Over the past decade, tax transparency has become a defining feature of the international tax landscape, driven by growing concerns over base erosion and profit shifting (BEPS), harmful tax practices, and the limited ability of tax authorities to assess the global activities and tax positions of multinational enterprise (MNE) groups. In response, governments and OECD have progressively strengthened administrative cooperation, automatic exchange of information, and reporting obligations to improve the detection of tax avoidance and enhance compliance. Within the EU, these objectives have been advanced through the Directive on Administrative Cooperation (DAC), which establishes a harmonized framework for the exchange of taxpayer information and coordinated action among Member States.

What began as a series of discrete reporting obligations has now evolved into an interconnected global disclosure ecosystem. CbCR, Mandatory Disclosure Rules (MDR/DAC6), beneficial ownership reporting, public tax disclosures and, more recently, Pillar Two’s Global Information Return (GIR) are increasingly designed to operate as complementary components of a broader transparency framework. As tax administrations make greater use of technology, data analytics, and cross-border information exchange, tax enforcement is shifting from reviewing individual filings to validating the consistency of information across multiple reporting regimes. Consequently, tax transparency is no longer simply about providing more information; it is about ensuring that MNE groups present a coherent and consistent narrative across financial statements, transfer pricing documentation, CbCR, Pillar Two filings, and other tax disclosures.

In this article, we examine the evolution of the international tax transparency framework, from the OECD Common Reporting Standard (CRS) and BEPS Action 13 CbCR to DAC6, the public CbCR regimes in the EU and Australia, and the emerging Pillar Two GIR. We also explore how these initiatives, although introduced independently to address different policy concerns, are increasingly converging into an integrated, data-driven transparency ecosystem that is reshaping tax administration, compliance expectations, and corporate accountability.

1. The Foundation: Automatic Exchange of Financial Account Information

The first major phase of modern tax transparency focused on financial account information. The OECD CRS[1], approved by the OECD Council on July 15, 2014[2], established a global framework for the automatic exchange of financial account information between tax authorities, requiring participating jurisdictions to obtain information from reporting financial institutions and exchange that information with other jurisdictions annually.

The policy concern was straightforward: tax authorities often lacked visibility over financial accounts held by taxpayers outside their jurisdiction, enabling offshore tax evasion and the concealment of taxable income. To address this, the CRS introduced a common international standard under which financial institutions are required to undertake due diligence procedures to identify reportable account holders and controlling persons, obtain prescribed self-certifications, and report specified financial account information to their domestic tax authority for subsequent exchange with relevant foreign jurisdictions.

In doing so, the CRS shifted the international transparency framework away from information being exchanged only upon request toward a systematic, recurring, and automatic exchange of information. While this marked a significant milestone in global tax transparency and established the legal, operational, and technological infrastructure for cross-border information sharing across more than 120 jurisdictions, its scope remained confined to financial accounts. Consequently, the CRS did not provide tax authorities with a comprehensive understanding of how MNE groups allocated profits, taxes, and economic activity across jurisdictions, thereby paving way for subsequent transparency initiatives targeted at multinational businesses.

2. Evolution of CbCR: From Tax Authority Risk Assessment to Public Tax Transparency

The next major milestone in the evolution of international tax transparency was the introduction of CbCR under OECD BEPS Action 13. The OECD released the final Action 13 report on October 5, 2015[3], introducing a standardized three-tiered transfer pricing documentation framework comprising the Master File, Local File, and CbCR. Applicable to MNE groups meeting the prescribed consolidated revenue threshold, the CbCR requirements were designed to apply to fiscal years beginning on or after January 1, 2016.

This reform addressed a different information gap than the CRS. While tax authorities could review local tax returns and transfer pricing documentation, they often lacked a consolidated picture of how MNE groups allocated revenues, profits, taxes paid and accrued, employees, stated capital, retained earnings, tangible assets, and business activities across jurisdictions. To bridge this gap, Action 13 introduced a jurisdiction-by-jurisdiction reporting framework through which large MNE groups disclose key financial and operational information, complemented by the Master File and Local File, which provide a broader understanding of the group’s global business operations, value chain, transfer pricing policies, and material intercompany transactions.

The CbCR is exchanged automatically between tax authorities under international exchange agreements and is intended to facilitate high-level transfer pricing and broader BEPS risk assessments rather than serve as a basis for transfer pricing adjustments.

While BEPS Action 13 significantly enhanced transparency between tax administrations, the next phase of the transparency agenda shifted toward public accountability. This was achieved through the EU Public CbCR regime, introduced by Directive (EU) 2021/2101[4]. Applicable, at the latest, to financial years commencing on or after June 22, 2024, the Directive requires large MNE groups to publicly disclose specified jurisdiction-by-jurisdiction income tax information. Unlike the OECD CbCR, which remains confidential between tax authorities, the EU Public CbCR regime extends the reporting audience to investors, regulators, employees, customers, and the wider public. The reporting requires the disclosure of key tax and economic indicators and the nature of activities for each EU Member State and jurisdictions included on the EU list of non-cooperative jurisdictions for tax purposes, with information relating to other jurisdictions generally reported on an aggregated basis. It also incorporates limited qualitative disclosures, such as explanations for material differences between income tax accrued and income tax paid and disclosures relating to the temporary omission of commercially sensitive information, where applicable. The subsequent adoption of Commission Implementing Regulation (EU) 2024/2952[5] further enhanced the regime by introducing a common reporting template and machine-readable electronic reporting formats, thereby improving the consistency, comparability, and digital accessibility of public tax information across the EU.

The evolution of public CbCR expanded further with Australia’s Public CbCR regime, introduced through the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024[6], applicable to reporting periods commencing on or after July 1, 2024. While Australia’s regime is founded on the OECD BEPS Action 13 framework and builds upon the public transparency model established by the EU Public CbCR regime, it substantially expands the scope and context of public reporting. In contrast to the confidential OECD CbCR, Australia’s regime also requires public disclosure of jurisdictional tax information and, unlike the EU regime, retains several disclosures derived from the OECD CbCR framework, including the separate reporting of related-party and unrelated-party revenues and tangible assets. It further requires the public identification of constituent entities, a mandatory statement describing the group’s approach to tax, and broader jurisdiction-specific reporting in accordance with legislative instruments issued by the Australian government[7].

