendar year 2026, followed by automatic exchanges of that information with other EU Member States by September 30 of the year after the relevant reporting period. The bill would also narrow the category of reportable users by excluding listed companies, governments, international organizations and certain financial institutions, retain limited protections for lawyer confidentiality, and introduce a tiered-penalty framework covering failures related to registration, due diligence, and reporting, including stricter sanctions in cases of repeated non-compliance. The legislation has since been adopted by the Belgian parliament with retroactive effect from January 01, 2026, and also extends automatic exchange of advance cross-border rulings to individuals where transaction values exceed EUR 1.5 million or where the ruling addresses tax residence. 
  • The Government submitted an omnibus bill on February 05, 2026, proposing a package of tax changes, including an increase of the annual securities-account tax from 0.15% to 0.30% and a rise in the favorable dividend-withholding rate for small companies from 15% to 18%. The bill also raises certain liquidation-reserve withholding rates, with the post–three-year rate for reserves created on or after December 31, 2025, increasing to 9.8%. It further adjusts the business pre-levy exemption through correction multipliers in 2027–2029, increases insurance-premium tax from 9.25% to 9.6% from April 01, 2026, and raises the annual tax on credit institutions. Flight taxes and excise duties on energy products are also increased. The measures take effect in stages, beginning shortly after publication and continuing through 2026–2029. 
  • The Federal Public Service Finance has updated the procedure for making advance payments of the Income Inclusion Rule (IIR) top-up tax under the Pillar Two framework, with effect from January 2026. Under the revised approach, each entity within a multinational group is required to make its own advance tax payment, rather than relying on a centralized payment mechanism. Payments are to be made using entity-specific structured references, either via the MyMinfin portal or through the tax authority’s designated online payment platform. 
  • Belgium’s tax administration has issued an addendum to the OECD Transfer Pricing Guidelines reflecting the OECD Pillar One Amount B report. It applies from January 01, 2025, to both related-party transactions and permanent establishment profit attribution. The addendum introduces a simplified arm’s length framework for routine distribution activities, aimed at reducing disputes and double taxation. It applies only to qualifying transactions involving covered jurisdictions and treaty partners, and excludes unique, hard-to-value, jointly risky, immaterial, and raw-material distribution arrangements. Transactional Net Margin Method is the default method, with Comparable Uncontrolled Price Method accepted where more appropriate. Remuneration is determined through a pricing matrix based on sector category and factor intensity, with documentation recommended where needed. Belgian authorities may adjust outcomes in mutual agreement or arbitration cases involving covered jurisdictions.
• Personal Taxes:
  • The government has submitted a substantial personal income-tax reform bill that would gradually raise the general tax-free amount to EUR 15,600 by 2031 and incorporate it into the standard tax tables from 2030. The proposal includes phased reductions in preferential tax-free amounts for pension, disability, and sickness income, higher child-related allowances, revised rules for single taxpayers with dependents, and the abolition of the unemployment-benefit tax reduction from 2027. Other measures include a 33% tax rate on employment income earned by retirees who continue working, a EUR 2,000 de minimis exemption for occasional income from 2027, an increase in tax-free overtime hours to 280 from 2026, and a new entrepreneur’s deduction for self-employed persons from 2030. The bill also amends marriage-quotient rules, benefits-in-kind taxation, and minimum managerial wages, with most changes phased in between assessment years 2026 and 2031. 
  • Belgium has introduced revised personal income tax rules for assessment year 2027 (income year 2026). The progressive tax rates remain at 25%, 40%, 45%, and 50%, with updated income thresholds. A tax-free basic allowance of EUR 11,180 applies, with additional increases based on the number of children, including further increments for larger families and single parents. Additional measures include: higher reductions for pension income, expanded exemptions for savings interest and dividends, and increased deductions for employment‑related expenses, with enhanced allowances for the self‑employed and childcare. For businesses, the reforms strengthen investment and R&D incentives through extended carry‑forward of unused deductions and offer additional profit exemptions for small employers hiring new staff. The rules governing income allocation between spouses and regional relief for mortgage‑related payments have also been updated, while donation deductions remain available above minimum thresholds and subject to an overall cap.
• Indirect Taxes:
  • Belgium adopted a VAT bill on February 05, 2026, which aims to (i) extend VAT adjustment periods to 15 years for intangible assets and related services, and to 25 years for buildings (and related land/services) used in rental activities; (ii) modernize VAT-chain compliance by allowing substitute VAT returns for late filers, with a default assessment based on the highest VAT reported in the prior 12 months and a minimum assessment threshold; (iii) clarify that suppliers need not report their Belgian VAT number for supplies performed in Belgium but used exclusively by an establishment outside Belgium; and (iv) set out stricter refund rules requiring all VAT returns for the preceding six months to have been filed on time and providing a three-month refund timetable, subject to offsets and information-supply conditions

Key Controversy Issues in Q1:

• In the case of Digipolis Belgian State v. Federal Public Service Finance v. Digipolis Antwerpen AG and District09 AG, the General Court ruled that Articles 2, 9, and 13 of the VAT Directive require a public-law commissioning association supplying telematics services and related computer equipment to its members for consideration, under a conferral of management, is to be treated as carrying out an independent economic activity and therefore liable to VAT. The Court held that no distinction is required between members, based on their VAT status, and that a national practice treating such services as self-supplies by members does not affect the association’s VAT liability. The judgment confirms that VAT liability depends on whether the association performs an independent economic activity for consideration, not on member characteristics or national recharacterization rules.
• The Court of Justice of the EU has ruled against Belgium in Case C-524/23 (European Commission v. Kingdom of Belgium), finding that Belgium failed to correctly transpose Article 8(7) of the Anti-Tax Avoidance Directive (ATAD), which governs the computation of income of controlled foreign companies (CFCs). The Court held that Belgium's failure to adopt the necessary legislative, regulatory, and administrative measures to comply with that provision constituted a breach of its obligations under the Directive. Belgium was ordered to bear its own costs and those of the European Commission.

Spain

Key Policy Update in Q1:

• Corporate Taxes:
  • With effect for tax periods starting on or after January 01, 2025, entities whose net turnover in the preceding tax period is less than €1 million will be subject to the following Corporate Income Tax (CIT) rates, unless a different rate applies under Article 29 of Law 27/2014 (CIT Law): (i) 17% on the first €50,000 of taxable income; (ii) 20% on the remaining taxable income. These reduced rates do not apply to entities qualifying as asset-holding companies under Article 5.2 of the CIT Law. A transitional regime for these companies applies for FYs 2025 and 2026.
• Personal Taxes:
  • Royal Decree-Law 3/2026, of February 03, 2026, removes the obligation for beneficiaries of unemployment allowances to file an annual Personal Income Tax (PIT) return, with effect from the FY 2025 campaign, which begins in April 2026. However, the obligation remains in force if, despite being unemployed, the general income limits set by the PIT Law are exceeded.
• Indirect Taxes:
  • The Spanish Council of Ministers has passed a law mandating electronic invoicing for all Business-to-Business (B2B) transactions, implementing Law 18/2022 on company creation and growth and aligning with the EU’s VAT in the Digital Age (ViDA) initiative. The measures accelerate digitalization, reduce late payments, and improve cash flow predictability, particularly for Small and Medium-Sized Enterprises (SMEs). Businesses must report each invoice's status throughout its lifecycle, including acceptance and payment dates, enabling end-to-end traceability and allowing tax authorities to monitor compliance with statutory payment deadlines. Invoice exchange may occur through interconnected private platforms or a free public solution provided by the Spanish Tax Agency. Implementation is phased, such that businesses with annual turnover exceeding EUR 8 million have one year to comply, and all remaining businesses have two years, with both deadlines running from publication of the implementing Ministerial Order, expected before July 2026.

Key Controversy Issues in Q1:

• The Central Economic-Administrative Court held that the joint limitation (the 60% cap, with up to an 80% reduction) applicable under Spain’s net wealth tax also applies to non-resident taxpayers for the temporary solidarity levy on large fortunes introduced by Law 38/2022. The Court found that the identical wording of the provisions means the legal doctrine developed for the net wealth tax must apply equally to the solidarity levy, and it directed the tax authorities to apply the cap once taxpayers submit the necessary documentation.
• Earlier this year, the ruling of the Spanish Constitutional Court (November 20, 2025) was published, recognizing the constitutionality of the minimum CIT installment payment for large companies (23% of the positive accounting result). The Court considers advance payments to be autonomous and provisional tax obligations, allowing the legislator to rely on accounting profit as a valid indicator of economic capacity, even if this does not fully align with the final tax liability. As a result, the current regime remains fully applicable, and the fact that advance payments may exceed the final tax due does not, in the Court’s view, breach constitutional principles, because any excess must be refunded.
• In its judgment of January 12, 2026, the Spanish Supreme Court held that the reduced withholding tax rate under the Spain–Netherlands tax treaty cannot be applied to intra‑EU royalty payments, when the recipient is not the beneficial owner. In the case analyzed, the Dutch company acted as a mere conduit, passing almost all royalties on to a Curaçao entity, and therefore failed to meet the material requirements of the Interest and Royalties Directive. The Court ruled that, when the Directive applies, EU law takes precedence over the tax treaty. As a result, once the Directive exemption is denied, the treaty cannot be used as an alternative, and Spanish domestic withholding tax must apply.
• In its judgment of March 12, 2026 (C‑515/24), the Court of Justice of the EU held that Spanish rules denying the right to deduct VAT on entertainment and client‑hospitality expenses are compatible with the EU VAT Directive. The case concerned the refusal to deduct VAT on football tickets, VIP event access, and similar services provided free of charge to clients under Spanish VAT legislation. The Court of Justice of the EU (CJEU) ruled that these exclusions are covered by the “standstill clause” in Article 176 of the VAT Directive because they formed part of the original design of the Spanish VAT system upon Spain’s accession to the EU in 1986. The Court emphasized that the right to deduct VAT may be limited for expenses linked to private consumption, such as leisure or representation costs, even if they are business‑related. It also clarified that the deductibility of such expenses for income tax purposes is irrelevant for VAT, confirming that the Spanish exclusion does not breach EU law.

Netherlands

Key Policy Update in Q1:

• Corporate Taxes:
  • The criterion for foreign pension funds to qualify for the Dutch domestic corporate income tax and/or dividend-withholding tax exemption is that the pension scheme must fall outside the social-security system of its jurisdiction. The Dutch Tax Authorities have published a position paper clarifying how this criterion should be applied when a foreign pension fund offers schemes that replace the social security pension. 
  • The Dutch Tax Authorities have issued a collective decision on objections filed by corporate taxpayers regarding interest on CIT payable. Earlier this year, the Supreme Court ruled that the CIT interest rate is disproportionate and violates the principle of equality, given that it exceeds the rate applicable to other taxes. As a result, the lower rate must now be applied to CIT going forward, and assessments where the higher rate was applied will be revised within six months. 
  • The Dutch coalition of D66, VVD, and CDA has published its Coalition Agreement, containing high-level tax measures. Notably, the coalition lacks a parliamentary majority. Key tax highlights include: a "freedom surcharge" to finance defense spending; a reduction of the real-estate transfer-tax rate on residential investment property from 8% to 7% as of 2027; a corporate income tax facility for social housing corporations as of 2028; an amendment to the future Box 3 regime to tax only realized, rather than latent capital gains; an extension of the WBSO R&D incentive to cover AI and other technology; simplification of the work-related cost scheme; and more tax-efficient employee participation through shares and options in start-ups and scale-ups. The corporate income tax rate, loss-compensation rules, participation exemption, innovation box, and 30% ruling will remain unchanged. 
  • The transfer pricing working group of the Dutch tax authorities has published a note outlining how inspectors are expected to conduct transfer pricing risk assessments. Inspectors will begin by forming a broad understanding of the taxpayer's business - covering group structure, key intercompany transactions, and multi-year financial performance, before determining whether further scrutiny is warranted. Audits are expected to be broader and more interactive, with the Dutch tax authorities testing consistency across transfer pricing documentation, financial outcomes, and public disclosures. Inspectors will also probe operational realities and assess whether reported profitability aligns with the functions, assets, and risks observed over time. Taxpayers should anticipate early information requests, detailed inquiries into functional analyses, and an iterative audit process. This note forms part of a broader series addressing specific transfer pricing topics, including the cost-plus method and guarantee fees, reflecting the growing focus of the Dutch tax authorities on practical transfer pricing scrutiny. 
  • Following the publication of the OECD's Side-by-Side (SbS) package, members of the Dutch Parliament have submitted questions on its impact. Critics argue that the package introduces not only administrative simplifications but also safe harbors that may disproportionately benefit US-led multinationals. Parliamentary questions cover the implications for a level playing field, the risk of headquarters relocations to SbS-eligible jurisdictions, state-aid concerns, questions around the legality principle and the automatic application through Article 32 of the EU Pillar Two Directive, and the budgetary impact for the Netherlands. Notably, one question raises whether the Dutch tax system could itself qualify as a Qualified SbS Regime, placing it on an equal footing with the US. 
  • The Dutch government is consulting on proposed changes to how foreign exchange gains and losses on participation-hedging instruments are treated under the participation exemption. Under the proposal, effective from financial years commencing on or after January 01, 2027, the exemption would be restricted to currency results that do not embed a forward discount or premium; results reflecting a priced-in currency differential would fall outside the exemption's scope. The government intends to legislate through the 2027 Tax Plan. The consultation, which ran through March 30, 2026, also proposes to resolve certain technical implementation issues identified in practice. 
  • The Dutch Tax Administration has clarified the definition of ‘treaty permanent establishment’ for purposes of the Minimum Tax Act 2024, which implements the Pillar Two framework. The guidance addresses two key points: first, that a tax treaty merely allocating taxing rights to the permanent establishment state is insufficient, the permanent establishment income must also be taxable under that state's domestic law; and second, that taxation must occur on a net basis (instead of gross basis) and in a manner comparable to the taxation of resident entities, consistent with the separate entity approach under Article 7 of the OECD Model Convention. 
  • The Dutch upper house has passed legislation implementing DAC8 (Amending Directive 2023/2226), with retroactive effect from January 01, 2026. Crypto-asset service providers and intermediaries must collect and report client transaction data to the tax authorities by January 31 of the following year, with the first reporting due January 31, 2027, for calendar year 2026. The Dutch tax authorities will subsequently exchange this information with other EU Member States within nine months of the relevant calendar year-end. The bill also provides for the automatic exchange of information on cross-border rulings concerning individuals where transaction values exceed EUR 1.5 million or where the ruling addresses Dutch tax residence and it provides penalties for late, incorrect, or incomplete reporting.
• Personal Taxes:
  • A legislative proposal was adopted by the Dutch Parliament for a new personal income tax regime for income from savings and investments (Box 3), to become effective on January 01, 2028. Instead of the current taxation based on deemed returns, the Netherlands would levy personal income tax at 36% on actual returns (e.g., interest and dividend income and capital gains). Notably, unrealized capital gains would also be taxable, with certain exceptions such as for real estate. The proposed taxation of unrealized capital gains has led to significant criticism, and the Dutch Minister of Finance has therefore announced that the legislative proposal will be revised. Further details are not yet available. 
  • The Dutch State Secretary for Finance has informed the lower house of parliament that the Netherlands does not intend to introduce a 2% minimum wealth tax on individuals with net wealth of EUR 100 million or more, in response to a parliamentary question regarding French economist Gabriel Zucman's global minimum wealth tax proposal endorsed at the G20 level. The State Secretary cited several obstacles: difficulty in determining annual market values of privately held assets and attributing corporate wealth to shareholders; absence of reliable revenue estimates; limited global information exchange infrastructure for non-financial assets; constraints under existing tax treaties on post-emigration, wealth-based levies; and the current lack of OECD or EU-level consensus on a coordinated minimum wealth tax. 
  • The Dutch State Secretary for Finance has updated Parliament on the status of the Actual Return Act (ARA), which would replace the current deemed-return system with taxation based on actual Box 3 returns from 2028. The ARA was approved by the lower house on February 12, 2026, and is currently before the upper house. The government is considering modifications to address undesirable effects of the ARA in its current form, including a potential one-year backward loss compensation mechanism from January 01, 2029. Separately, preparations will commence for a longer-term, realization-based Box 3 system to be introduced as soon as practicable after 2028. The government emphasized that proceeding with the (modified) ARA is a budgetary necessity, because maintaining the current deemed-return regime until a fully realization-based system is ready is not sustainable
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• The Dutch Supreme Court has ruled that the interest rate on CIT payable to the Dutch tax authorities is disproportionate and violates the principle of equality, given that it is higher than the rate applied to other taxes. As a result, the Dutch Tax Authorities must now apply the lower rate to CIT going forward and will issue a collective decision on all objections filed by taxpayers in relation to this matter. Taxpayers are advised to continue filing objections against CIT assessments that still reflect the higher rate to safeguard their rights.
• The Dutch Supreme Court ruled that the business-motive test under the Dutch anti-base erosion interest deduction limitation (Article 10a) is in accordance with EU law because it targets "wholly artificial arrangements." The case involved a Dutch BV that financed a share acquisition through a loan from a Belgian group financing company subject to a favorable tax regime, with the funds contributed as equity by its shareholder. The Dutch tax authorities denied the interest deduction under Article 10a, and the business motive test escape was unavailable as the Dutch BV could not demonstrate that the Belgian entity performed a pivotal financing function rather than acting as a mere conduit. This judgment follows a CJEU ruling that an arm's length related party loan can still constitute a wholly artificial arrangement, and that interest on such a loan may be denied in full where it lacks economic justification and would not have been contracted in a third-party relationship.
• The Supreme Court of the Netherlands has issued guidance on the VAT pro rata calculation for mixed costs of a market maker, referring the case back to the Court of Appeal. The Court confirmed that the pro rata may be based on net trading results and that reasonable estimates may be used to determine the EU/non-EU counterparty split. The Court of Appeal must further assess whether profit split payments constitute consideration for VAT-taxable services.
• The Court of Appeal of Netherlands has ruled that dividends and capital gains from a lucrative interest fall under the dividend- and capital-gains articles of tax treaties, rather than the employment income article. This conflicts with the position of the State Secretary for Finance, who, in a published Decree, treats such income as sufficiently linked to employment to fall under the employment income article. While the ruling favors taxpayers, the matter will ultimately require Supreme Court clarification.
• The Dutch Supreme Court, in the case of X v. State Secretary for Finance (23/011000), has ruled on the allocation of pension and annuity taxing rights under the Belgium-Netherlands Income and Capital Tax Treaty (2001), clarifying the application of the EUR 25,000 threshold under Article 18(2). The Court held that the threshold must be assessed against the full gross amount of pension and annuity income sourced from the Netherlands, not merely the portion potentially taxable in the source state. Once exceeded, however, the Netherlands' taxing right is limited to the portion of pension income satisfying both conditions under Article 18(2), meaning income already taxed in Belgium at the regular progressive rate falls outside the Netherlands' taxing jurisdiction. The Court also confirmed that wage tax setoff against income tax assessments does not constitute a refund attracting interest compensation.
• The Dutch Supreme Court, in the case of X NV v. State Secretary for Finance, has ruled that the three-year presumption of abuse applicable to share demergers under Article 14a(6) of the Corporate Income Tax Act, whereby a disposal of shares within three years of a demerger is automatically presumed tax-motivated, is incompatible with Article 15(1)(a) of the EU Merger Directive. Citing a Court of Justice of the EU decision, the Court confirmed that a general presumption of tax evasion or avoidance cannot be applied under the Directive; instead, the tax authority must demonstrate that the transaction lacked valid commercial reasons. The Court further clarified that both the ultimate objective and the chosen restructuring route must be assessed for commercial motivation, and that shareholder-driven considerations, such as the desire to divest certain activities may constitute valid business reasons. The case was referred to the Court of Appeal of Den Bosch for reconsideration.

Italy

Key Policy Update in Q1:

• Corporate Taxes:
  • Italy transposed DAC8 through Legislative Decree No. 194 of December 10, 2025, published in the Official Gazette on December 22, 2025. The decree extends and operationalizes the automatic exchange of information (including a dedicated framework for crypto-asset service providers) and also broadens exchanges to cover additional categories, such as certain advance cross-border rulings involving individuals. The regime applies from January 01, 2026 (with first transmissions in 2027). 
  • On February 18, 2026, the Council of Ministers approved, in preliminary examination, a legislative decree establishing a consolidated text of the Income Tax Code (ITC). The draft ITC compiles and reorganizes existing income-tax provisions into a single instrument of 376 articles (with the aim of repealing provisions that are incompatible or obsolete) and forms part of the broader tax-reform program to rationalize tax legislation. The draft will now proceed to the competent parliamentary committees and further legislative steps before final adoption. 
  • Italy has enacted Law Decree No. 38, introducing urgent tax measures. Notably: 
    • Restoration of the “pre-Budget-Law” regime for dividend exemption and PEX, by repealing (with retroactive effect from January 01, 2026) the newly introduced additional requirements — in particular, a ≥10% minimum holding threshold for the 95% dividend exclusion (Art. 89 TUIR) and PEX (Art. 87 TUIR) applicable to IRES taxpayers, and separate participation thresholds (≥5% share capital or ≥€500,000 tax value) for EU/European Economic Area (EEA) corporate shareholders to access the 1.2% withholding tax rate — that had restricted access to these preferential regimes.
    • The enhanced depreciation regime for qualifying tangible and intangible capital assets is expanded to cover assets produced in third countries, removing the earlier EU/EEA-only restriction. Additionally, International Accounting Standards/International Financial Reporting Standards adopters may spread negative goodwill over the year of realization and the subsequent four years (from the tax year ending December 31, 2024), and interest on bonds paid to deposit guarantee schemes is exempt from the 12.5% substitute tax until December 31, 2028.
• Personal Taxes:
  • Italy’s 2026 Budget Law introduces a range of individual tax changes, including lowering the second income-tax bracket (EUR 28,000 to 50,000) to 33% for income earned in 2026, while neutralizing the benefit for individuals with income above EUR 200,000 through a EUR 440 adjustment to a related tax credit. The law raises the flat substitute tax on foreign-source income for new residents to EUR 300,000 (EUR 50,000 for qualifying family members), extends employee-incentive measures such as the 50% exemption for certain employee dividends and a 1 percent substitute tax on productivity bonuses up to EUR 5,000, and continues refurbishment tax credits through 2026. It also applies a 26% substitute tax to gains from specified euro-stablecoin crypto-assets, increases the substitute tax on stepped-up shareholdings to 21% while keeping the rate for land at 18 percent, and raises the deductible limit for pension contributions to EUR 5,300 starting with the 2026 tax year. 
  • The Italian tax authorities clarified in Ruling No. 2/2026 that the inbound workers (impatriati) regime under Article 5 of Legislative Decree No. 209/2023 may apply when an individual relocates to Italy and performs employment remotely for a non-resident employer. The ruling states that the employer’s location does not determine eligibility; instead, the key condition is that the work activity is carried out predominantly in Italy (i.e., more than 183 days in the tax year) remotely for a foreign employer. The authorities also indicated that interpretive principles developed under the previous impatriati regime in Article 16 of Legislative Decree No. 147/2015 continue to apply when consistent with the current framework, confirming that employment income earned for foreign employers can qualify when the work is performed in Italy.
• Indirect Taxes:
  • Legislative Decree No. 186/2025 (published in the Official Journal on December 12, 2025) introduces multiple changes to VAT rules. The decree postpones to January 01, 2036, the planned removal of the exclusion that treats supplies by associations to members (political, trade-union, religious, cultural, sporting, and similar) as outside the VAT net, and extends certain reduced-rate treatment (5%) to educational, medical/health and related services supplied by corporate social enterprises that were previously VAT-exempt without credit. It rationalizes and clarifies deduction-adjustment rules (including abolition of paragraph 3 of article 19-bis2 and wording changes to Article 19-ter for non-profits), aligns domestic obligations for payment-service providers with EU rules, and expands the zero-rating regime to intermediaries involved in goods transport for export, import, transit, or temporary importation. 
  • The Italian tax authorities issued Acts No. 551770/2025 and No. 560356/2025 and Circular No. 13/2025 to amend procedures for the cross-border SME VAT exemption scheme: the EX-number registration timetable now begins upon submission of the prior notification to the Member State of establishment (bringing domestic law into line with Article 284(5) of the VAT Directive and the 35-working-day target), and detailed verification procedures and rules for activating or deactivating EX numbers have been set out. The rules specify examples of checks (e.g., matching declared turnover with tax-authority data), conditions that may trigger EX-number deactivation (including prolonged nil quarterly returns and presumed cessation of activity), and penalties for repeated failures to file quarterly returns (non-filers must register for VAT in Italy as non-residents). The circular clarifies that the scheme applies to supplies (sales) only and notes an EU SME may concurrently hold an EX-number while being VAT-registered for purchases (e.g., via a VAT representative), and that a three-year quarantine applies when an EU SME voluntarily terminates an EX-number before readmission. 
  • Legislative Decree No. 10 of January 19, 2026, published in the Official Gazette on January 30, 2026 (GU No. 24, Suppl. Ord. No. 4), adopted the new Consolidated Text of Italian VAT legislation (Testo Unico IVA), structured into titles broadly aligned with the architecture of the EU VAT Directive 2006/112/EC. The decree is a largely compilatory recodification intended to systematize the VAT legislative framework (including the core rules historically set out in DPR No. 633/1972 and Decree-Law No. 331/1993), without generally introducing substantive changes. While the decree entered into force on January 31, 2026, its provisions apply from January 01, 2027, when the related abrogation/coordination provisions are expected to operate. 
  • As per Resolution No. 7/2026, the Italian tax authorities confirmed that a special purpose vehicle (SPV) participating in a merger leveraged buy-out can recover input VAT on transaction-related expenses. The authorities clarified that such SPVs should not be viewed as mere holding entities, since they play an active and necessary role in facilitating the acquisition and subsequent business operations of the target company. On this basis, the SPV is considered to be carrying out an economic activity and therefore qualifies as a VAT taxable person, allowing a link between incurred costs and future taxable activities.

Key Controversy Issues in Q1:

• The Italian Supreme Court ruled that private pensions paid to Portugal-resident individuals are exclusively taxable in Portugal under Article 18 of the Italy-Portugal Income Tax Treaty (1980), precluding Italian taxation irrespective of whether the income is actually taxed in Portugal. The Court reaffirmed that tax treaties aim to eliminate overlapping taxing jurisdictions rather than guarantee taxation in at least one state, meaning Portugal's Non-Habitual Resident (NHR) exemption regime does not displace the exclusive residence-state taxing right. On documentation, the Court clarified that the treaty's ‘official certificate’ requirement does not mandate a specific form or explicit treaty reference; a standard tax-residence certificate issued by the Portuguese competent authorities suffices to establish treaty eligibility.
• The Italian Tax Court of Second Instance of Abruzzo ruled that applying a 5% withholding tax on dividends paid to a US-resident company under the Italy-US Income Tax Treaty (1999), instead of the 1.2% effective rate applicable to EU/EEA corporate shareholders, constitutes an unjustified restriction on the free movement of capital under Article 63 of the Treaty on the Functioning of the European Union (TFEU). The Court confirmed that Article 63 TFEU extends to dividend payments made to non-EU shareholders and that non-EU shareholders are comparably situated to EU/EEA shareholders with respect to dividend taxation and the risk of economic double taxation. The exceptions under Article 65 TFEU were found inapplicable on the facts. The US company was accordingly entitled to a refund of the excess 3.8% WHT on dividends distributed in 2018.
• The Italian Supreme Court ruled that, under the pre-2024 definition of tax residence in Article 2(2) of the Income Tax Code, an individual's ‘domicile’ is determined primarily by the location where economic and professional interests are managed in a stable and externally recognizable manner. Personal and family ties abroad do not carry independent or overriding weight and must be assessed alongside all other connecting factors. In the case at hand, concerning tax year 2008, the Court upheld Italian tax residence notwithstanding the taxpayer's declared Belgian residence, given that his economic and professional interests, principally his directorship remuneration from an Italian resident company, were almost entirely centered in Italy. The Court noted that its reasoning is expressly confined to pre-2024 tax periods; the amended legislation now provides an autonomous domicile definition focused primarily on personal and family relationships.
• The Italian Supreme Court ruled that the participation exemption on capital gains under Article 87 of the Testo Unico delle Imposte sui Redditi (TUIR) does not apply when a subsidiary carries out only preparatory activities rather than genuine commercial operations. The case arose from two companies claiming exemption on gains from disposing of shareholdings in an entity engaged solely in preliminary steps of a real estate redevelopment project including urban planning, obtaining building rights, and arranging project financing, without ever commencing actual business operations. Overturning the appellate courts, the Supreme Court held that the commerciality requirement demands the effective and continuous exercise of a business activity throughout the statutory holding period prior to disposal. The mere existence of an organizational structure, or activities confined to preparatory or asset-enhancement phases, is insufficient. The decision reinforces that participation-exemption relief is unavailable to entities that function, in substance, as passive asset-holding vehicles.

Finland

Key Policy Update in Q1:

• Corporate Taxes:
  • Finland has proposed amendments to its minimum tax legislation that would introduce a new anti‑avoidance rule for Pillar Two. Under the proposal, any arrangement undertaken with the apparent aim of sidestepping the operation of the minimum‑tax rules would be treated as ineffective for Pillar Two purposes. The measure is intended to strengthen the integrity of Finland’s minimum‑tax framework and would apply to financial periods beginning on or after January 01, 2027.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• No key controversy update.

France

Key Policy Update in Q1:

• Corporate Taxes:
  • The government of France initiated the special procedure under paragraph 3 of Article 49 of the Constitution to adopt the Finance Bill for 2026 after long negotiations. Despite opposition’s non-confidence motions failing to secure sufficient votes, the Bill was definitively adopted on February 02, 2026, and awaits Constitutional Council review and gazettal in coming days. Significantly amended from the initial and parliamentary drafts, the final government version covers key tax measures in corporate income tax, individual income tax, and VAT/miscellaneous taxes. 
  • The French tax authorities have released guidance on newly enacted anti‑dividend arbitrage rules effective January 01, 2026, introduced by the Finance Law for 2025 through Article 119 bis A (II) of the General Tax Code. Aimed at counter dividend arbitrage schemes, these rules require French companies to apply the domestic dividend withholding tax rate at source when distributing dividends to residents of countries meeting the specified conditions. The guidance clarifies that, in practice, these measures apply to treaties with Bahrain, Egypt, Finland, the UAE, Kuwait, Lebanon, Oman, Qatar and Saudi Arabia, where the relevant tax treaty provides a full exemption or non‑application of, withholding tax without any participation threshold. Refunds may be claimed only if the non‑resident recipient proves tax residency as per treaty and beneficial ownership (where applicable).
• Personal Taxes:
  • The Finance Bill for 2026, adopted on February 02, 2026, under Article 49(3) of the Constitution, introduces a new tax on luxury assets held by personal holding companies and extends both the exceptional corporate income tax surcharge for large companies and the differential contribution on high-income earners until the general government budget deficit falls below 3% of GDP. The Bill also adjusts individual income tax brackets in line with 0.9% inflation for 2025 income, maintaining progressive rates of 0%, 11%, 30%, 41%, and 45% across revised income thresholds.
• Indirect Taxes:
  • The French tax authorities published administrative guidelines on transferring VAT provisions from the General Tax Code to the Code on the Taxation of Goods and Services, effective September 01, 2026. The recodification aims to enhance clarity of VAT rule, maintains the enforceability of prior administrative doctrine and rulings, and operates under existing law with certain exceptions.