In addition, whereas EU Public CbCR reports are generally published through company websites and commercial registers, Australia’s reports are published by the Australian Taxation Office on a central government platform, providing a single authoritative repository for public access.

These developments illustrate the progressive evolution of CbCR from a confidential tax administration risk assessment tool under BEPS Action 13 to a public transparency framework aimed at enhancing corporate accountability.

3. Pillar Two: Strengthening transparency through global minimum tax reporting

The evolution of international tax transparency expanded further alongside the implementation of the OECD/G20 Inclusive Framework’s Pillar Two Model Rules[8] (GloBE Rules). Released in December 2021 as part of the Two-Pillar Solution[9] to address the tax challenges arising from the digitalization of the economy, the GloBE Rules seek to ensure that large MNE groups are subject to a minimum level of taxation regardless of where they operate. The effective administration of these rules, however, requires a standardized reporting framework that enables tax authorities to assess the application of the global minimum tax consistently across jurisdictions. To support this objective, the OECD/Inclusive Framework on BEPS released the GIR in July 2023.

Unlike other transparency initiatives aimed at identifying transfer pricing risks or aggressive tax planning, the GIR sets out a standardized information return to facilitate compliance with and administration of the GloBE Rules. It contains the information a tax administration needs to perform an appropriate risk assessment and to evaluate the correctness of a Constituent Entity’s Top-up Tax liability. The GIR is subject to coordinated filing and exchange mechanisms that allow MNEs to report their GloBE calculations through a single return, with the detailed information being made available to implementing jurisdictions where a Top-up Tax liability may arise, requiring only minimal changes[10].

Collectively, the reporting obligations under Pillar Two represent a further evolution in international tax transparency by extending standardized reporting beyond tax risk assessment towards the coordinated administration of internationally agreed tax rules. In doing so, the GIR not only facilitates the operation of the global minimum tax regime but also enhances the ability of tax authorities to access, exchange, and analyze consistent tax information across jurisdictions. This reflects the broader shift in international tax transparency from information gathering toward data-driven tax administration and compliance monitoring.

4. DAC5: Enhancing Transparency Through Beneficial Ownership Information

While earlier transparency initiatives focused on the automatic exchange of financial account information and CbCR, they did not provide tax authorities with direct access to information identifying the natural persons ultimately owning or controlling legal entities and legal arrangements. As MNE groups increasingly operated through complex ownership structures spanning multiple jurisdictions, tax authorities faced practical challenges in verifying the identity of beneficial owners and validating information reported under existing transparency frameworks.

Recognizing this information gap, the EU adopted Council Directive (EU) 2016/2258[11] (DAC5) on December 6, 2016, amending Directive 2011/16/EU to grant competent tax authorities, access to customer due diligence procedures, beneficial ownership information, and other records collected under the Anti-Money Laundering Directive (Directive (EU) 2015/849[12]). Unlike earlier amendments to the DAC, DAC5 did not introduce new reporting obligations for taxpayers or intermediaries. Instead, it strengthened the existing administrative cooperation framework by enabling tax authorities to make effective use of information already collected for anti-money-laundering purposes.

The significance of DAC5 extends beyond administrative access to information. While the concept of beneficial ownership was originally developed in the context of international tax treaties to determine entitlement to treaty benefits, it has progressively evolved into a broader transparency mechanism supporting efforts to combat tax evasion, money laundering, and the misuse of complex ownership structures. By integrating beneficial ownership information into the tax administration framework, DAC5 reinforced the ability of tax authorities to verify ownership structures, support the implementation of the CRS, and undertake more effective tax risk assessments.

Collectively, DAC5 marked a further evolution in the international tax transparency agenda by recognizing that effective exchange of information depends not only on the availability of financial and tax data, but also on the ability of tax authorities to identify the individuals ultimately owning or controlling the entities through which cross-border activities are conducted.

5. DAC6: Moving Transparency Closer to Transaction Planning

The next significant milestone in the evolution of international tax transparency was the introduction of DAC6, implemented through Council Directive (EU) 2018/822[13], adopted on May 25, 2018, which amended Directive 2011/16/EU to introduce MDR for potentially aggressive cross-border tax arrangements. DAC6 is the EU’s legislative response to the OECD’s BEPS Action 12 recommendations on MDR[14] which encouraged jurisdictions to introduce disclosure mechanism that provide tax authorities with early visibility of aggressive tax planning arrangements. DAC6 marked an evolution in the tax transparency agenda by moving beyond retrospective reporting of financial and tax information toward real-time intelligence on cross-border tax planning.

The policy concern underpinning DAC6 was that tax authorities frequently became aware of potentially aggressive tax structures only after they had been implemented, limiting their ability to respond timely. To address this information gap, DAC6 requires intermediaries—including tax advisors, accountants, lawyers, and certain financial institutions or, in specified circumstances, the relevant taxpayers themselves, to report cross-border arrangements exhibiting one or more prescribed hallmarks indicative of potential tax avoidance or BEPS risks.

These hallmarks encompass a broad spectrum of arrangements, including those involving confidentiality clauses or contingent fee arrangements linked to obtaining a tax advantage (Hallmark A), the acquisition of loss-making companies to utilize tax losses (Hallmark B), deductible cross-border payments to associated enterprises resident in jurisdictions with no or almost no corporate tax or included on the EU list of non-cooperative jurisdictions (Hallmark C), arrangements designed to circumvent reporting obligations under the CRS or obscure beneficial ownership through opaque legal or ownership structures (Hallmark D), and transfer pricing arrangements involving hard-to-value intangibles or cross-border business restructurings that significantly reduce projected earnings before interest and taxes (EBIT) (Hallmark E).

The reported information is exchanged automatically among EU Member States through a centralized communication network, enabling tax administrations to identify emerging tax planning trends, undertake targeted risk assessments, and coordinate enforcement activities. Importantly, the existence of a reporting obligation does not, of itself, imply that an arrangement is abusive or impermissible. Rather, DAC6 is intended to provide tax authorities with early visibility into arrangements that may warrant further scrutiny.