Key Controversy Issues in Q1:

• The French Constitutional Court has upheld the constitutionality of the 8% tax on capital reductions following stock repurchases by large French companies, introduced by the Finance Law for 2025. The tax applies to companies resident in France with turnover exceeding EUR 1 billion in their last fiscal year and is levied on the amount of the capital reduction together with a proportional fraction of paid-in capital. The Court rejected challenges alleging a breach of the constitutional principles of equality before the law and equality before public expenditures, holding that the legislator was not required to limit the tax base to amounts effectively paid for share buybacks or to differentiate based on the level of paid-in capital. The Court further confirmed that the provisions are not contrary to any other constitutional principles, thereby validating the tax, which applies from March 01, 2025.

Germany

Key Policy Update in Q1:

• Corporate Taxes:
  • The Federal Cabinet has approved a draft Ninth Act amending the Tax Consultancy Act and related laws to modernize and digitize tax advisory services, broaden taxpayer access, and ease administrative burdens. Key reforms grant wider advisory powers to income tax assistance associations; regulate limited tax advice by other professionals; expand free tax assistance, including via university tax law clinics; and relax management rules for advisory centers. Additionally, it raises the minimum municipal trade tax rate to 280% to curb artificial headquarters relocations, while introducing targeted real estate transfer tax changes to prevent double taxation and extend notification deadlines.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• No key controversy update.

Poland

Key Policy Update in Q1:

• Corporate Taxes:
  • The Minister of Finance has published a draft regulation for consultation specifying the detailed data scope of the Global Anti-Base Erosion (GloBE) Information Return, pursuant to the statutory delegation under Article 133(11) of the Top‑Up Tax Law dated November 06, 2024. Based on the OECD/G20 Inclusive Framework, the return is intended to support tax authorities in risk assessment and is structured into a general section and a jurisdictional section. The general section covers group‑level information, including the reporting entity, the group structure, and the application of the OECD Pillar Two Model Rules across jurisdictions. The jurisdictional section provides country‑specific information, including the application of safe harbors and exclusions, effective tax rate calculations, any resulting Top‑Up tax and its allocation, as well as data relevant to the Qualified Domestic Minimum Top‑Up Tax (QDMTT). The draft regulation was published on March 12, 2026, on the Government Legislation Center’s website and is open for stakeholder comments. The final regulation will be issued after the consultation and will enter into force upon publication.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy issues in Q1:

• The EU General Court, in the case of I.S.A. v. Dyrektor Krajowej Informacji Skarbowej (T689/24), clarified that Articles 167, 168(a), and 178(a) of the VAT Directive and the principle of VAT neutrality, do not allow Member States to deny a taxable person the right to deduct input VAT merely because the invoice was not received within the relevant tax period, provided that the substantive conditions for deduction were met and the invoice was received before the return was filed. This interpretation exposes a conflict with Poland’s current VAT framework, under which deductions are generally disallowed in the original return if the invoice is received in a later month, even though returns are typically filed by the 25th day of the following month (or in some cases, quarter). In response to the ruling, the Polish Ministry of Finance has announced plans to amend domestic legislation to align it with the Court’s interpretation.

Denmark

Key Policy Update in Q1:

• Corporate Taxes:
  • Denmark’s Minister of Taxation introduced Bill L125 in parliament, proposing that businesses be allowed immediate payroll deductions for in-house software development/improvement up to DKK 5 million per year at group level (January 01, 2025, onward).
• Personal Taxes:
  • Denmark’s Minister of Taxation introduced Bill L125 in parliament, proposing several personal tax measures. Key proposals include: an annual DKK 1,750 deduction (2026 level) for adults aged 30 or older for documented commercial exercise or music lessons; an enhanced senior employment deduction extended from two to five years; and the abolition of supplementary estate tax on inheritances to siblings’ children (January 01, 2027, onward).
• Indirect Taxes:
  • Denmark’s Minister of Taxation introduced Bill L125 in parliament, proposing excise duty reforms to reduce everyday costs by abolishing taxes on coffee, chocolate, and confectionery, alongside zero VAT on books (effective July 01, 2026).

Key Controversy Issues in Q1:

• No key controversy update.

Russia

Key Policy Update in Q1:

• Corporate Taxes:
  • The Russian Ministry of Finance has proposed measures to ease SMEs’ transition to the new tax rules by allowing certain entrepreneurs who combine the patent tax regime with the general or simplified tax regime and who exceeded the RUB 20 million income threshold in 2025, to switch to the simplified tax regime from January 01, 2026, subject to notification by April 25, 2026. For this purpose, interest income on bank deposits and account balances in Russia would be excluded from the income calculation. In addition, manufacturing SMEs will no longer be required to demonstrate that at least 70% of their prior-year profits were generated from their core business activity to qualify for reduced social security contribution rates. Instead, SMEs may consider income derived from both their primary operations and eligible secondary activities, as specified by the Russian government, when determining their entitlement to this relief.
• Personal Taxes:
  • The Russian Federal Tax Service (FTS) has explained that, under the Tax Code amendments taking effect on January 01, 2026, employers may provide employees whether parents, adoptive parents, or legal guardians with lump‑sum payments of up to RUB 1 million per child, including financial assistance, at the time of the child’s birth, adoption, or establishment of guardianship, without such amounts being subject to individual income tax. In cases where both parents work for the same employer, each parent may separately receive tax‑exempt financial assistance of up to RUB 1 million, allowing the combined tax‑free amount for the family to reach RUB 2 million.
  • The Russian FTS has issued guidance on the taxation framework applicable to individuals designated as ‘foreign agents’. With effect from January 01, 2026, such individuals are subject to a uniform personal income tax rate of 30% on all income, irrespective of tax residency status. Notably, if an individual is classified as a foreign agent at any time during the tax year, the higher rate applies to the entire year’s income. In addition, these individuals are denied all tax exemptions and reliefs for the relevant period, including those relating to property transactions, securities, inheritances, and gifts. Further, they are no longer eligible to claim any personal deductions, such as social, standard, property, or investment deductions. The list of foreign agents is maintained by the Ministry of Justice. 
  • The Russian FTS has clarified that interest savings arising from concessional or interest-free loans constitute taxable income for personal income tax purposes when the loan is provided by an employer or a related party. An exemption applies to housing loans when the loan agreement was concluded on or before December 31, 2024, for the acquisition or construction of residential property, provided that the taxpayer is eligible for, and has a confirmed, housing tax deduction. No taxable material benefit arises when such loans are obtained from lenders with whom the taxpayer has no employment or other personal affiliation, regardless of the interest rate applied.
• Indirect Taxes:
  • The Russian Ministry of Finance has announced plans to introduce VAT on goods imported by individuals through online marketplaces. According to a statement by the Deputy Finance Minister, a phased VAT regime would be implemented, with rates increasing from 7% in 2027 to 14% in 2028 and 22% in 2029, subject to formal government approval. The proposed measure would apply to low-value consignments currently eligible for duty-free import into the Eurasian Economic Union, with the existing EUR 100 threshold to be reduced to EUR 50 from 2027 and abolished entirely from 2030. 
  • The Russian Ministry of Finance has proposed transitional relief measures to support SMEs impacted by the 2026 tax reforms, including a temporary VAT exemption for certain catering businesses that became VAT registered in 2026, as well as VAT recovery and deduction mechanisms for businesses transitioning out of the patent or simplified tax regimes. The proposal also excludes interest income from deposits and bank balances when determining eligibility for VAT exemption for certain entrepreneurs whose annual income did not exceed RUB 60 million and who ceased to qualify for the simplified or patent regimes from 2026.

Key Controversy Issues in Q1:

• No key controversy update.

Sweden

Key Policy Update in Q1:

• Corporate Taxes:
  • The Swedish government has announced tax measures effective January 01, 2026, including lower taxes on employment income, pensions, and sickness/disability benefits, as well as a reduced electricity energy tax rate. Taxation for partners in small-cap companies is simplified under a single, unified rule. Additional changes introduce a corporate tax deduction for cash donations to approved research and social welfare activities, a phased reduction of the non-resident special income tax from 25% to 20% by 2027, and an extension of agricultural diesel tax relief for fuel used in 2026.
  • Sweden’s Minister of Finance has received the final report of the Inquiry Officer reviewing the country’s R&D tax incentive architecture. The review assesses current incentive models and sets out two optional approaches for a new incentive aimed at strengthening domestic R&D activity and supporting economic growth. The first option proposes an enhanced deduction, allowing companies to claim a total deduction equal to 300% of eligible R&D salary costs, translating into a tax benefit of about 41.2% for corporate taxpayers. The second option introduces a refundable tax credit equal to 20% of the R&D tax base, which would be applied after other credits and refunded to the company if not fully utilized, subject to standard tax account rules. Both models would be available to all company types for R&D performed within the EEA, and the proposed legislative changes would take effect from January 01, 2027. 
  • Sweden’s Minister of Finance released a memorandum aligning R&D tax incentive proposals with the OECD ‘side-by-side package’ for public consultation, following the inquiry's final report. It proposes two models: increased expense deduction or refundable tax credit, both limited to salary-related costs (wages, fees, benefits) for R&D employees, without recommending one due to respective pros/cons. The memorandum adapts the pre-package inquiry models to new rules allowing US domestic rules under Pillar Two. Responses are due by April 23, 2026.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • The Swedish government has initiated an inquiry to determine how Sweden should implement forthcoming EU VAT requirements on digital reporting for intra-EU trade under the VAT in the Digital Age initiative. These EU level reforms aim to modernize VAT administration and enhance the fight against VAT fraud by introducing mandatory digital transaction reporting based on electronic invoicing. An appointed investigator will examine the legislative changes required to introduce digital reporting and e-invoicing for cross-border B2B transactions, consider whether similar obligations should be expanded to domestic transactions, and assess how the Swedish Tax Agency could use the transaction data collected. The investigator is required to submit the final report by November 30, 2027. 
  • Sweden’s Ministry of Finance has introduced a bill proposing targeted amendments to the VAT framework to strengthen the Swedish Tax Agency’s control powers and to combat VAT fraud. The proposals would enhance oversight at the VAT registration stage, including the authority to refuse or cancel VAT registrations and to mark VAT identification numbers as invalid in the EU’s VAT Information Exchange System (VIES). In addition, the bill would allow the Tax Agency, under certain circumstances, to deny the refund or offset of excess input VAT. Collectively, these measures are intended to reduce the risk of VAT fraud and to address associated tax avoidance practices. 
  • The Swedish government has opened a public consultation on proposed amendments to VAT rules, largely clarifying and formalizing the Swedish Tax Agency’s current practice in areas such as cross-border trade, taxable events, accounting obligations, and the application of special VAT schemes (third-country, Union, and import regimes). The changes address, among other points, the treatment of electronic interfaces, threshold rules for distance sales, the timing of reporting obligations under special schemes, refund procedures, and the VAT treatment of certain energy supplies under the Union scheme. The amendments are planned to take effect on January 01, 2027, with public comments due by April 08, 2026.

Key Controversy Issues in Q1:

• No key controversy update.

Norway

Key Policy Update in Q1:

• Corporate Taxes: No significant update.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • The Norwegian Tax Directorate has initiated a public consultation on proposed legislative changes aimed at adjusting how and when VAT is accounted for in practice. The draft measures would allow businesses to calculate VAT using estimated cost allocations over periods of up to one year, with reporting spread across VAT periods and later adjusted to reflect actual expenditures. These proposals are intended to support the implementation of forthcoming changes to Norway’s VAT treatment of cross-border remote services, effective from July 01, 2026, which move towards a use-based allocation model aligned with OECD guidance. 
  • Norway has released a new draft Excise Duties Act aimed at streamlining and modernizing the country’s excise tax framework. The reform is mainly technical, bringing together all existing excise duty rules such as those on alcohol, mineral products, electricity, fuel, vehicle registration, and documents into a single statute without altering policy. Unlike the current system, where key rules sit in regulations and annual decisions, the new Act would place core provisions directly in law, including definitions of taxable goods, timing of duty calculations, and taxpayer obligations.

Key Controversy Issues in Q1:

• No key controversy update.

Luxembourg

Key Policy Update in Q1:

• Corporate Taxes:
  • Luxembourg has approved a reform, effective from the 2026 tax year, that updates and clarifies the carried interest regime introduced in July 2025 by defining carried interest as fund outperformance above a hurdle rate while retaining standard international terminology. The reform expands eligibility to natural persons genuinely involved in Alternative Investment Fund (AIF) management, such as employees, partners, directors, managers, and certain advisers and broadens the scope of qualifying AIF structures, including deal-by-deal arrangements, to prevent the misclassification of fixed remuneration. It also distinguishes between contractual carried interest, taxed at one quarter of the overall rate, and participation-linked carried interest, which may benefit from capital gains treatment, subject to holding-period and substantial-participation requirements based on economic substance. Additionally, the reform permanently adopts the favorable tax treatment previously available only under the transitional regime, ensuring continuity and legal certainty for fund managers. 
  • Luxembourg has enacted DAC8 with retroactive effect from January 01, 2026, broadening the scope of information that must be automatically exchanged between tax authorities. The law brings new registration, due-diligence, and reporting requirements for crypto-asset service providers linked to Luxembourg, covering a wide set of crypto activities and EU-resident users. It also expands exchanges to include data on cross-border life-insurance income and certain individual tax rulings, incorporates previously excluded crypto instruments into the Common Reporting Standard (CRS) rules, and adjusts DAC6 confidentiality obligations in line with recent EU case law. Information gathered under these rules may also support customs, anti‑money‑laundering, and counter-terrorism efforts.
• Personal Taxes:
  • The Luxembourg government introduced a bill to abolish joint taxation and move to a single, individual tax class from January 01, 2028, bringing income taxation in line with modern family structures and civil-law developments. Under the reform, all taxpayers will be taxed individually, and the existing tax classes, along with joint fiscal liability, will be phased out. Couples married or registered before 2028 will benefit from a 25-year transitional regime, allowing continued income splitting before switching irrevocably to individual taxation. The bill also revises family taxation by requiring co-parents to share child-related tax benefits equally, granting single parents full access to such advantages, and introducing a EUR 5,400 allowance for children under age three. In addition, the reform reduces the tax burden on second earners, expands deductions, and allowances for childcare, domestic help, pension contributions, and other expenses, and simplifies procedures by shifting towards assessment-based taxation on request. The new rules will apply from the 2028 tax year.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• No key controversy update.