6. DAC7: Expanding Tax Transparency Through Digital Platform Reporting

While DAC6 provided tax authorities with early visibility over potentially aggressive cross-border tax arrangements, the continued growth of the digital economy exposed a different transparency challenge. Tax administrations often lacked access to reliable information on income earned through online platforms, particularly where activities were conducted across borders. To address this information gap, the EU adopted Council Directive (EU) 2021/514 (DAC7)[15] on March 22, 2021, amending Directive 2011/16/EU to introduce mandatory reporting obligations for digital platform operators. The regime became applicable from January 1, 2023, with the first exchanges of information taking place in 2024.

DAC7 requires certain EU and non-EU digital platform operators facilitating activities within the EU to collect, verify, and report information on reportable sellers. The reporting obligations cover a range of platform-mediated activities, including the rental of immovable property, personal services, sale of goods, and rental of any mode of transport. Platform operators must report information such as the seller’s identity, tax residence, taxpayer identification number, and the consideration paid or credited through the platform.

The reported information is automatically exchanged among EU Member States through the existing administrative cooperation framework, providing tax authorities with greater visibility over income generated through the platform economy. Unlike earlier transparency initiatives directed at financial institutions, MNE groups or tax intermediaries, DAC7 places reporting obligations on digital platforms themselves, reflecting their central role in facilitating and recording online transactions. The Directive also introduced measures to strengthen broader administrative cooperation, including provisions relating to joint audits between Member States.

DAC7 extends tax transparency into the digital platform economy by leveraging information held by platform operators that was previously difficult for tax administrations to access. By providing tax authorities with standardized information on income earned through online marketplaces and facilitating its automatic exchange across jurisdictions, DAC7 enhances the ability of tax administrations to monitor compliance and respond to the challenges arising from increasingly digitalized business models.

7. CARF and DAC8: Extending tax transparency to crypto-assets

The emergence and rapid growth of crypto-assets have transformed the financial landscape while creating new challenges for tax administrations. Unlike traditional financial assets, crypto-assets can be transferred and held without involving traditional financial intermediaries and without any central administrator having full visibility over either the transactions carried out or the location of crypto-asset holdings. These features have reduced tax administrations’ visibility over tax-relevant activities, making it increasingly difficult to verify whether associated tax liabilities are appropriately reported and assessed. Combined with their decentralized and cross-border nature, this has highlighted the need for stronger international administrative cooperation to preserve the effectiveness of global tax transparency frameworks.

To address the risks posed by crypto-assets with respect to tax transparency, the OECD, in collaboration with G20 countries, completed and published the crypto-asset reporting framework (CARF) in July 2023. CARF provides a dedicated global tax transparency framework which enables automatic exchange of tax information on transactions in Crypto-Assets in a standardized manner with the jurisdictions of residence of taxpayers annually[16]. In addition to introducing a dedicated reporting regime for crypto-assets, the OECD simultaneously updated the CRS to reflect developments in digital financial markets, to bring new financial assets, products, and intermediaries within its scope, because they are potential alternatives to traditional financial products, while avoiding duplicative reporting with that foreseen in the CARF.

The EU subsequently incorporated these principles into its administrative cooperation framework through Council Directive (EU) 2023/2226 (DAC8)[17]. The directive was adopted by EU countries on October 17, 2023, and published in the Official Journal of October 24, 2023. EU Member States were required to transpose the directive by December 31, 2025, and its provisions have applied since January 1, 2026. The directive requires EU countries to obtain information from the Reporting Crypto-Asset Service Providers (RCASPs) and exchange that information with the EU country of residence of the taxpayer/investor on an annual basis. The Directive aims to strengthen the overall legal framework on the automatic exchange of information to fight tax fraud and combat tax evasion and tax avoidance by enlarging its scope to cover crypto-assets[18].

Collectively, the OECD CARF and DAC8 represent a further evolution in the international tax transparency agenda by extending automatic exchange of information beyond traditional financial assets to crypto-assets and other emerging digital financial instruments. By establishing a standardized reporting and information exchange framework for crypto-asset transactions, these initiatives complement the existing CRS framework and strengthen the ability of tax authorities to address the tax compliance challenges arising from the rapidly evolving digital asset economy.

8. GRI 207: Advancing Tax Transparency Through Sustainability Reporting

Tax transparency has continued to evolve beyond mandatory reporting obligations imposed under tax legislation toward broader public accountability through sustainability reporting. While initiatives such as the OECD BEPS Action 13 CbCR framework, the EU Public CbCR regime, and Australia’s Public CbCR regime seek to improve transparency regarding the tax affairs of MNE groups, increasing attention has also been directed toward the governance of corporate tax practices. This shift reflects the growing recognition that responsible tax behavior forms an integral component of corporate accountability and sustainability reporting, with various stakeholders, such as governments, investors, civil society, media, and the public, increasingly seeking greater transparency regarding organization’s tax governance, strategy, and contributions to public finances.

In response to these growing stakeholder expectations and the increasing focus on tax as a sustainability issue, the Global Reporting Initiative (GRI) introduced GRI 207: Tax 2019, the first globally recognized sustainability reporting standard dedicated exclusively to tax transparency. Published in December 2019 and effective on or after January 1, 2021, GRI 207 contains disclosures for organizations to report information about their tax-related impacts, and how they manage these impacts. The disclosures enable an organization to provide information on how it manages tax, and information about its revenue, tax, and business activities on a country-by-country basis[19]. Unlike existing tax transparency initiatives, which primarily seek to improve transparency through regulatory reporting obligations, GRI 207 establishes a sustainability reporting framework through which organizations may publicly disclose information regarding their tax strategy, governance, stakeholder engagement, and country-by-country tax information.

The development of GRI 207 also reflects the broader recognition that taxation plays an important role in sustainable development. As recognized by the United Nations, taxation is fundamental to sustainable development[20] and constitutes a key mechanism through which organizations contribute to the economies of the countries in which they operate[21]. Against this backdrop, greater transparency regarding corporate tax practices enables stakeholders to better understand organizations’ contribution to sustainable economic development and public finances.

Collectively, GRI 207 marks a further evolution in the international tax transparency agenda by recognizing that tax transparency extends beyond regulatory compliance and the exchange of information between tax authorities. By establishing a globally recognized framework for public tax disclosures within sustainability reporting, GRI 207 complements existing international tax transparency initiatives and enables a broader range of stakeholders to better understand an organization’s approach to tax, tax governance, and tax contributions.

Conclusion: Multiple Layers of Tax Transparency and Their Implications for MNEs

Over the past decade, tax transparency has evolved from a series of discrete reporting obligations into a multi-layered and interconnected disclosure ecosystem. While the initiatives discussed above were introduced to address a specific policy concern, collectively they provide tax authorities with an increasingly comprehensive view of how MNE groups are structured, where they operate, how profits are allocated, and how tax positions are determined. The significance of this evolution lies not only in the volume of information being reported, but also in the growing ability of tax administrations to connect and analyze information across multiple sources. As administrative cooperation, automatic exchange mechanisms, and data analytics capabilities continue to mature, tax authorities are increasingly equipped to identify inconsistencies, challenge unsupported positions, and assess whether reporting aligns with the commercial and economic reality of MNE’s global operations.

For MNE groups, the practical implications extend well beyond compliance with individual reporting requirements. Tax transparency is increasingly becoming a matter of enterprise-wide data governance. Information prepared for one reporting requirement frequently becomes relevant for several others, requiring organizations to maintain consistent data sources, coherent transfer pricing and substance position, and robust governance frameworks over how tax information is collected, reviewed, and disclosed. In this era, managing transparency risks requires greater coordination across tax, finance, legal, sustainability, and technology functions, together with consistency of information reported across jurisdictions.

Tax risk will increasingly stem from data misalignment rather than the absence of documentation. As a result, MNE groups should move beyond a compliance-centric mindset and treat tax transparency as a data governance imperative. This requires establishing a single, controlled tax data model, maintaining clear source-to-disclosure traceability, strengthening transfer pricing and substance narratives, implementing robust audit trails for key tax positions, and ensuring that tax, finance, legal, and technology functions operate from a common set of data and assumptions.

Looking ahead, the most successful organizations will be those that build sustainable tax governance frameworks capable of supporting multiple disclosures. Tax authorities are increasingly interested not only in the numbers reported, but also in understanding where the data originated, how calculations were performed, who approved key decisions, and whether reported outcomes align with economic reality. For MNEs, preparation for this new era therefore requires a shift from managing individual reporting obligations to managing the integrity, consistency, and defensibility of enterprise-wide tax data.

In an environment where every disclosure informs the next and every dataset can be cross-checked against another, the question is no longer whether tax authorities have access to the information—they already do. The real question is whether MNE groups are prepared to explain the story that the data tells. Ultimately, tax transparency is evolving into a test of organizational discipline and governance, and those that invest early in integrated data, technology, and control frameworks will be best positioned to navigate the increasingly connected global tax landscape.

Background: It Is All About ‘Preserving the Integrity of the GloBE Rules’

A fundamental concern that is reflected throughout the Global Anti-Base Erosion (GloBE) Model rules and their Commentary is the preservation of the integrity of the rules. The latest version of the Consolidated Commentary invokes the notion dozens of times in multiple circumstances: adjustments are imposed, elections are conditioned, and simplifications are withheld wherever an outcome ‘would undermine the integrity of the GloBE rules.’[22]

So far, the instrument adopted to protect that promise is not based on a broad anti-abuse standard but a series of targeted rules positioned at identified pressure points. Interestingly, a closer look at the existing framework reveals a curious asymmetry. The most detailed and modern anti-abuse tools in the Pillar Two universe are found not in the full GloBE computations but in the safe harbors: first in the transitional Country-by-Country Reporting (CbCR) safe harbor, and since January 2026 in the permanent Simplified Effective Tax Rate (ETR) safe harbor. This may be likely explained by the fact that the expectation of the Organization for Economic Co-operation and Development (OECD) is that a significant number of in-scope Multinational Enterprises (MNEs) would fall under either of these safe harbors. Apart from targeted adjustments, the full GloBE rules themselves contain a single, narrowly drawn provision on intragroup financing: Article 3.2.7. In addition, the GloBE rules do not include any provision relating to the General Anti Avoidance Rule (GAAR). Whether, and how, domestic GAARs would apply within the Pillar Two framework could be an open question, which the European Commission’s recent Direct Taxation Omnibus proposal has now given the European Union’s (EU) answer.

Targeted Adjustments

There are several examples of specific targeted rules included in the Pillar Two framework. For instance, Article 3.2.3 requires cross-border intra-group transactions to be recorded consistently and at arm’s length, expressly ‘in order to protect the integrity of jurisdictional blending.’ Article 4.3.3 caps the push-down of Controlled Foreign Company (CFC) and similar owner-level taxes attributable to passive income, again to ‘maintain the integrity of the jurisdictional blending rules in relation to mobile income.’ Under this rule, the amount of covered taxes allocated from a constituent entity-owner to a subsidiary in respect of passive income is limited to the lesser of the actual amount of covered taxes in respect of such passive income or the top-up tax percentage that applies in the subsidiary jurisdiction, multiplied by the amount of the subsidiary’s passive income that is includible under the CFC tax regime (or fiscal transparency rule). The deferred tax mechanics of Article 4.4 also determines certain adjustments which are ‘required to protect the integrity of the GloBE rules.’[23] Notably, the adjustments include using the lower of the minimum rate or the applicable tax rate in order to prevent deferred tax amounts from sheltering unrelated GloBE income and impose a five-year recapture on unpaid liabilities. Also, the transition rules follow the same pattern. Article 9.1.2 is characterized by the Commentary itself as ‘an anti-abuse rule,’ preventing taxpayers from relying on deferred tax assets on losses triggered in the pre-GloBE period, while Article 9.1.3 denies the benefit of basis step-ups from intra-group asset transfers after November 30, 2021, with the Commentary instructing that ‘transfer of assets’ should be interpreted broadly to include cross-border and domestic transactions that are treated like a sale of assets from an accounting perspective and create integrity risks as described in the above paragraph. All these examples reflect provisions which are mechanical and self-executing. While these targeted adjustments address specific computational risks across different parts of the GloBE rules, only one provision, Article 3.2.7, directly targets arbitrage through intra-group financing arrangements.