Ireland

Key Policy Update in Q1:

• Corporate Taxes:
  • Ireland’s interest taxation rules are undergoing reform following the Department of Finance’s publication of an Action Plan and Phase One Feedback Statement, signaling a clear policy direction. Draft legislation is expected in April 2026, with measures anticipated in Finance Bill 2026 and potential commencement from January 01, 2027, making this a key “watch this space” area for businesses. Phase One of the reform focuses on modernizing and simplifying Ireland’s interest taxation regime. The proposed reforms would introduce a new default interest deductibility framework for corporation tax, applying consistently across both trading and non-trading activities and replacing the current fragmented rules with a simpler, more unified approach. At the center of the proposals is a new “profit motive” test, under which interest relief would be available where borrowings are used for activities undertaken with a genuine intention to generate profits or gains. Relief would not depend on whether a profit is ultimately realized, provided the original intention to make a profit was there and this intention would be assessed in each accounting period. There are also proposed targeted changes to existing rules, including the repeal of section 76E, which currently permits interest on certain acquisition related borrowings to be offset against trading income. Section 247, the current complex and highly prescriptive regime that governs the deductibility of interest in non-trading situations, would be retained on an elective, loan-by-loan basis, while non-trading interest income would move from a receipts basis to an accruals basis. In addition, certain items that are economically equivalent to interest would be brought into scope, including financing-related discounts, derivatives, finance-driven returns, related fees, and foreign exchange movements. These changes would be accompanied by strengthened international guardrails through amendments to the Interest Limitation Rule and an extension of transfer pricing rules to certain medium-sized enterprises.
  • In February 2026, the Irish Government published the Research and Development Tax Credit and Innovation Compass, setting out a medium‑term roadmap for strengthening Ireland’s innovation and R&D support framework. While the Compass does not introduce any immediate legislative changes, it signals a continued policy focus on maintaining Ireland’s competitiveness in attracting and retaining high‑value R&D investment. The Compass identifies five priority areas for potential future reform, including: 
    • A review of qualifying R&D expenditure rules notably subcontracting limits (currently capped at 15% of internal R&D expenditure or EUR 100,000, whichever is greater). 
    • The reconsideration of capital expenditure provisions for R&D‑related infrastructure. 
    • The simplification of administration and payment mechanisms. 
    • The possible introduction of additional innovation‑focused supports beyond the existing R&D tax credit regime. 
    • Review of the Knowledge Development Box regime, a corporation tax relief on income from certain “Intellectual Property qualifying assets”. 
      
      The publication highlights the Government’s intention to modernize the regime to better reflect evolving industry practices, emerging technologies, and the needs of both domestic and multinational businesses. It indicates that further policy development can be expected over the medium term.
       
• Irish Revenue has published updated Tax and Duty Manual - Global Minimum Level of Taxation for Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union, to underscore that loss-related deferred tax assets can be treated as adjusted covered taxes, subject to the underlying losses being actually utilized, whereas pre-Pillar Two deferred-tax assets are to be classified as transitional deferred tax assets and unwound over time. The guidance also clarifies the treatment of orphan entities, provides greater flexibility in allocating Undertaxed Profits Rule (UTRP) top-up tax where payments are made on time, confirms that deferred tax assets arising from government-provided tax benefits fall within the transitional CbCR safe harbor, and permits the use of local accounting standards for domestic Top-Up tax despite differing fiscal year ends, alongside strengthened documentation requirements for Pillar Two calculations and elections.
• Irish Revenue has updated its participation exemption guidance, allowing dividends from non-EEA or non-treaty jurisdictions to qualify for exemption for distributions made on or after January 01, 2026, where a nominal, non-refundable foreign withholding tax applies. The guidance also shortens the relevant holding periods from 5 to 3 years, permits reliance on tax treaties to determine residence where domestic law is unclear, allows subsidiaries in newly concluded treaty jurisdictions to qualify from the treaty signature date, and provides greater flexibility for certain mergers, acquisitions involving Irish companies, and a change in place of residence from Ireland, for distributions made on or after January 01, 2025.
• Irish Revenue has updated its guidance on outbound payments defensive measures, confirming that Irish partnerships must be treated transparently when applying the association test for withholding tax purposes. As partnerships lack separate legal personality, the assessment must look through to the partners to determine whether an association exists, based primarily on beneficial ownership exceeding 50%, including situations where partnerships hold subsidiaries. Minority partners with no management rights and an interest of 5% or less are excluded from association. The guidance also broadens individual-based association rules to include indirect ownership through connected persons, covering ownership, voting, profit, and distribution rights.
• Personal Taxes:
  • The Irish Revenue has released updated guidance in its Tax and Duty Manual on Exchange of Information, clarifying the scope of automatic exchange of advance cross-border tax rulings concerning individuals under EU administrative cooperation rules. While such individual-specific rulings were previously excluded from mandatory exchange under DAC3, amendments introduced by DAC8 have extended the reporting framework in certain cases. Specifically, with effect from January 01, 2026, advance cross-border rulings issued to individuals must be automatically exchanged with EU tax authorities when the ruling addresses the individual’s tax residence in the issuing Member State, or when it relates to transactions exceeding EUR 1.5 million (or equivalent) and the amount is referenced in the ruling. Information on these rulings will be shared with all EU Member States, with selected details also provided to the European Commission. The guidance further confirms that exchanges must occur within three months following the relevant half-year period in which the ruling is issued, amended, or renewed. 
  • Revenue has revised its Pay As You Earn (PAYE)/Universal Social Charge (USC) emergency tax guidance, reinforcing that employers must operate emergency tax when an employee has not completed PAYE registration with Revenue, even if a Personal Public Service Number has been provided. In these circumstances, the absence of PAYE registration prevents the issuance of a Revenue Payroll Notification, leaving employers with no option but to apply emergency-basis deductions. When this applies, the employee is entitled, for the initial four weeks of employment, to the individual standard-rate tax band, with earnings taxed at 20% up to the threshold and 40%
• Indirect Taxes:
  • Following a public consultation launched in 2025 on modernizing Ireland’s VAT invoicing and reporting framework, Ireland is preparing for a significant transformation of its VAT reporting landscape in line with the EU’s ViDA initiative. VAT Modernization represents Ireland’s planned, phased transition toward mandatory e-invoicing and real-time digital reporting, beginning with Business-to-Business (B2B) transactions. While no domestic implementation dates have yet been legislated, the reforms are intended to align with the EU-wide ViDA rollout timetable, which is expected to apply progressively from 2028 onward. The changes are expected to have material operational and systems implications for businesses, particularly for invoicing processes, transaction-level data reporting, and ongoing VAT compliance. Businesses should continue to monitor developments as Ireland advances its legislative and implementation roadmap.

Key Controversy Issues in Q1:

• No key controversy update.

Switzerland

Key Policy Update in Q1:

• Corporate Taxes:
  • In Q1 2026, Swiss tax policy developments were characterized more by technical updates and less by structural reforms. 
  • The January 2026 OECD guidance further clarifies and tightens the application of integrity limitations under Article 9.1 of the GloBE Model Rules, notably with respect to deferred tax assets arising from governmental arrangements concluded after November 30, 2021. While transitional relief remains available for a limited period, the guidance underscores the OECD’s continued focus on preventing the circumvention of Pillar Two minimum taxation through post 2021 tax benefits. In this context, questions remain as to how Switzerland’s current non-retroactive approach to the integrity rule will ultimately be assessed under the OECD qualification and peer review processes. 
  • Switzerland is in the final stages of the legislative process to extend the tax loss carry-forward period from seven to ten years. The amendment was approved by the Parliament, triggering the optional referendum period. The new rules are expected to enter into force on January 01, 2028 – unless a referendum is called – and apply to losses incurred since the 2020 tax period. 
  • Effective January 01, 2026, the Swiss Federal Tax Administration updated the annually applicable safe-harbor interest rates for related party debt, as well as the rates for late-payment interest on open tax liabilities, to 4%, while the prepayment interest rate was set at 0%. 
  • The Federal Council confirmed its medium-term legislative roadmap for withholding tax, stamp duties, and the digitalization of tax procedures, signaling a continued shift towards simplification and modernization rather than immediate rate driven reforms.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• On February 05, 2026, the Swiss Federal Tax Administration (SFTA) published an adjustment to its administrative practice on the Swiss securities transfer tax in connection with employee participation plans. This change provides welcome legal certainty and aligns the SFTA’s position with recent Federal Supreme Court case law. The revised practice follows a Federal Supreme Court decision issued in November 2024, which clarified that allocating shares to employees without any consideration does not trigger Swiss securities transfer tax (i.e., when shares are issued to an employee for free). This ruling prompted the SFTA to revisit and amend its previous administrative approach, while also clarifying additional aspects of its practice in this area. These clarifications, which relate to the acquisition of shares within each category, cover Performance Share Unit and Restricted Share Unit plans, discounted-share plans, free share plans, option share plans, and other share-based compensation plans. The SFTA clarifies that no securities transfer tax applies when shares are granted to employees free of charge, including under Performance Share Unit and Restricted Share Unit plans, and free-share plans. In option-based plans, securities transfer tax may arise on exercise, limited to the price paid for the shares, while arrangements involving remuneration settled partly in shares trigger securities transfer tax based on the agreed share value.

Romania

Key Policy Update in Q1:

• Corporate Taxes:
  • The Ministry of Finance has released draft legislation proposing the introduction of a 3% tax incentive applicable to the 2025 corporate income tax, micro-enterprise income tax, and personal income tax liabilities. For corporate taxpayers and micro-enterprises, the incentive would be granted automatically by the tax authorities after filing deadlines, provided that all relevant tax returns have been submitted, taxes settled in full and on time, and no outstanding tax debts exist. The incentive would apply to the final tax payable after deductions and could be offset against other tax liabilities, but would not be refundable, except where unused within the statutory limitation period; its amount may also be adjusted or canceled following amended returns or tax audits. Separately, a 3% discount is proposed for certain categories of personal income tax for 2025, as declared through the single tax return, subject to timely filing and full payment of income tax and social contributions by April 15, 2026.
• Personal Taxes:
  • The Ministry of Finance has released a draft bill proposing changes to the Fiscal Code that would introduce new personal income tax rules from 2026, focusing on pension products and certain financial investments. The proposals expand the scope of eligible pension schemes to include pan-European personal pension products, occupational and voluntary pension schemes established in Romania, the EU/EEA, and other OECD jurisdictions. In addition, a new tax incentive is proposed for investments in shares, bonds, and exchange-traded funds made through authorized intermediaries, subject to supporting documentation. While pension income from these products would remain taxable, the draft allows capped annual deductions for individual pension contributions and qualifying investments and treats certain employer pension contributions as non-taxable salary benefits within specified limits.
• Indirect Taxes:
  • The Ministry of Finance has published a draft bill proposing amendments to the Fiscal Code aimed at revising the VAT cash‑based system thresholds. Under the proposal, the turnover limit for applying the VAT cash‑based regime would increase from RON 4.5 million to RON 5 million for the period from March 01 to December 31, 2026, and further to RON 5.5 million from January 01, 2027. Transitional measures are included to ensure continuity for taxpayers already applying the regime, whereby entities that exceeded the current RON 4.5 million threshold but remained below RON 5 million in January or February 2026 would neither be removed from the registry nor required to submit notifications for exceeding the threshold. The VAT cash‑based system allows VAT to become payable only upon receipt of payment and deductible only when the corresponding liability is settled, departing from the general VAT deductibility rules.

Key Controversy Issues in Q1:

• No key controversy update.

Türkiye

Key Policy Update in Q1:

• Corporate Taxes:
  • On January 07, 2026, the Ministry of Treasury and Finance of Türkiye issued detailed guidelines for filing Domestic Minimum Top-Up Tax (DMTT) returns. The guidance applies to multinational groups with annual revenues exceeding EUR 750 million and requires them to designate a single Türkiye-based entity to file returns in the group’s functional currency, while paying the final tax liability in Turkish lira using the Central Bank of the Republic of Türkiye exchange rate at the start of the filing period. It also specifies the electronic return format, introduces new entity classification codes, and provides instructions on transitional safe harbors, substance-based income exclusion reporting, and deferred tax adjustments. Although returns are generally due within 12 months after the fiscal year end, the filing deadline for the 2024 financial year has been extended to January 15, 2026. 
  • On February 19, 2026, the Revenue Administration of Türkiye issued guidance on the taxation of capital gains from the disposal of immovable property under Article 80 of the Individual Income Tax Law. The guidance confirms that property sold within five years of acquisition is taxable, while disposals after five years are exempt. Taxable gains are calculated as the difference between the sale price and the indexed acquisition cost, with inflation adjustments applied using the domestic producer price index when cumulative increases exceed 10%. The rules also provide annual exemptions of TRY 120,000 for 2025 and TRY 150,000 for 2026, clarify acquisition date determination for housing cooperatives and construction projects, outline filing obligations for resident and non-resident individuals, and confirm that gains from inherited or gratuitously acquired property are not subject to tax. 
  • The draft omnibus bill submitted to the Turkish Parliament sets out proposed tax measures specifically addressing crypto‑asset transactions. As part of the proposed crypto‑asset tax framework, authorized crypto platforms would be required to withhold tax at a rate of 10% on gains arising from crypto‑asset transactions. The withheld amounts would be remitted to the tax authorities on a quarterly basis, establishing a platform-level compliance and collection mechanism for taxing income derived from digital asset activities. This measure is intended to improve reporting and enforcement in a market where direct income assessment may be challenging. 
  • The Turkish Tax Administration has issued an updated guide consolidating the corporate income tax treatment of capital gains from disposals of immovable property and participation-related assets and clarifying how the narrowed exemption regime should be applied in practice. The guide reflects the post July 15, 2023, position for immovable property, under which gains on disposals of properties acquired after that date no longer qualify for exemption, while properties already recorded in corporate assets before then remain eligible under transitional rules at a reduced exemption rate of 25%. In addition, the guide aligns with the reduced exemption rate currently applicable to gains from the sale of participation shares, founders’ shares and preferred shares (now 50%, following the earlier reduction from 75%). It also reiterates the main conditions for claiming the exemptions including a minimum two-year holding period, retention of the exempt gain in a dedicated reserve for five years, and collection of the sale proceeds within two years and provides practical clarification on supporting documentation and commonly encountered issues such as mergers, demergers, and holding company structures.
• Personal Taxes:
  • The Government has lowered the state contribution rate for TRY-denominated private pension plan payments from 30% to 20% under Presidential Decision No. 10811. Under Law No. 4632, the state will now contribute 20% of eligible individual TRY contributions, while employer‑funded contributions remain excluded, unchanged from prior rules. The Decision also revises incentives under the Automatic Enrolment System, setting the one‑off additional state contribution at TRY 500 for participants who do not use their statutory withdrawal right, a 50% decrease from the TRY 1,000 previously granted under Additional Article 2 of Law No. 4632. Presidential Decision No. 10811 applies retroactively from January 1, 2026, and its full text is available in Turkish. 
  • Türkiye has updated the 2026 individual income tax brackets under General Communiqué No. 332, applying a 25.49% revaluation rate. The Communiqué sets revised tax tables for employment and non‑employment income, updates exemption amounts, adjusts disability allowances, revises deduction limits, and confirms new simple‑method taxation thresholds. Income from certain Treasury bonds and older securities earned in 2025 must be declared using a 64.91% discount rate. The Communiqué is effective January 1, 2026. 
  • The Turkish Tax Administration has released an updated guide on the taxation of individuals’ investment income, confirming that the final withholding tax regime at source will continue to apply until December 31, 2030. The guide explains the completion of the temporary reduced withholding period during 2024–2025 and provides detailed clarifications on how taxable income is determined, including rules on cost calculation, limited deductibility of transaction expenses, treatment of foreign currency instruments, and tight time limits for loss offsetting. It also confirms the reversion to standard withholding rates for deposits, bonds, lease certificates and investment fund units, while retaining exemptions for certain instruments such as equity-intensive funds, qualifying investment funds, and listed shares. In addition, the guide identifies types of income that fall outside the final withholding regime and may be subject to separate taxation and declaration, clarifies treaty access and documentation requirements for non-residents, and explains the availability of voluntary income tax filings to offset losses on an annual basis and claim refunds of any excess tax withheld. 
  • The Tax Administration has published an updated guide on the deductibility of life and personal insurance premiums for individual income tax purposes, clarifying eligible premium types, deduction limits, annual caps, and documentation requirements. The guidance applies to taxpayers deriving business, agricultural and professional income, as well as those earning rental income, capital gains and wages. It confirms that premiums paid for the taxpayer, their spouse and minor children may be deductible, subject to an overall limit of 15% of declared income and an annual cap equal to the gross minimum wage, which is TRY 312,066 for the 2025 tax year. The guide also explains the applicable deduction rates for life insurance and personal insurance premiums, clarifies the payroll treatment of employer-paid premiums, reiterates that Private Pension System contributions are not deductible at the individual level, and sets out timing and record-keeping requirements, including allocation of advance premium payments and acceptable supporting documents.
• Indirect Taxes:
  • Türkiye has issued General Communiqué No. 57 on the VAT Law, formally aligning secondary VAT legislation with earlier amendments and Presidential Decision No. 7846. The update provides expanded administrative guidance on import‑VAT deductibility restrictions, exemptions, and procedural facilitation. A key reform confirms that VAT arising from import surveillance price differences, safeguard duties, antidumping duties, and countervailing duties is no longer deductible, requiring taxpayers to treat such VAT as a cost or expense. The Communiqué further integrates newly introduced exemptions, including goods and services supplied to the Union of European Football Associations (UEFA) participating non-resident teams and designated organizations in relation to specific leagues and championships, property sales carried out by Investment Monitoring and Coordination Presidencies, etc. The Communiqué also provides other administrative benefits/ease to taxpayers such as accelerated refund system certificate, simplified VAT refund shares computation, and addressing issues in relation to offset requests for VAT refund claims pending due to tax inspection. 
  • Türkiye has increased the VAT refund limit for transactions subject to the reduced VAT rate, raising it from TRY 130,700 to TRY 164,000 for the 2026 tax year. The update is set out in the General Communiqué on Value Added Tax No. 56, which entered into force on January 1, 2026. 
  • The draft omnibus bill submitted to the Grand National Assembly of Türkiye introduces specific indirect tax measures targeting crypto‑asset transactions. Under the proposal, a transaction-based levy at a rate of 0.03% would apply to the sale or transfer of crypto assets, calculated on the transaction value. Crypto‑asset service providers would be responsible for declaring and remitting the tax for each transaction. To prevent overlapping indirect taxation, crypto‑asset transactions subject to this levy would be excluded from the scope of value added tax. According to the explanatory memorandum, these measures are intended to formalize the taxation of crypto‑asset transactions and enhance regulatory certainty in the rapidly growing digital asset market. 
  • In Türkiye, as part of recent reforms narrowing capital gains reliefs, the updated guidance also confirms corresponding changes to the VAT treatment of immovable property disposals. Sales of immovable property are no longer eligible for VAT exemption based solely on a two‑year holding period where the property is disposed of on or after July 15, 2023. However, immovable property that was already recorded in a company’s assets before that date continues to benefit from VAT exemption under transitional rules. These clarifications are intended to ensure consistency between the VAT and corporate tax frameworks, and to reduce interpretational uncertainty for taxpayers when applying the revised exemption regime.