Article 3.2.7: The Anti-Arbitrage Rule

The full GloBE rules directly target hybrid arrangements through Article 3.2.7. The provision denies expenses arising under an ‘Intragroup financing arrangement’ that can reasonably be expected, over the duration of the arrangement, to increase the expenses of a low-tax entity without a commensurate increase in the taxable income of the high-tax counterparty. The Commentary is explicit about its purpose: to prevent MNE groups ‘from engaging in transactions that are intended to increase the ETR’ of a low-tax jurisdiction by stripping GloBE income out of it while the corresponding receipt is sheltered (for instance, against carried-forward excess interest capacity) in the high-tax counterparty jurisdiction. The notion of ‘arrangement’ for the purposes of this rule is expansive, capturing back-to-back loans through intermediaries and all steps giving effect to a plan, whether or not every party knows the details of the arrangement. There is however a carve-out: in case the intermediary acts as a treasury or financing center for the group that manages working capital requirements and the money borrowed from the high-tax counterparty may, based on an objective assessment be considered as entirely separate from and independent of the loan made to the low-tax entity. Overall scope of the rule is limited: covering only financing arrangements in substance, to interest and economically equivalent funding expense flowing from a high-tax to a low-tax group member. It does not reach hybrid instrument mismatches outside a financing context, duplicated deductions, duplicated recognition of tax expense, or any of the wider family of accounting and tax arbitrage techniques. Within the full GloBE computations, Article 3.2.7, the anti-hybrid rule is indeed confined to a single fact pattern. This limited scope reflects the OECD’s preference, at least in the GloBE rules, for narrowly targeted anti-arbitrage provisions rather than broad anti-abuse standards. Instead of examining taxpayer purpose or commercial rationale, Article 3.2.7 mechanically applies where specified objective conditions are met, leaving many other forms of hybrid or accounting arbitrage outside its scope.

The Transitional CbCR Safe Harbor and the Anti Hybrid Arrangements

The December 2023 Administrative Guidance introduced more detailed rules against ‘hybrid arbitrage arrangements’ into the transitional CbCR safe harbor. Under those rules, the tested jurisdiction’s profit before tax and income tax expense must be adjusted for three categories of arrangement entered into after December 15, 2022: deduction/non-inclusion arrangements, duplicate loss arrangements, and duplicate tax recognition arrangements. The definitions are notably wider than Article 3.2.7.: (i) A deduction/non-inclusion arrangement covers any intra-group credit or investment producing an accounting expense without a commensurate increase in the counterparty’s revenue or expected taxable income; (ii) a duplicate loss arrangement captures the same expense or loss appearing in the financial statements of two constituent entities, or deducted twice for tax purposes; and (iii) a duplicate tax recognition arrangement addresses the same tax expense being counted in more than one jurisdiction’s ETR numerator. An MNE group whose safe harbor eligibility fails by a hybrid arbitrage adjustment may then fall back into the full GloBE rules. Compared with Article 3.2.7, these rules represent a significant expansion in scope. Rather than targeting a single financing arrangement, they address several categories of hybrid and arbitrage outcomes capable of distorting the simplified calculations.

The Rules as Conditions of the Simplified ETR Safe Harbor

The Side-by-Side (SbS) Package approved by the Inclusive Framework (IF) on January 5, 2026, delivered the permanent Simplified ETR safe harbor, generally electable for fiscal years commencing on or after December 31, 2026.[24] Here again, the calculations come wrapped with integrity rules, this time framed as eligibility conditions. To access the safe harbor, an MNE group must make whatever adjustments are needed for its simplified income and simplified taxes to satisfy four principles: a matching principle (intra-group income may not be recognized later, or in a lesser amount, than the corresponding expense); a full allocation principle (all profit or loss must land in some tested jurisdiction); a single expense and loss principle; and a single tax principle (expenses, losses, and taxes count once, and in one jurisdiction only).[25] Intra-group financial instruments must, in addition, be classified consistently as debt or equity by issuer and holder.

Conceptually, these four principles turn the transitional hybrid arbitrage rules into something close to a general anti-arbitrage guide for simplified computations: no deduction without inclusion, no double deduction, no double-counted tax, and no stateless income. The fact that such a codex was considered necessary for a permanent safe harbor built on reporting-package data and was agreed at IF level within weeks says much about where the drafters see the residual risk. It also throws the asymmetry into still sharper relief, because the safe harbors are, by design, merely a concession: the Commentary allows them where outcomes match the full rules or ‘would not otherwise undermine the integrity of the GloBE rules’. In substance, these principles operate as a comprehensive anti-arbitrage framework for simplified computations. Although framed as eligibility conditions rather than anti-abuse rules, they collectively address the same categories of mismatch that would otherwise undermine the reliability of the safe harbor outcomes.

No GAAR in the Full GloBE Rules but Now (At Least) in the EU ATAD

Interestingly, no comparably detailed integrity or anti-hybrid-arbitrage rules exist in the full GloBE computations and, more fundamentally, the GloBE rules contain no provision for GAAR at all. The omission suggests a design choice rather than an oversight. The uncertainty surrounding the GAAR interpretation applied unilaterally by dozens of implementing jurisdictions could affect the coherence and coordinated application of the rules and multiply double taxation without an obvious dispute resolution forum.

But: may domestic GAAR apply in the context of Pillar Two? The European Commission’s Direct Taxation Omnibus proposal of June 24, 2026, clarifies this issue in favor of application.[26] The Explanatory Memorandum states that the proposal ‘updates the wording of the GAAR to ensure that its scope is broad enough to encompass all direct taxes that companies are subject to, in particular to ensure that it applies to withholding taxes or top-up taxes resulting from the Directive (EU) 2022/2523’, and recital 38 acknowledges that the reference to corporate tax ‘has created uncertainty’.[27] The operative amendment is spare but significant: Article 6(1) Anti-Tax Avoidance Directive (ATAD) would henceforth apply ‘for the purposes of calculating the tax liability’ with the word ‘corporate’ being deleted. Two features of the amendment deserve emphasis:

• First, it is presented as clarification, not innovation;
• Second, because Article 6 ATAD sets a minimum level of protection, Member States will not merely be permitted but required to maintain a GAAR capable of disregarding non-genuine arrangements put in place for the main purpose, or one of the main purposes, of obtaining a top-up tax advantage that defeats the object or purpose of the minimum tax rules.

What To Expect From Future  Administrative Guidance

The SbS Package commits to developing ‘an anti-arbitrage rule that would apply under the main GloBE rules and any safe harbor’, aimed at arrangements that avoid top-up tax ‘by shifting GloBE Income and Covered Taxes between jurisdictions’.[28] This is a clear acknowledgement that a general integrity rule is coming to the full GloBE computations, not merely to the safe harbors. But what design may those rules have? In line with the preceding safe harbors rules, one should not expect a GloBE GAAR. Nothing in the SbS Package published work program points to that direction. Instead, the likelier trajectory is the steady migration of the safe harbor integrity concepts: deduction/non-inclusion, duplicate loss, duplicate tax recognition into the main GloBE rules as targeted, mechanical provisions, with purposive control potentially left to domestic law and, in the EU, to a GAAR whose reach is now been put beyond doubt. Taken together, these developments reveal a gradual broadening of the Pillar Two integrity framework beyond the original architecture of the GloBE rules.

Concluding Remarks

For MNE groups, the practical consequences flow from the layering of three distinct integrity regimes over the same facts: the targeted mechanical rules of the full computations, the eligibility-style integrity rules of the safe harbors, and (if the proposal is approved and at least in the EU) a purposive GAAR that may apply to Pillar Two. The following implications may follow:

Purpose and substance move back to center stage. The mechanical character of the GloBE rules encouraged a view of Pillar Two compliance as a data and computation exercise. The GAAR clarification may change the register: intra-group financing, restructurings, changes of accounting treatment, and safe harbor planning should be supported by contemporaneous evidence of commercial rationale, on the assumption that a main-purpose test may be overlaid on outcomes the mechanical rules would otherwise accept.

As regards the Simplified ETR safe harbor, a failure to satisfy the four principles that is not corrected by adjustment, costs the group the safe harbor for the tested jurisdiction, forcing full GloBE computations under time pressure. Groups should build hybrid-arbitrage and integrity-rule screening into their Pillar Two compliance processes rather than treating it as a transaction-time question bearing in mind that the GloBE Information Return gives administrations the data to detect mismatches across jurisdictions.

The prudent working assumption for MNE groups is that Pillar Two outcomes will increasingly be tested not only against the letter of the mechanical rules, but against the genuineness of the arrangements that produce them.

The OECD’s public consultation draft released on June 1, 2026, proposes revisions to Chapter VII of the OECD Transfer Pricing Guidelines relating to intra-group services. While the draft does not change the underlying arm’s length principle, it places greater emphasis on accurately delineating transactions, assessing the benefit received by the service recipient, and selecting the most appropriate transfer pricing method based on specific facts and circumstances rather than relying on a default cost-plus approach. It also clarifies the treatment of shareholder activities, duplicative services, and on-call arrangements. The draft further highlights enhanced documentation expectations, requiring taxpayers to maintain stronger contemporaneous evidence to support both the benefit test and the pricing adopted.

Overall, the proposed changes encourage multinational groups to reassess existing intra-group service arrangements to ensure that pricing outcomes are aligned with economic substance and supported by robust transfer pricing analyses. See A&M Tax Alert for additional insights.

The OECD launched a public consultation on June 15, 2026 [29], seeking feedback on targeted amendments to the Model Reporting Rules for Digital Platforms (MRDP). The proposals focus on implementation challenges identified through practical experience and include changes to reporting thresholds, key definitions, duplicative reporting obligations and intermediary arrangements.

In particular, the consultation proposes simplifying the exclusion for low-value goods transactions by removing the 30-activity threshold and increasing the reporting threshold from EUR 2,000 to EUR 3,000. The OECD is also seeking to clarify the definitions of ‘Platform’ and ‘Platform Operator’ to reduce interpretational uncertainty and promote a more consistent application of the rules across jurisdictions and business models. The consultation further proposes measures to address duplicative reporting where a seller is itself a Reporting Platform Operator, introducing a tailored reporting approach under which only identifying information and tax residency would be reported. In addition, the OECD is considering the introduction of a ‘Related Entity’ concept, which would treat certain group entities as Excluded Sellers and may allow platforms facilitating activities exclusively among such entities to qualify as Excluded Platform Operators. The consultation also explores amendments aimed at improving reporting outcomes where sellers act as intermediaries, including expanding the scope of the term ‘Platform Operator’ to capture certain intermediary entities that effectively provide sellers with access to a platform.

The proposals do not introduce immediate changes to the Model Rules; however, businesses may wish to monitor the consultation process and assess how any final amendments could affect their reporting and compliance obligations. The proposed amendments are targeted rather than transformative, but they signal a continued effort to balance tax transparency with proportionate and effective compliance obligations. Comments on the proposed amendments may be submitted until August 14, 2026. See the editorial section of the A&M Tax Policy Insights - June 2026, for detailed analysis.

Tax developments across North America in Q2 2026 continued to focus on tax administration and compliance, with significant attention to cross-border taxation and individual taxation and wealth. In the US, developments centered around targeted Treasury and Internal Revenue Service (IRS) guidance, state-level conformity measures, continued narrowing of Public Law 86-272 protections, and ongoing uncertainty relating to trade and tariff developments. In Canada, developments focused on the implementation of new transfer pricing rules, the rescission of the Digital Services Tax, and updates to the GST/Harmonized Sales Tax (HST) treatment of mutual fund trailing commissions. In Mexico, policymakers proposed measures targeting wealth, inheritances, trusts, and tax residence, which signaled a potential expansion of the tax base, while procedural reforms sought to strengthen tax administration and dispute resolution. Overall, the quarter reflected a regional trend toward strengthening compliance and administration frameworks while increasing focus on cross-border arrangements and high-value taxpayers.