Key Controversy Issues in Q1:

• No key controversy update.

Tax developments across the APAC region in Q1 2026 reflected a strong emphasis on the refinement and, in some jurisdictions, significant redesign of tax incentive frameworks, alongside continued alignment with internationally driven tax standards and clarification of complex and emerging tax areas. Several jurisdictions, including India, Japan, Singapore, Korea, Thailand and Malaysia, advanced updated or restructured incentive regimes aimed at supporting priority sectors such as technology, R&D, digitalization, energy efficiency, and regional‑hub activities. At the same time, governments moved to clarify the tax treatment of evolving business models and asset classes, most notably digital assets, crypto‑related transactions, and cross‑border restructurings as seen in Hong Kong, Vietnam, and India. Administrative updates addressing transfer pricing, safe harbors, reporting frameworks, and treaty interpretation continued to shape the regional tax environment, alongside selected personal tax measures and targeted indirect tax adjustments. Taken together, these measures indicate continued efforts to modernize tax systems while providing greater certainty and stability for businesses and taxpayers across the region.

China

Key Policy Update in Q1:

Key Policy Driver - National People’s Congress Confirms Fiscal and Tax Policy Direction: In March 2026, China’s National People’s Congress (NPC), the country’s annual legislative session that sets the macroeconomic and fiscal policy agenda, confirmed a proactive fiscal stance for 2026, including a higher fiscal deficit ratio and continued issuance of special government bonds to support economic growth. On tax policy, authorities emphasized implementation of the new VAT Law, continued targeted tax incentives for priority sectors, stronger tax administration and enforcement supported by data-driven supervision, and advancing Consumption Tax reform, including potential adjustments to the scope of taxable goods and revenue allocation between central and local governments.

• Corporate Taxes:
  • Extension of tax exemptions for foreign institutional investors (FIIs) in the domestic bond market (CIT and VAT exemption on interest income through end-2027), reinforcing China’s position in global capital markets 
  • Continued preferential treatment reflects a policy intent to stabilize foreign investment inflows, particularly in financial markets 
  • No major structural Corporate Income Tax (CIT) rate changes, but emphasis remains on targeted, sector-based incentives rather than broad-based relief
• Personal Taxes
  • No significant standalone Personal Income Tax (PIT) policy changes in Q1. 
  • However, broader fiscal direction suggests continued alignment with:
    • Talent attraction policies 
    • Selective incentives linked to innovation and cross-border mobility
      
      This remains a watch area, particularly in the context of broader economic stimulus and talent competition
       
• Indirect Taxes
  • VAT Law Implementation - Transition to Operational Framework - A series of administrative rules were issued to operationalize the new VAT Law, covering: 
    • Input VAT deductibility 
    • Long-term asset treatment 
    • VAT prepayment mechanisms 
    • Multi-rate transaction handling
      
      The regime is moving from legislative framework → execution phase, with increased technical clarity but also higher compliance expectations.
       
• Export VAT & Consumption Tax Framework Update - Updated rules clarify
  • Eligibility for VAT refund vs exemption 
  • Documentation and calculation requirements 
  • Treatment of services and intangible exports
    
    Certain exports remain exempt without refund, creating potential cost leakage. Export VAT continues to be a highly technical and risk-sensitive area, requiring careful classification and documentation.
     
• Transitional Continuity of VAT Incentives - Selected legacy VAT incentives remain in force during the transition period. Policy stability is being maintained, but with a gradual migration toward a more standardized statutory regime
• Cross-border E-commerce - Reverse Logistics Relief - Tax relief introduced for returned exported goods (within 6 months):
  • Exemption from import VAT, duties, and Consumption Tax
  • Refund of export duties (where applicable)

Key Controversy Issues in Q1:

• Signals from the annual National Tax Work Conference confirm a structural shift toward stricter enforcement, characterized by:
  • Cross border payment (dividend, royalties, service fee)
  • Permanente establishment
  • Risk-based audit selection using data analytics
  • Increased scrutiny on:
  • Export VAT refund claims
  • Invoicing (fapiao) compliance
  • Use and abuse of tax incentives
  • Arrangements lacking commercial substance

Hong Kong

Key Policy Update in Q1:

• Corporate Taxes:
  • On February 25, 2026, the Hong Kong government released the 2026–27 Budget, highlighting measures to support economic growth and strengthen its position as a global financial hub, including expanded fund tax concessions, inclusion of digital assets and commodities as qualifying investments, with legislative amendments expected in 2026 and application from the 2025/26 year of assessment. Additional enhancement measures are planned for Corporate Treasury Centers, including further tax incentives, greater operational flexibility, and the introduction of a pre‑approval mechanism. The Budget also outlines proposed improvements to tax concessions for maritime services and commodities trading, plans to refine the intellectual property tax regime and institutional framework, and a review of tax arrangements for research and development expenditure. Please refer A&M Tax Alert for detailed analysis. 
  • The Hong Kong Institute of Certified Public Accountants (HKICPA) published the minutes of its 2025 annual meeting with the Inland Revenue Department (IRD) in its March 2026 Tax Bulletin, highlighting the IRD’s views on a number of practical issues. Key items include the IRD’s positions on the Foreign-sourced Income Exemption (FSIE) regime, Hong Kong certificates of resident status, and deductibility of interest expense. The minutes also address topics such as the treatment of lease reinstatement costs, the minimum asset threshold and related interpretative points under the Family‑owned Investment Holding Vehicle (FIHV) regime, and how taxpayers should approach identifying “embedded intellectual property income” for the patent box concession by reference to OECD transfer pricing principles. The minutes also cover selected salaries tax, transfer pricing disclosure, and wider tax administration and filing matters.
• Personal Taxes:
  • The Hong Kong Budget 2026-27 introduces a combination of one‑off tax relief measures and longer-term enhancements to personal allowances to provide targeted support to individuals and families. These include a one-off reduction in salaries tax and profits tax for the 2025-26 year, alongside structural increases to key personal allowances from 2026-27 onwards, covering basic, married, single parent, and child related allowances. Additional relief is provided for taxpayers supporting elderly dependents through enhanced allowances and deductions for elderly care. These measures are complemented by continued rate concessions for domestic and non-domestic properties and additional support for eligible social security recipients. Please refer A&M Tax Alert for detailed analysis.
• Indirect Taxes: Hong Kong does not have indirect tax.
• Other:
  • The Government has announced a relaxation to the criteria for stamp duty relief on intra-group transfers. An amendment bill is proposed to be introduced this year, with the changes applying retrospectively to instruments signed on or after February 25, 2026. This development is particularly relevant following the Court of Final Appeal’s 2025 decision in John Wiley & Sons UK2 LLP and Wiley International LLC v The Collector of Stamp Revenue, which confirmed the narrow application of intra-group stamp duty relief under the existing legislation.

Key Controversy Issues in Q1:

• No key controversy update.

Vietnam

Key Policy Update in Q1:

• Corporate Taxes:
  • Vietnam’s Ministry of Finance released a new circular on March 12, 2026 (Circular 20/2026) regarding corporate income tax (CIT). Circular 20/2026 provides various guidance inter alia documentation requirements for supporting the tax deduction, corporate income tax incentives, and rules on revenue recognition and taxation on foreign contractors including e-commerce and digital platform-based business. Noticeably, it also clarifies several points on capital transfer tax (CTT) for foreign transferors, e.g., the taxing point for a capital transfer transaction is determined when the initial capital transfer contract becomes effective in accordance with regulations; the exclusion for 2% CTT on gross proceeds is stipulated in case of internal group restructuring (internal restructuring) where it does not result in any change to the ultimate parent entity and it does not give rise to any income, include the following cases: company division; company separation; company consolidation; company merger; share swap; capital contribution by shares; distribution of profits or dividends in the form of shares within the group; and transactions involving the transfer/movement of direct or indirect ownership of enterprises in Vietnam. Circular 20/2026 further stipulates several conditions for the CTT exempted internal restructuring, specifically:
    • There is no change in the ultimate beneficial owner.
    • The transfer value is not higher than the book value or the original contributed capital value.
    • The transaction does not create a value difference, and the value determined according to the restructuring documentation approved by competent authorities is not higher than the value recorded at the time of the capital transfer.
    • The transferee inherits all capital value, obligations, and rights related to the investment of the transferor.
  • Vietnam’s Ministry of Finance also released a new circular on March 27, 2026 (Circular 32/2026) regarding a tax regime for transactions, transfers, and businesses involving crypto assets. Under Circular 32/2026, 20% CIT is applied to an investor that is an organization established and operating under the laws/regulations of Vietnam and earning income from the transfer of crypto assets, and to enterprises providing crypto asset services as regulated and earning income from such services (15% and 17% might apply, subject to conditions). An investor that is an organization established under foreign laws/regulations and transfers crypto assets through a crypto asset service provider is subject to 0.1% CIT on the gross transfer proceeds for each transaction.
  • Department of Taxation recently issued the official letter No. 1927/CT-Ktr dated March 31, 2026, on strengthening the tax managements and tax audits for enterprises with years of loss and/or low profitability, together with the list of potential target enterprises. Noticeably, attentions are required to be paid on long-loss making companies and companies of multiple intercompany transactions (e.g., intra-group interest expenses and intra-group service expenses, such as shared service centers, technical services, management supports, royalties, franchise, etc.), which might trigger scrutinized challenges on transfer pricing and/or CIT deductibility on intercompany transactions.
• Personal Taxes:
  • Under Circular 32/2026, an investor who is an individual (regardless of whether resident or non-resident) and transfers crypto assets through a crypto asset service provider is subject to 0.1% personal income tax (PIT) on the gross transfer price for each transaction. 
  • In addition, Vietnam’s Government released a new decree on March 05, 2026 (Decree 68/2026) and Vietnam’s Ministry of Finance released a new circular on March 05, 2026 (Circular 18/2026) regarding regulations on tax policy and tax administration for household businesses (HBs) and individual businesspersons (IBs). Under Decree 68/2026 and Circular 18/2026, generally, the PIT exemption threshold is with an annual revenue of VND 500 million or less. If exceeding the threshold, PIT would be applied (either on an assessable income basis or on an assessable revenue basis, depending on a revenue level). Tax declaration and tax withholding for business activities on e-commerce platforms and/or digital platforms by HBs and IBs are also regulated.
• Indirect Taxes:
  • Under Circular 32/2026, the transfer/trading of crypto assets is not subject to VAT, while activities not expressly covered under the exemption remain subject to VAT under general VAT regulations. 
  • Under Decree 68/2026 and Circular 18/2026, generally, the VAT exemption threshold for HBs and IBs is an annual revenue of VND 500 million or less, while HBs and IBs engaged in production or business activities with annual revenue exceeding VND 500 million are subject to VAT based on a percentage (%) multiplied by gross revenue. In addition, generally, e-invoices are compulsory for HBs and IBs having annual VAT-taxable revenue of VND 1 billion or more. Tax declaration and tax withholding for business activities on e-commerce platforms and/or digital platforms by HBs and IBs are also regulated.

Key Controversy Issues in Q1:

• No key controversy update.