US

Key Policy Update in Q2:

• Business Taxes:
  • While Congress enacted non-tax legislation through the budget reconciliation process, the possibility of another budget reconciliation bill before mid-term elections, potentially with tax provisions, seems increasingly unlikely. Republicans remain divided on whether to pursue additional legislation and face a limited congressional calendar and competing priorities, including the fiscal year 2027 government funding deadline of September 30. Policymakers continue to express interest in bipartisan tax legislation, including digital asset taxation and tax administration reforms, though timing remains unclear.
  • Treasury and IRS issued limited guidance during the second quarter, primarily addressing compliance burdens and targeted relief, rather than sweeping changes affecting federal income taxes. New proposed regulations would provide important transition relief for 2025 proposed Section 892 rules, delaying application of rules affecting exemption of certain investment income of sovereign wealth funds and preserving existing treatment for prior investments. Final partnership reporting regulations for ‘hot asset’ transactions ease administrative burdens, while conservation easement settlement opportunities aim to resolve disputes and potentially offer more favorable results than litigation.
  • State jurisdictions continued to address conformity with the Internal Revenue Code, with some enacting legislation to temporarily suspend or decouple from certain One Big Beautiful Bill Act (OBBBA) provisions, including expensing of domestic R&E costs, business interest expense limitations, and bonus depreciation. See A&M Tax Alert for state updates during Q2.
  • States also continued to narrow protections under Public Law 86-272, which limits state net income tax when in-state activity is limited to soliciting sales of tangible personal property. Courts and tax authorities in California, Illinois, and Maine found that market-intelligence activities, inventory storage, or in-state ownership of goods exceed these protections, while a New York appellate court upheld a more expansive interpretation of activities subject to state income tax (held not pre-empted by federal). See A&M Tax Alert for additional insights.
• Personal Taxes:
  • More states enacted legislation to increase taxes on high-income earners through new ‘millionaire’s taxes,’ though approaches varied. Hawaii created a 13% top rate on income above $1 million, while Rhode Island approved a phased-in 3% surtax and Maine a 2% surcharge. California voters will consider a November 2026 ballot initiative proposing a one-time 5% wealth tax on billionaires.
  • The US Treasury has officially launched the app for contributing to Trump Accounts, the new child savings accounts created under Internal Revenue Code (IRC) Section 530A by the OBBBA. Ahead of the launch, the IRS issued Revenue Procedure 2026-25, establishing a gift tax safe harbor under which qualifying contributions are treated as present-interest gifts eligible for the annual gift tax exclusion without requiring a gift tax return. However, the relief is limited and generally unavailable to taxpayers otherwise required to file Form 709. Uncertainty also remains regarding state conformity, creating potential state tax consequences that could affect the accounts’ overall benefits. See A&M Tax Alert for additional insights.
• Indirect Taxes:
  • US trade and tariff developments remained a significant source of uncertainty during the quarter. The Administration modified Section 232 tariff measures and advanced proposed Section 301 actions targeting certain imports. Separately, the Court of International Trade (CIT) invalidated the Administration’s global tariffs under Section 122, with relief limited to the importer plaintiffs, and the appellate court stayed the CIT’s order.
  • Uncertainty also persists with respect to refunds for tariffs imposed under the International Emergency Economic Powers Act (IEEPA), which were held invalid by the US Supreme Court. While US Customs and Border Protection (CBP) has begun processing ‘Phase 1’ refund claims, uncertainty remains regarding the timing and scope of later phases, particularly for finally liquidated entries. The Administration has appealed the CIT’s universal orders requiring refunds to all importers and has taken the position that CBP lacks authority to refund duties on finally liquidated entries absent a court order. As a result, importers may need to file claims with the CIT to preserve their refund rights.
  • Customs enforcement activity remains elevated, with increased focus on duty underpayment cases. Coordination between CBP and the Department of Justice has intensified, particularly in classification, valuation, and country-of-origin determinations. As a result, routine audits and customs inquiries and notices are more likely to escalate into formal enforcement actions, including penalties, civil fraud liability, and litigation, increasing financial and compliance risk for importers.
• Key Controversy Issues in Q2:
  • Controversy will continue regarding the IRS’s application of the economic substance doctrine codified under Section 7701. In April, the US Court of Appeals for the Tenth Circuit, in Liberty Global Inc. v. United States, affirmed the district court’s decision, concluding that the economic substance doctrine can invalidate a multi-step transaction designed to generate substantial tax benefits, even where the transaction technically complies with the IRC. The court’s decision supports a broad application of the economic substance doctrine and highlights the need for contemporaneous documentation of non-tax business purposes for multi-step transactions.

Canada

Key Policy Update in Q2:

• Corporate Taxes:
  • The new transfer pricing rules introduced in the 2025 federal budget are in effect for 2026 calendar year taxpayers (applies to taxation years beginning after November 4, 2025). Following the unsuccessful challenge of the taxpayer’s transfer pricing approach in Cameco Corporation v. HMQ (2020 FCA 112), the department of finance first released a consultation paper in 2023 and identified an overreliance on legal form and lack of consideration for the economically relevant characteristics as shortcomings of the existing transfer pricing legislation. The changes now implemented remove the statutory distinction between a ‘pricing adjustment’ and a ‘recharacterization,’ replacing it with an OECD-aligned adjustment framework that focuses on the conduct of the parties and the actual conditions of the transaction(s). Further, there are a number of administrative and compliance related changes that include shortening the timing for providing transfer pricing documentation to 30 days, and other information gathering powers of the Canada Revenue Agency (CRA). Overall, it is likely that audit challenges to transfer pricing arrangements will be increased under the updated transfer pricing regime and are likely to be followed by a new round of transfer pricing cases in the Tax Court of Canada.
  • The Digital Services Tax (DST) under the Digital Services Tax Act, which applied at a rate of 3% on revenues earned by large businesses from certain digital services provided to Canadian users, has been fully rescinded effective retroactively to June 20, 2024. Amounts previously remitted to the CRA are generally refundable with interest.
• Personal Taxes:
  • Starting July 1, 2025, the lowest individual income tax rate is reduced from 15% to 14%. Applicable to the first C$58,523 of taxable income, depending on the taxpayer’s basic personal amount (the first C$16,452 (or a portion there of) of taxable income is not subject to tax for taxpayers with net income of C$181,440 or less, but is phased out after that becoming nil over C$258,482), this may result in tax savings of approximately C$400 for taxpayers with the full basic personal amount.
• Indirect Taxes:
  • The CRA has reversed its longstanding position and will now treat mutual fund trailing commissions—fees paid by fund managers to dealers for ongoing client servicing and support after the initial sale—as taxable supplies for GST/HST purposes, effective January 1, 2028. This reversal follows a period of industry consultation and represents a material change for participants in the investment fund distribution chain.
  • The federal carbon fuel charge under the Greenhouse Gas Pollution Pricing Act was removed effective April 1, 2025, with related registration and filing obligations ceasing at that time. Separately, federal excise taxes on gasoline, diesel, and aviation fuel under the Excise Tax Act have been temporarily reduced to zero from April 20, 2026, to September 7, 2026, as a short-term measure to address fuel price pressures caused by global oil disruptions.