Malaysia

Key Policy Update in Q1:

• Corporate Taxes:
  • The Malaysian government has introduced a New Incentive Framework (NIF) under Budget 2026 to replace the existing investment incentive regime. The framework will be implemented from Q1 2026 for the manufacturing sector and from Q2 2026 for the services sector. Under the NIF, incentives will be granted based on a tiered assessment framework that considers various economic contribution criteria, including value creation, employment generation, technology transfer, supply chain development, and sustainability. Eligible companies may be granted either a special tax rate (STR) or an investment tax allowance (ITA) depending on the assessment outcome. As part of the transition to the new framework, applications for new manufacturing incentives will no longer be accepted after February 28, 2026, while incentives that have already been approved will continue to remain valid under their existing terms. 
  • Malaysia has revised the tax treatment applicable to corporate and institutional investors in Real Estate Investment Trusts and Property Trust Funds, with effect from the year of assessment 2026. Under Practice Note No. 2/2026 issued by the Inland Revenue Board of Malaysia, income distributions from such trusts remain exempt at the trust level but are taxable in the hands of resident corporate unit holders at their applicable corporate tax rates, with no withholding tax applied. Distributions made to non‑resident corporate investors will continue to be subject to a final withholding tax at 24%. Further, the income distributions received by foreign institutional investors will no longer be subject to withholding tax from the year of assessment 2026, although such income must be reported in the relevant Malaysian income tax returns.
• Personal Taxes:
  • The Inland Revenue Board of Malaysia has issued guidance on the tax treatment of distributions from Real Estate Investment Trusts and Property Trust Funds received by individuals, effective from the year of assessment 2026. As clarified in Practice Note No. 2/2026, distributions received by resident individuals will be assessed to tax under the prevailing individual income tax rates, without any withholding at source. Distributions paid to non-resident individuals will also no longer attract withholding tax and must instead be reported in the appropriate Malaysian income tax filings. This change replaces the earlier regime applicable up to the year of assessment 2025, under which such distributions were typically subject to a final withholding tax of 10%. 
  • Malaysia’s Inland Revenue Board has issued updated guidance on the taxation of employment income earned by foreign nationals working or seconded to Malaysia. The guidance confirms that employment income is taxable in the year it is received, even if it relates to services performed in an earlier period. It also clarifies the availability of double taxation relief, allowing foreign tax paid on the same employment income to be credited against Malaysian tax where a tax treaty applies, or through unilateral relief in non-treaty situations. Employment income taxed in Malaysia but also subject to tax overseas may be treated as eligible for bilateral tax credit relief. In addition, the guidance emphasizes that the 60-day employment income exemption is not automatic and must be claimed with supporting evidence upon filing the tax return. The updated guidance, issued on March 27, 2026, replaces the previous guidance on this topic.
• Indirect Taxes:
  • The Ministry of Finance Malaysia announced several updates to the Sales and Service Tax (SST) policy on January 05, 2026. Key measures include a reduction in service tax on rental or leasing services from 8% to 6% effective January 01, 2026, an increase in the exemption threshold for micro, small and medium enterprises (MSMEs) from RM1 million to RM1.5 million, and a one-year service tax exemption for newly established MSMEs on rental or leasing services. In addition, sales tax exemptions have been granted on certain critical inputs used by registered manufacturers, such as animal feed, fertilizers, and pesticides, to help manage the cost of essential goods. The government also extended the service tax exemption for construction contracts signed before July 01, 2025 (without a reviewable clause) until June 30, 2027, and exempted construction services related to religious buildings from service tax starting July 01, 2025.

Key Controversy Issues in Q1:

• No key controversy update.

Philippines

Key Policy Update in Q1:

• Corporate Taxes: No significant update.
• Personal Taxes:
  • The Philippines’ Bureau of Internal Revenue (BIR) has issued Revenue Regulations No. 29-2025, revising the thresholds for several de minimis benefits that are exempt from income tax and fringe benefits tax. The updated rules increase the non-taxable limits for various employee benefits, including monetized unused vacation leave of private employees, medical cash allowance for dependents, rice subsidy, uniform and clothing allowance, actual medical assistance, laundry allowance, employee achievement awards, and gifts during Christmas or major anniversary celebrations. The regulations also raise the allowable meal allowance for overtime or night/overnight work. These revisions expand the value of benefits that employers can provide to employees without triggering additional tax liabilities.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• No key controversy update.

India

Key Policy Update in Q1:

• Corporate Taxes:
  • India’s Finance Act, 2026, introduces an extensive restructuring of the tax landscape, including new long-term incentives for priority sectors, a revamped transfer pricing safe harbor framework, and tighter rules around minimum alternate tax (MAT) credit usage. Key business-facing measures include multi-year tax holidays for data centers, capital/goods suppliers and mineral-linked activities, a lower MAT rate with restricted credit carry-forward, and a shift of buyback taxation into the capital gains regime. For International Financial Services Centre based entities, the Act extends the tax exemption window to 20 out of 25 years (and 20 continuous years for offshore banking units), followed by a uniform 15% rate, while adding safeguards to prevent benefits for reorganized domestic businesses. On the personal tax side, the Act provides for taxing buyback proceeds as capital gains, a six‑month facility for individuals to voluntarily disclose foreign income and assets, refined exemption provisions, updated rates of tax collected at source for certain overseas remittances, higher securities transaction tax on derivatives, and extended deadlines for revised or updated returns. 
  • On March 20, 2026, the Central Board of Direct Taxes (CBDT) notified the Income Tax Rules, 2026, ahead of their implementation from April 01, 2026, alongside the new Income Tax Act, 2025. The notified Rules focus on simpler language, easier compliance, reduced litigation, and removal of outdated provisions, using more structured tables and formulas. 
  • In a much-awaited move following the Supreme Court’s Tiger Global ruling, the CBDT, vide Notification dated March 31, 2026, has amended Rule 128 of the Income Tax Rules, 2026, to clarify the scope of grandfathering under the General Anti‑Avoidance Rules (GAAR). The amendment confirms that while GAAR applies to arrangements generating tax benefits on or after April 01, 2017, it shall not apply to income arising from the transfer of investments made prior to April 01, 2017, even where such transfers occur after that date. This clarification addresses the interpretational ambiguity arising from the interaction between Rule 128 and the Supreme Court’s observations, reinforces the policy intent to protect legacy investments, and is expected to reduce litigation and enhance tax certainty for affected taxpayers. 
  • Basis a Press Release dated March 31, 2026, published by the CBDT, a record 219 advance pricing agreements (APAs) have been signed with Indian taxpayers during FY 2025-26. The total number of APAs since the inception of the APA program has crossed the 1,000^th mark, aggregating to 1,034 APAs, comprising 750 unilateral advance pricing agreements (UAPAs) and 284 bilateral advance pricing agreements (BAPAs). This year also marks the achievement of signing India’s first-ever bilateral APAs with France, Ireland, Indonesia, and Sweden. 
  • India has announced amendments to its Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) reporting regime, expanding the scope of reportable assets and entities, with revised rules applying from January 01, 2026. The changes bring crypto assets (including derivatives), central bank digital currencies, and specified electronic money products within the scope of the reporting regime and expand the range of depository accounts and institutions holding such assets. Compliance obligations have been strengthened through enhanced due-diligence requirements, including self-certification, identification of joint account holders and controlling persons, and reporting of associated income. The amendments also update the list of excluded accounts, extend non‑reporting status to eligible non‑profit entities, and differentiate between pre‑existing and new accounts based on defined criteria.
• Personal Taxes:
  • The Income Tax Rules, 2026, effective from April 01, 2026, have introduced a revised and consolidated framework for valuation of perquisites through Rule 15, replacing the earlier provisions and providing a more structured mechanism for computing taxable employee benefits. The new rule standardizes valuation approaches across common perquisites such as employer-provided accommodation, motor cars, concessional loans, and other benefits, while also updating monetary thresholds and aligning valuation principles with current compensation practices. Overall, the changes are aimed at improving clarity, reducing interpretational issues, and enabling more consistent computation and reporting of perquisite income under the head “Salaries.”
• Indirect Taxes:
  • India’s Finance Act, 2026, introduced amendments to the GST law, including shifting the GST place-of-supply for intermediary services to the customer’s location, allowing discount adjustments through credit notes with reversed input tax credit, and permitting up to 90% provisional refunds in inverted-duty sectors. For customs, the Act provides for extending the Customs Act to certain activities by Indian-flagged fishing vessels beyond territorial waters, simplifying tariff categories and warehouse movement requirements, lengthening advance ruling validity to five years, and updating baggage rules to raise duty-free limits and clarify temporary imports for travelers. 
  • Free Trade Agreement (FTA) announced between India and the European Union (EU). The FTA aims to achieve preferential market access via tariff liberalization with a view to strengthen integration with the EU and global value chains.

Key Controversy Issues in Q1:

• In M/s Jindal Equipment Leasing & Consultancy Services Ltd. v. CIT (Civil Appeal No. 152 of 2026) and connected Jindal Group matters, the Supreme Court held that when shares held as stock-in-trade are replaced with new shares during an amalgamation, the substitution amounts to a business linked realization taxable under Section 28 of the Income Tax Act, 1961 (IT Act, 1961). The Court clarified that this treatment differs from the exemption available for capital assets under section 47(vii) of the IT Act, 1961. Taxability arises only upon allotment of the new, freely marketable shares, as they carry a definite commercial value. The cases were remanded to the Tribunal to determine whether the shares were indeed held as stock-in-trade and capable of immediate realization.
• In the Authority of Advance Ruling (AAR) v. Tiger Global International II/III/IV Holdings cases, the Supreme Court held that the Mauritius-based Tiger Global entities had engaged in an impermissible tax avoidance arrangement, allowing the tax authorities to apply GAAR despite the India–Mauritius tax treaty. The Court observed that a Tax Residency Certificate alone does not conclusively establish residence, and that authorities may examine the real commercial substance of the structure. Since the transaction involved the sale of shares deriving substantial value from Indian assets and lacked genuine business purpose, the entities were not entitled to treaty protection or grandfathering for pre2017 investments. The Court upheld the AAR rejection of the applications and confirmed that GAAR prevails where avoidance is evident.
• In the landmark ruling of Huntsman Investment (Netherlands) BV v. ADIT (Income Tax Appellate Tribunal (ITAT) Delhi), the ITAT addressed the critical classification of a share buy-back under the India-Netherlands Tax Treaty, specifically determining if such an event qualifies as a "corporate reorganization" under Article 13(5). The ITAT rules that a buy-back is not a mere transfer of shares. but a fundamental capital restructuring that alters the company's financial framework, thereby constituting a reorganization. Consequently, the taxing rights over the resultant capital gains were held to vest exclusively with the country of residence (the Netherlands), and India was held not to have taxing rights under the treaty. The ruling provides important clarity that treaty protection may extend to buy‑backs undertaken as part of genuine internal reorganizations, even in the absence of a court‑approved scheme, where the transaction reflects a substantive capital restructuring in substance.
• In the case of Hareon Solar Singapore Private Limited v. DCIT (ITAT Delhi), the ITAT denied capital gains tax exemption under the India-Singapore Tax Treaty, setting a critical precedent for substance requirements in holding structures. The ITAT ruled that while holding a valid tax residency certificate is necessary, it is not sufficient to claim treaty benefits if the entity is deemed to be a "shell or conduit" under the Limitation of Benefits (LOB) clause (Article 24A). Despite meeting the minimum annual expenditure threshold of SGD 200,000, the ITAT disqualified the Singapore entity because its expenses consisted almost entirely of outsourced professional fees rather than genuine operational costs (like salaries or utilities), and its "control and management" was found to be located in China and the US rather than Singapore, thereby failing the substance-over-form test reinforced by the Supreme Court's Tiger Global principles.
• The ruling in Vestas Wind Technology India Pvt. Ltd. v. ITO (ITAT Chennai) is a landmark decision regarding "thin capitalization" rules and their interaction with international treaties wherein the ITAT declared the interest disallowance under section 94B of the IT Act, 1961, to be discriminatory when applied to a resident of a treaty partner country like Denmark. The ITAT held that since Section 94B of the IT Act, 1961, restricts interest deductibility only for payments made to non-resident Associated Enterprises (AEs) while placing no such limit on payments to resident AEs, it directly violates the non-discrimination clause (Article 24(4)) of the India-Denmark Tax Treaty. Crucially, the ITAT noted that because the Revenue had already accepted the interest rate as being at arm’s length, the disallowance was based solely on the residential status of the lender, which is impermissible under the treaty unless a specific carve-out for thin capitalization rules exists.
• In the case of Bank of America N.A. v. ADIT (ITAT Mumbai), the ITAT inter alia ruled that expenses incurred by a foreign bank’s overseas "NRI Desks" for soliciting deposits for Indian branches must be classified as head office expenditure subject to the 5% cap under Section 44C of the IT Act, 1961, rather than being fully deductible as exclusive business expenses under Section 37(1) of the IT Act, 1961. Following the precedent set by the Supreme Court in the American Express (2025) decision, the ITAT clarified that Section 44C of the IT Act, 1961, is an overriding provision that applies to any executive or administrative expenditure incurred outside India by a non-resident; consequently, the "exclusive" nature of the expense for the Indian branch does not exempt it from the statutory ceiling, effectively narrowing the scope for foreign banks to claim full deductions for offshore support functions.
• The Madras and Telangana High Courts have pronounced judgments holding Rule 39 of the CGST Rules as ultra vires Section 20 of the CGST Act, for the period prior to April 01, 2025, to the extent the rule requires an Input Service Distributor to distribute credit in the same month as available for distribution. This is on the ground that prior to April 01, 2025, Section 20 of the CGST Act did not empower the CGST Rules to prescribe time limit for distribution of credit.

Singapore

Key Policy Update in Q1:

• Corporate Taxes:
  • Singapore's Q1 2026 tax agenda was anchored by the announcement of Budget 2026 on February 12, 2026, delivered against a backdrop of global trade fragmentation, accelerating AI adoption, and rising cost pressures on businesses. The Budget was explicitly framed as a "growth with assurance" strategy, treating economic competitiveness and social cohesion as mutually reinforcing pillars. From a tax and incentives perspective, the key thrust was the calibrated extension and enhancement of existing business incentive regimes, covering R&D, internationalization, treasury, and trading activities, alongside targeted near-term corporate relief. No new broad-based indirect tax measures were introduced. Taken together, the Q1 developments signal a clear policy trajectory: Singapore is pivoting away from broad economy-wide relief toward more targeted, productivity-linked, and capability-building support, with a deliberate emphasis on AI adoption, regional hub deepening, and sustainability-aligned trading. 
  • CIT Rebate and Cash Grant for YA 2026: Budget 2026 announced a CIT rebate of 40% of tax payable for year of assessment 2026, together with a minimum CIT Rebate Cash Grant of S$1,500 for active companies that employed at least one local employee in Calendar Year 2025. The combined maximum benefit is capped at S$30,000 per company, with eligible companies receiving the benefits automatically from Q2, 2026. The support level is intentionally reduced from year of assessment 2025 levels, reflecting a deliberate policy shift away from blanket relief toward more targeted, investment-linked incentives. Businesses should treat this rebate as transitional support and not anchor medium-term planning on its recurrence. 
  • Enhancement of the Enterprise Innovation Scheme (EIS) for YAs 2027–2028: Enhancement of the EIS, which provides 400% tax deductions/allowances on qualifying expenditure across five activity categories including R&D, intellectual property (IP) registration, IP acquisition and licensing, Skills Future-aligned training, and innovation projects with qualifying partners; will be enhanced for YAs 2027 and 2028. Specifically, an additional qualifying activity category for AI expenditure will be introduced, with businesses able to claim enhanced deductions of 400% on up to S$50,000 of qualifying AI expenditure per YA. The list of qualifying partner institutions has also been expanded to include the Sectoral AI Centre of Excellence for Manufacturing. Notably, AI expenditure is excluded from the option to convert qualifying expenditure to a cash payout, indicating that the incentive is deliberately targeted at tax-paying companies making long-term AI investments rather than those seeking near-term liquidity support. Inland Revenue Authority of Singapore (IRAS) is expected to provide further guidance on the scope of qualifying AI expenditure by mid-2026. 
  • Enhancement to the Double Tax Deduction for Internationalization (DTDi) Scheme for YA 2027: The DTDi scheme, which grants a 200% tax deduction on eligible expenses incurred on qualifying internationalization activities, will be enhanced with effect from year of assessment 2027. The expenditure cap eligible for automatic deduction without prior approval will be significantly increased from S$150,000 to S$400,000 per YA. The scope of activities eligible for automatic deduction (without requiring prior approval from Enterprise Singapore or the Singapore Tourism Board) will also be broadened to cover all eligible expenses incurred on overseas market development trips and investment study trips, in addition to a revised and expanded list of qualifying activities covering trade fairs, overseas advertising, product certification, market surveys, feasibility studies, master licensing, franchising, and overseas business development activities. Enterprise Singapore is expected to release further details by Q2 2026. 
  • Extension and Enhancement of the Finance and Treasury Centre (FTC) Incentive: The FTC incentive, which grants approved companies a concessionary tax rate of 8% or 10% on qualifying treasury and financing income, will be extended for five years until December 31, 2031. In addition, the existing withholding tax (WHT) exemption, previously available only for interest payments on loans used for qualifying FTC activities, will be broadened to cover interest-like borrowing costs subject to WHT, including guarantee fees, bank option fees, discounts on notes or bonds, prepayment and early redemption fees, interest rate swap payments, conversion and amendment fees, and similar structured financing costs, effective for payments made on or after February 13, 2026. This extension acknowledges the evolution of treasury funding structures beyond plain-vanilla interest-bearing loans and aligns the regime with commercial reality for modern treasury operations. 
  • Extension and Enhancement of the Global Trader Program (GTP): The GTP which provides approved companies with a concessionary tax rate of 5%, 10% or 15% on qualifying income from transactions in qualifying commodities, will be extended for five years until December 31, 2031. Notably, the list of qualifying commodities will be expanded to include Environmental Attribute Certificates (EACs) with effect from February 13, 2026, reflecting Singapore's intent to position itself as a hub for environmental and sustainability-linked commodity trading. Enterprise Singapore is expected to provide further details on eligible EAC types by Q2 2026. 
  • Budget 2026 also included selected extensions to other tax incentive and deduction regimes, although these were not the main focus of the quarter’s business tax agenda. Please refer A&M Tax Alert for detailed analysis.
• Personal Taxes:
  • No new personal income tax measures were announced for Singapore in Q1 2026. Budget 2026 instead focused on broader household and workforce support measures outside the personal income tax regime, including Central Provident Fund (CPF)-related measures and cost-of-living support.
• Indirect Taxes:
  • No new indirect tax measures were introduced in Q1. Budget 2026 reaffirmed Singapore's commitment to open trade flows and deepening free trade agreement networks, including the EU-Singapore Digital Trade Agreement and upcoming pacts with New Zealand and markets in Latin America, Africa, and the Middle East. While not constituting a direct indirect tax change, these developments signal evolving compliance requirements tied to new trade agreements that businesses with cross-border operations should monitor.

Key Controversy Issues in Q1:

• No key controversy update.

Korea

Key Policy Update in Q1:

• Corporate Taxes:
  • Korea’s Ministry of Economy and Finance has announced plans to adopt the OECD Pillar Two Side-by-Side Package through future tax legislation, including the introduction of multiple safe harbors intended to simplify the application of the global minimum tax. Of particular relevance is the substance-based tax incentive (SBTI) safe harbor, under which certain refundable and substance-linked tax credits are expected to be treated as qualified incentives for Pillar Two purposes, subject to substance-based limitations. This development is expected to be relevant for Korean multinational groups, particularly in advanced manufacturing and technology-oriented sectors, where investment- and R&D-related tax incentives remain an important feature of the domestic tax framework. 
  • Korea has released a suite of Presidential Enforcement Decrees giving effect to the recent amendments to its tax laws. The decrees set out the detailed mechanics for Korea’s adoption of the OECD Pillar Two framework, including rules governing the computation, attribution, and compliance obligations associated with the domestic minimum top‑up tax. They also prescribe additional details for existing income tax incentives applicable to qualifying high‑tech activities carried out in designated R&D zones and extend exit tax provisions to capture a wider range of assets, notably overseas shareholdings. In addition, the measures strengthen compliance requirements for foreign liaison offices, refine agency permanent establishment provisions in closer alignment with OECD standards, and limit the application of the deemed capital regime for foreign bank branches by carving out branches that meet specified thin‑capitalization benchmarks.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• No key controversy update.

Japan

Key Policy Update in Q1:

• Corporate Taxes:
  • The 2026 tax reform bills were enacted on March 31, 2026. The main corporate tax-related measures include:
    • The introduction of the largest-ever tax incentive for large-scale and high value-added capital investment, including immediate depreciation and 7% tax credit (4% for buildings, etc.), covering all industries.
    • Reforms to the R&D tax credit to create a “strategic technology” category (e.g., AI and quantum) with 40% tax credit, reform incentives with strict requirements to further encourage enterprise‘ R&D and gradually restrict outsourcing of research overseas (excluding overseas clinical trials).
    • Changes to tax credit for promoting wage increases including abolition for large enterprises, while extending for medium-sized enterprises with stricter requirements (to be repealed in FY2027 tax reform) and maintain for SMEs (to be reviewed in FY2027 tax reform).
    • Introduction of the OECD’s January 2026 Pillar Two, Side-by-Side Package, excluding the simplified effective tax rate (ETR) safe harbor. The simplified ETR safe harbor is expected to be introduced in the FY2027 tax reform.
    • The special rules for foreign partners in partnerships will be revised in response to concerns that they may hinder inbound investment into Japan. As part of the reform, the ownership threshold for fund interests will be increased from less than 25% to less than 50%, along with other necessary adjustments. These changes are intended to enhance Japan’s attractiveness as an investment destination while ensuring appropriate tax treatment.
• Personal Taxes:
  • The 2026 tax reform bills enacted on March 31, 2026, also include the following measures relating to personal taxation:
    • Strengthening taxation of high-income individuals by increasing the applicable tax rate from 22.5% to 30% and reducing the deduction threshold from JPY 330 million to JPY 165 million, thereby expanding the scope of affected taxpayers from approximately 200 (with income of around JPY 3 billion) to approximately 2,000 (with income of around JPY 600 million).
    • Unlocking the basic investment plan of Nippon Individual Savings Account (NISA) for ages 0–17 (annual limit: 600,000 yen; total limit: 6 million yen) to support savings and investments for children.
    • Imposing a new 1% income tax from January 2027; reducing the rate of Special Income Tax for reconstruction by 1% (2.1% → 1.1%) to avoid immediate burden increase for households (while extending the levying period for 10 years).
• Indirect Taxes:
  • As part of the 2026 tax reform bills enacted on March 31, 2026, the following measures address indirect taxation framework:
    • Review of De Minimis Rule of consumption tax on low-value shipments.
    • Introduction of platform taxation on electronic commerce.
    • Raise international tourist tax from 1,000 yen to 3,000 yen (to fund measures against overtourism).
    • Prime Minister Takaichi has initiated full-scale discussions on a two-year zero consumption tax on food products and the introduction of a refundable tax credit aimed at supporting low-income households. An interim report is expected by June 2026. A temporary consumption tax reduction is being considered a transitional measure pending the implementation of a permanent refundable tax credit system.

Key Controversy Issues in Q1:

• No key controversy update.

Thailand

Key Policy Update in Q1:

• Corporate Taxes:
  • The Thailand Board of Investment introduced a renewed package of investment incentives on January 15, 2026, applicable for the 2026–2027 period, with the objective of supporting business expansion, restructuring and long-term capital investment. The updated framework replaces incentive schemes that expired in 2025 and enhances Thailand’s appeal as an investment destination through improved tax benefits, broader eligibility, and more supportive business environment. The incentives are targeted at priority sectors such as advanced manufacturing, automation, electric vehicles and mobility solutions, as well as other technology- and innovation-driven activities. With most measures available for application throughout 2026 and 2027, the revised Board of Investment regime offers businesses a timely opportunity to reassess investment and growth strategies while carefully evaluating eligibility criteria and application timelines to maximize the incentives available in Thailand. Please refer A&M Tax Alert for detailed analysis. 
  • Thailand’s Revenue Department has introduced a tax incentive to accelerate the digital transformation of SMEs. The incentive applies to expenditures incurred for the purchase and/or development of computer software, hardware, and smart devices, excluding computers, from vendors approved by the Digital Economy Promotion Agency (DEPA), with eligible expenditures and payments made between June 24, 2025, and December 31, 2027. Qualifying SMEs may claim a double deduction, equivalent to 200% of such expenditure. The amount of qualifying expenditure eligible for this incentive is capped at THB 300,000. The incentive is available only where no other tax exemptions or incentives have been claimed for the same expenditures. 
  • Thailand has introduced a tax incentive to encourage corporate investment in high-efficiency machinery and energy-conservation equipment as part of its broader energy-efficiency policy measures. Under the incentive, companies and juristic partnerships may claim an income tax exemption equal to 50% of qualifying investment expenditure incurred for high-efficiency machinery, equipment or energy‑conservation materials that result in energy savings. To qualify, the machinery or equipment must be certified with a Level 5 Energy Efficiency Label. This incentive is subject to the additional conditions that an e-Tax Invoice must be obtained and applies to qualifying investments made up to December 31, 2028. 
  • Thailand’s Revenue Department has issued guidance setting out the procedural and compliance requirements for companies and juristic partnerships seeking to apply reduced corporate income tax rates for income derived from activities carried out in Special Economic Zones (SEZ). Taxpayers must formally notify the Revenue Department of their intention to utilize the tax incentive using a prescribed form, filed either with the Large Business Tax Administration Division or the relevant local area revenue office responsible for the location in which the taxpayers are located, depending on the taxpayer’s filing profile. Where a taxpayer earns both qualifying income from SEZ operations and non-‑qualifying income from other activities, net profits, and losses must be computed separately for each activity in accordance with the Thai Revenue Code. Expenses that cannot be directly attributed must be apportioned based on income, and supporting working papers must be maintained. Net losses may only be retained and utilized within the same activity. The guidance applies from June 6, 2025, onwards.
• Personal Taxes:
  • For individual taxpayers installing solar rooftop systems, Thailand has introduced personal income tax exemption measures to promote the installation of solar rooftop electricity generation systems and encourage energy conservation. Individuals may claim a personal income tax exemption for actual expenses incurred, capped at THB 200,000, for the purchase of equipment and installation costs of on-grid solar rooftop electricity generation systems connected to the Metropolitan Electricity Authority (MEA) or the Provincial Electricity Authority (PEA). The incentive is available on a one-time basis, upon completion of the installation and successful connection of the system to the MEA or PEA. For eligible individual taxpayers deriving income under Sections 40(5) to 40(8) of the Revenue Code, the Thai Revenue Department has introduced a separate personal income tax incentive. Under this measure, taxpayers may claim a personal income tax exemption equal to 50% of actual qualifying investment expenditure for investments in high‑efficiency machinery, energy‑conservation equipment or materials that result in energy savings. Eligibility is subject to the machinery or equipment being certified with a Level 5 Energy Efficiency Label. Both incentives are subject to the additional condition that an e-Tax Invoice must be obtained and applied to qualifying investments where payment is made and the assets are ready for use between March 02, 2026, and December 31, 2028.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• No key controversy update.

Tax developments across the Middle East in Q1 2026 reflected an implementation focused approach, with governments prioritizing incentive design, procedural reform, and investment facilitation. The UAE updates were led by the introduction of detailed rules for a non-refundable R&D tax credit aligned with OECD Pillar Two objectives, alongside wide‑ranging indirect tax reforms spanning VAT procedures, e-invoicing, excise taxation and customs facilitation. The Kingdom of Saudi Arabia focused on easing taxpayer regularization and strengthening investment frameworks through the extension of penalty relief, rollout of economic substance requirements for SEZ, and continued enhancements to excise, VAT and customs administration. Bahrain’s developments centered on the on-going refinement of its proposed corporate income tax regime and targeted VAT guidance on imports and exports, while Qatar introduced measures aimed at improving tax efficiency and certainty through direct treaty withholding relief and a new tax‑neutral corporate reorganization framework. These developments signal ongoing refinement in tax policy frameworks and administrative approaches across the region.

UAE

Key Policy Update in Q1:

• Corporate Taxes:
  • The UAE has introduced detailed rules for its non-refundable R&D tax credit under Phase 1 of its Tax Incentives Program, applicable to tax periods beginning on or after January 01, 2026. The Ministry of Finance (MoF) has noted that the non‑refundable design aligns with the OECD Pillar Two framework, supports a predictable effective tax rate, and reflects the early stage of the UAE’s corporate tax regime. The regime provides tiered credit rates of 15%, 35%, and 50% on up to AED 5 million of qualifying R&D expenditure per entity or tax group, subject to expenditure thresholds and minimum average R&D staffing levels. Only qualifying UAE-based R&D activities meeting OECD Frascati Manual criteria are eligible, with exclusions for social sciences, humanities, and the arts. The framework requires prior project approval, prescribes detailed rules for eligible costs, imposes a seven‑year record‑retention requirement, and regulates the utilization, carry-forward, transfer, and claw-back of credits, supported by anti-abuse provisions. The MoF has indicated that experience from Phase 1 will be used to evaluate the effectiveness of the incentive and to determine whether future phases should expand the scope of the credit, including the possible introduction of refundable credits and broader range of qualifying expenditure.

.Personal Taxes: No significant update.

• Indirect Taxes:
  • During Q1 2026, the UAE MoF and the Federal Tax Authority (FTA) introduced a series of legislative amendments and implementation measures impacting VAT compliance, e-invoicing framework, excise tax, and enforcement, with a continued focus on strengthening governance and aligning with international best practices.
  • Federal Decree-Law No. 16 of 2025 (VAT Law) and Federal Decree-Law No. 17 of 2025 (Tax Procedures Law), effective January 01, 2026, introduced targeted VAT amendments and broader procedural Reforms. Mainly they are:
    • The VAT Law removes the requirement to issue self-invoices under the reverse charge mechanism, simplifying compliance for imported services. 
    • A five-year time limit now applies to the recovery, carry forward, or refund of excess input VAT, after which unutilized balances lapse, subject to a transitional relief period until December 31, 2026. The Tax Procedures Law revises refund processes, credit utilization rules, audit timelines, and voluntary disclosure requirements, narrowing the scope of mandatory disclosures to specified cases, while allowing other errors to be corrected through amended tax returns.
    • The amendments also introduce enhanced anti-evasion provisions, allowing the FTA to deny input VAT recovery where taxpayers knew or should have known of tax evasion within the supply chain.
  • Cabinet Decision No. 153 of 2025, effective January 14, 2026, extends the reverse charge mechanism to domestic supplies of metal scrap between VAT-registered persons. Under this measure, VAT is to be accounted for by the recipient rather than the supplier, aligning the UAE’s treatment of high-risk transactions with international practices. Affected businesses should update invoicing, enterprise resource planning (ERP) configurations, and contractual arrangements. 
  • The UAE MoF issued the Electronic Invoicing Guidelines (Version 1.0) on February 23, 2026, providing the first detailed implementation framework for the upcoming mandatory e-invoicing regime. The guidelines confirm the adoption of a Peppol-based five-corner model, mandate the use of structured electronic invoices in PINT AE (Peppol International – UAE) specification, in extended markup language (XML) format, and define the role of Accredited Service Providers (ASPs) in invoice validation and transmission. The publication signals a transition to operational readiness, with phased implementation expected to commence from mid-2026. 
  • From January 1, 2026, the UAE replaced the flat 50% excise tax rate on sweetened beverages with a tiered volumetric excise tax model based on sugar and sweetener concentration. Rates now increase progressively depending on sugar content per 100ml, requiring manufacturers and importers to reassess product classification, pricing strategies, and excise reporting processes. The reform aligns UAE excise tax policy with the GCC unified excise framework and supports public health objectives by incentivizing lower sugar formulations. 
  • The Federal Tax Authority issued FTA Decision No. 11 of 2025, effective from January 1, 2026, introducing additional cases where excise tax paid on excise goods may be deducted or refunded. The Decision provides specific relief mechanisms for natural shortages in designated zones and for sweetened beverages reclassified by independent laboratory testing. The new framework sets strict documentation, reporting, and timing requirements, increasing compliance complexity for manufacturers, importers, warehouse keepers, and distributors dealing with excise goods such as tobacco, energy drinks, and sweetened beverages. 
  • During Q1 2026, the FTA confirmed the implementation of a revised penalty regime under Cabinet Decision No. 129 of 2025, effective April 14, 2026, impacting late VAT filings, payment delays, and voluntary disclosures. The Authority reiterated that VAT returns, even nil, must be filed within statutory deadlines, with automatic penalties applying for non‑ With the first affected quarterly returns due in April 2026, businesses were urged to review compliance calendars, historic VAT positions, and documentation supporting refund claims before the expiry of the transitional relief period. 
  • Dubai Customs has activated a Green Corridor enabling goods arriving at Omani seaports to be transported to Dubai under customs duty suspension via the Al Wajajah border crossing to the Hatta Customs Centre. Goods destined for the UAE local market may be cleared at Hatta, while goods intended for Dubai ports or free zones are subject to separate customs procedures. The corridor operates under customs supervision, with duties and formal import clearance deferred until the point of final destination in Dubai. The arrangement also applies in reverse, supporting export flows from Dubai via Oman’s seaports. The measure applies across most goods categories, subject to specific exclusions outlined in the annex to the notice. 
  • Dubai Customs has issued Notice CN5/2026 extending the permitted transit period from 30 days to 90 days for goods moving under transit procedures, including the submission of supporting documentation required to discharge transit declarations. The extension replaces the previous timeline and allows for further extensions subject to approval. In parallel, Notice CN6/2026 introduces additional facilitation measures, including temporary arrangements allowing cargo arriving through Khorfakkan and Fujairah ports to be transported under bonded movement to Jebel Ali Port and Dubai free zones for customs clearance. These measures are intended to support alternative routing options and mitigate delays arising from ongoing regional logistics disruptions, while maintaining existing customs control and compliance requirements. 

Key Controversy Issues in Q1:

• No key controversy update.

Kingdom of Saudi Arabia

Key Policy Update in Q1:

• Corporate Taxes:
  • The Kingdom of Saudi Arabia has extended its tax penalty relief initiative to June 30, 2026, providing taxpayers registered with the Zakat, Tax and Customs Authority (ZATCA) additional time to regularize outstanding tax matters. The relief applies to penalties under income tax, Zakat, VAT, excise tax, withholding tax, and real estate transaction tax, excluding cases involving tax evasion. It covers late registration, late filing, late payment, VAT return adjustments, and e‑invoicing violations. Taxpayers may benefit by submitting pending returns and paying the principal tax or including it within an approved instalment plan, while full relief remains available where liabilities were settled before January 1, 2026. 
  • The ZATCA has issued new regulatory frameworks for SEZs and released draft economic substance regulations for public consultation. Under these proposals, investors conducting qualifying activities in SEZs must meet annual substance requirements beginning from the first financial year of operation. These include maintaining adequate premises, assets, operating expenditure, and full-time employees within the zone, and ensuring that activities are effectively managed in the Kingdom of Saudi Arabia. Additional requirements apply to investors engaged in intellectual property activities, including the need for at least half of the board to be resident in the Kingdom and for key strategic decisions, risk management, and development of intellectual property assets to occur within the zone. SEZ incentives include a 5% corporate income tax rate for 20 years, effective April 2026, together with customs and VAT facilitations. 
  • No new Zakat regulations were published in Q1 2026. Nevertheless, Zakat payers are materially affected by the extended tax amnesty, which provides relief for late filing, late payment, correction penalties, and field detection penalties. The newly issued SEZ frameworks may shift qualifying entities from Zakat to corporate income tax, depending on activity classification and substance requirements. In addition, ZATCA has increased its enforcement focus on Zakat base adjustments, related-party balances, and real estate-heavy structures, with a corresponding rise in desk audits and reconciliation requests.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • No new VAT rate or structural changes were introduced during Q1 2026. However, ZATCA issued a new VAT guideline for deemed suppliers in January 2026 and continued the rollout of E‑Invoicing Phase 2 (Integration Phase). 
  • ZATCA continued its customs modernization initiatives throughout the quarter. These include the expansion of the Authorized Economic Operator (AEO) program to 776 companies, the introduction of new investment opportunities at border ports such as Arar and Ruq’ai, and continued digitalization of customs declarations and voluntary disclosures, in line with ZATCA’s ongoing digital transformation initiatives as reflected in the Authority’s annual reports and digital services platform. 
  • Saudi Arabia has also implemented a new tiered volumetric excise tax system for sweetened beverages, replacing the previous price-based model. Under the revised methodology, tax rates depend on sugar concentration per 100 ml. Natural juices with no added sugar are excluded, and carbonated beverages are no longer treated as a standalone excise category.

Key Controversy Issues in Q1:

• No key controversy update.

Bahrain

Key Policy Update in Q1:

• Corporate Taxes:
  • The Draft Corporate Income Tax Law proposed by the Bahrain Cabinet on December 29, 2025, which provides for a 10% tax on taxable profits exceeding BHD 200,000 (approximately USD 530,000) and introduces a 5% withholding tax on interest, royalties, and services, is currently pending review by Parliamentary Committees before proceeding through the legislative approval process and eventual enactment by Royal Decree. Notably, in February 2026, the draft was also circulated through the Bahrain Chamber of Commerce and Industry as part of a closed consultation process with selected business stakeholders, indicating that the law remains under active refinement prior to final approval.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • The Bahrain National Bureau for Revenue released an update to the imports and exports VAT guide on March 11, 2026 (Version 1.5), which sets out the general principles relating to the treatment of imports and exports under the VAT system of the Kingdom of Bahrain. The updated guidance introduces specific clarification on cases where VAT is paid in the form of a deposit, clarifying that VAT paid as a deposit under import or temporary import customs declarations is treated as guarantee (security) against potential future VAT which is not recoverable at the time of payment. The guidance confirms that such amounts only become recoverable as input VAT once the deposit is confiscated by Customs Affairs and its status changes to “VAT confiscation,” subject to the normal input VAT recovery conditions and appropriate customs documentation.

Key Controversy Issues in Q1:

• No key controversy update.

Qatar

Key Policy Update in Q1:

• Corporate Taxes:
  • Qatar has amended the executive regulations to its Income Tax Law to allow reduced withholding tax rates under tax treaties to be applied directly, replacing the previous refund-based mechanism. Direct treaty relief may be applied only by payers granted ‘Approved Debtor’ status by the General Tax Authority (GTA), and such status is obtained through a formal application by a GTA‑registered entity demonstrating that it meets the prescribed human, technical, and financial capability requirements to be set out by decision of the GTA President. To access treaty benefits, the non‑resident recipient must submit a documented request to the Approved Debtor confirming treaty residence and beneficial ownership of the income, that the income is not attributable to a permanent establishment in Qatar and is not paid under a treaty‑shopping arrangement, and that all other treaty conditions are satisfied. The Approved Debtor must approve or reject the request within 60 days, with inaction treated as a rejection and no right of appeal. The amendments apply from March 16, 2026. 
  • In March 2026, Qatar introduced a framework allowing tax-neutral corporate reorganizations. Under this framework, capital gains arising from eligible mergers, demergers, and intra‑group asset transfers may be relieved from income tax, provided the transactions are supported by genuine commercial or financial rationale and meet prescribed requirements relating to substance, ownership continuity, and anti‑ The initiative is intended to facilitate internal group restructuring and capital reallocation, including restructurings undertaken in preparation for potential listings, without giving rise to immediate tax costs.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• No key controversy update.

In Q1 2026, Australia and New Zealand continued to refine their tax regimes with a focus on global alignment, integrity measures and administrative certainty. Australia’s developments were largely centered on the implementation of Pillar Two, with proposed legislative refinements to the domestic minimum tax and extensive Australian Taxation Office (ATO) guidance covering consolidation, restructures, transition rules, and compliance obligations. These were complemented by the finalization of the public Country‑by‑Country Reporting (CbCR) framework and a government‑led review of thin capitalization reforms. New Zealand, meanwhile, advanced targeted legislative and policy clarifications, including guidance on the tax treatment of decentralized crypto finance transactions and foreign investment funds, and proposed amendments to align its minimum tax rules with OECD Global Anti-Base Erosion (GloBE) guidance. Overall, the Q1 developments reflect continued refinement of tax policy frameworks and administrative clarity across both jurisdictions.

Australia

Key Policy Update in Q1:

• Corporate Taxes:
  • The Australian government has asked the Board of Taxation to review the 2023–24 thin capitalization reforms to ensure they meet their objective of limiting excessive debt deductions. The review will consider the operation of the AUD 2 million de minimis exemption, the design of the default tax EBITDA rule, and compliance issues arising from debt deduction creation following restructures. Public consultation commenced on February 1, 2026, with the Board due to report back to the Government within 12 months.
  • On February 16, 2026, Australia released an exposure draft of the Taxation (Multinational – Global and Domestic Minimum Tax) Amendment (2026 Measures No. 1) Rules 2026. The draft proposes targeted amendments to support the effective operation of Australia’s domestic minimum tax and alignment with the OECD GloBE rules, including:
    • Clarification of rules for stateless entities with an Australian nexus.
    • Refinements to interactions with the tax consolidation regime
    • Improved consistency in allocation of covered taxes to GloBE income.
    • Technical adjustments to ensure intended policy outcomes.
    • Introduction of foreign currency translation rules for relevant GloBE calculations.
  • In March, the ATO finalized key elements of Australia’s Public CbCR regime, releasing the final reporting form, XML schema and supporting guidance (i.e., reconciliation guidance). The regime applies to income years beginning on or after July 01, 2024, with first public reports due by June 30, 2026. It requires large multinational groups with at least AUD 10 million or more in Australian-sourced income to disclose detailed tax and financial information publicly and operate alongside existing confidential OECD CbCR obligations.
  • On March 12, 2026, the ATO released further guidance on Australia’s Pillar Two minimum tax regime. The guidance confirms the application of the Income Inclusion Rule (IIR) and Domestic Minimum Tax (DMT) from income years beginning on or after January 01, 2024, with the Undertaxed Profits Rule (UTPR) applying from January 01, 2025, for groups meeting the EUR 750 million threshold. It also clarifies interactions with tax consolidation, allocation of top-up tax, treatment of foreign tax credits, safe harbor application, and expanded compliance and reporting requirements.
  • On March 25, 2026, the ATO issued guidance on the treatment of group restructures and transition year rules for tax consolidated groups under Pillar Two. The guidance addresses the treatment of key GloBE attributes, including deferred tax balances, asset carrying values and GloBE income following acquisitions, and internal restructures. It also clarifies the application of transition integrity rules, including asset transfer provisions, ownership changes, deemed transfers and fair value elections, supported by practical examples.
• Personal Taxes:
  • Australia has enacted major superannuation reforms through the Treasury Laws Amendment (Building a Stronger and Fairer Superannuation System) Bill 2026, following Senate approval on March 10, 2026. The changes introduce Division 296, which reduces tax concessions for individuals with Total Superannuation Balances above AUD 3 million by applying additional tax to realized investment earnings above specified thresholds. The reforms also enhance the Low-Income Superannuation Tax Offset from July 01, 2027, by increasing eligibility thresholds and payment limits and linking them to income tax and contribution benchmarks. Overall, the package aims to rebalance concessions and improve the long-term sustainability of Australia’s superannuation system.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• In August 2025, the High Court in Commissioner of Taxation v PepsiCo Inc. held that payments by Australian bottlers for beverage concentrate did not include an embedded royalty and therefore did not give rise to royalty withholding tax or the diverted profits tax. In response, the ATO issued a Decision Impact Statement on March 19, 2026, seeking to confine the decision to its specific facts. The ATO highlighted the exceptional nature of the arrangements, including arm’s length pricing with an unrelated bottler, consistent global pricing practices, and evidence that concentrate pricing excluded any intellectual property (IP) premium. The ATO confirmed that its broader compliance approach to embedded royalties and diverted profits tax remains unchanged. The ATO has yet to finalize its draft Taxation Ruling 2024/D1 Income Tax: character of payments in respect of software and intellectual property rights.

New Zealand

Key Policy Update in Q1:

• Corporate Taxes:
  • Inland Revenue’s Issues Paper IRRUIP18 states that many decentralized finance (DeFi) crypto transactions create taxable income because they generally involve disposing of crypto assets. A disposal occurs when assets move out of a person’s control, such as through wrapping, bridging, staking, lending, or providing liquidity particularly when held for business, profit‑making, or disposal purposes. Tax is usually based on the market value of assets received, and DeFi rewards are treated as money’s worth and taxed on receipt. Public submissions close on March 12, 2026.
  • In a decision, Inland Revenue confirmed that no Foreign Investment Fund (FIF) income arises during a taxpayer’s transitional residence period. Where transitional residence ended on December 31, 2024, the taxpayer is treated as acquiring their FIF interests on January 1, 2025, giving a nil opening value for the 2025 year under the fair dividend rate method. FIF income for that year therefore arises only from quick sales. Inland Revenue also noted that this outcome reflects the policy intent and does not trigger the general anti-avoidance rule.
  • On March 19, 2026, New Zealand’s Minister of Revenue released an Amendment Paper proposing targeted refinements to the August 2025 tax bill. The amendments align OECD GloBE guidance with OECD‑specified effective dates and introduce an elective interest deductibility regime for eligible infrastructure entities from the 2026–27 income year. They also provide interest relief for compliant student loan borrowers, particularly those overseas. Additional measures include changes to tax payment methods for Crown entities and expanded tax debt reporting to credit agencies.
  • On March 27, 2026, New Zealand Inland Revenue issued draft guidance for consultation outlining its approach to granting relief from tax debt under the Tax Administration Act, 1994. The guidance explains when tax, interest, or penalties may be written off, remitted, deferred, or subject to instalment arrangements, even where correctly assessed. It identifies eligible debts, available relief options, and the statutory factors Inland Revenue must consider. These include whether granting relief would achieve a better long-term collection outcome than immediate recovery. The consultation period is open until May 8, 2026.
• Personal Taxes:
  • Parliament has introduced the Employment Relations Amendment Act 2026, which overturns the earlier Supreme Court ruling that classified certain ride‑share drivers as employees. The Act sets specific conditions under which a worker will be treated as an independent contractor, with key tax implications including no Pay As You Earn (PAYE) withholding or KiwiSaver employer contribution obligations for engaging parties and allowing specified contractors to claim income tax deductions for eligible business expenses and be treated as self‑employed for accident compensation levy purposes. The Act took effect on February 21, 2026, and applies to existing arrangements unless an employment‑status dispute was already lodged.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q1:

• No key controversy update.