Key Controversy Issues in Q2:

• On April 21, 2026, the taxpayer filed application for leave to appeal with the Supreme Court of Canada (SCC) in the case of DAC Investment Holdings Inc. v. His Majesty the King. The Federal Court of Appeal overturned the decision of the Tax Court of Canada (TCC) finding that the GAAR in the Income Tax Act (Canada) (the ITA) applied to the continuance of the Respondent in the British Virgin Islands (BVI) that resulted in the taxpayer no longer being a Canadian-controlled private corporation (CCPC) prior to a disposal of shares with an accrued gain. The continuance of DAC Investment Holdings Inc. (DAC) to the BVI was used to circumvent anti-deferral measures but was unlikely to result in an overall reduction of tax payable on the disposition of shares by the continued company once the proceeds were distributed to the shareholders. Although such planning was effectively curtailed by a legislative change in 2022, it was common sell-side tax planning by closely held Canadian vendors for M&A transactions where the purchaser was not a public or non-resident company. The result of the application of the GAAR is that the anti-deferral provisions that were rendered ineffective in the transaction were able to apply to the subsequent share sale by the taxpayer. The appeal to the SCC is not of right, and leave must be granted by the court. It is unclear whether the SCC will hear the case having recently decided a number of cases under the GAAR. However, the divergent approach and reasoning of the lower courts may be rationale for the court to address the uncertainty created.

Mexico

Key Policy Update in Q2:

• Corporate Taxes:
  • In mid‑May, a bill was proposed (Proposed Reform) in the Senate of the Republic to amend the Income Tax Law (LISR), the Social Security Law, the Value Added Tax Law (LIVA), and the Fiscal Coordination Law, to tax wealth and large inheritances. This is not the first time legislative proposals have attempted to tax these objects. However, this initiative includes some elements that had not been previously contemplated. This initiative must be discussed and, where appropriate, approved by the Congress as part of the legislative process applicable to new taxes and federal laws in Mexico. The Proposed Reform indicates that the taxes collected under the initiative would be used for the universalization of social security under the Mexican Social Security Institute (IMSS), as well as for a Sustainability and Care Fund. Transitory provisions contemplate certain operating rules under which the Tax Administration Service (SAT) and the IMSS must make the necessary adjustments to modify their internal regulations to be in accordance with the Proposed Reform.
  • The Proposed Reform included the creation of an Exit Tax applicable to legal entities resident in Mexico. A 20% tax is established on the difference between the market value and the tax cost of all the company’s assets at the time of the change of tax residence. This applies to shares, securities, real estate, and other assets held by the company in question.
• Personal Taxes:
  • The Proposed Reform intends to eliminate the absolute tax exemption currently regulated for inheritances and legacies and to introduce a progressive tax for individual inheritances greater than $14 million MXP. The tax would be withheld at the time of adjudication and would be considered a final tax payment that would not be deductible or creditable against Annual Income Tax (ISR). Inheritances and legacies under $14 million pesos would remain exempt from ISR in Mexico. The Proposed Reform also included the creation of an Exit Tax applicable to individuals resident in Mexico at the rate of 15% on average of 3 last years’ taxable base. No tax benefits will be allowed after the change of residence in Mexico.

  • The Proposed Reform includes the creation of a chapter in the LISR to impose a tax regarding contributions to, and movements related to trusts that do not have business activity and that are used for estate purposes.

    • Upon establishing trust
      • The Trustee Institution must pay ISR of 6% of the total value of the assets and rights contributed to the trust, provided that such value exceeds $14 million MXP.
      • The Trustor pays ISR of 8% as a one‑time payment on the total value of the assets and rights contemplated in the trust being created.
    • Beneficiaries
      • Pay ISR of 6% at the time they are designated.
      • Pay an annual ISR of 6% on the updated value of the trust’s assets.
    • Upon termination of the trust
      • The beneficiary pays 6% ISR on the corresponding updated value.
    • Foreign trusts with links to Mexico
      • Must pay ISR of 8% initially and 6% in subsequent years, both on the total value of the trust or similar arrangements.
      • There are links with Mexico when the assets, rights, or assets in general are within Mexico, as well as when persons similar to beneficiaries or trustors are residents for tax purposes in Mexico.

    It is established that those trusts related to authorized charities or for dwelling purposes are excepted from this provision.

  • As part of the Proposed Reform, creation of a new ISR was also proposed to tax wealth based on its net value (assets minus liabilities), provided it exceeds $100 million MXP, with rates ranging from 1% to 6%. This new tax includes assets such as real estate, luxury vehicles, aircraft and vessels, financial investments, intangibles, works of art, among others. It is worth noting that the SAT will determine the asset value and the taxpayer will have the right to challenge this determination.
• Indirect Taxes:
  • In terms of Value Added Tax (IVA), the Proposed Reform on wealth and large inheritances introduces an additional annual tax of 2% on the market value of the following goods:
    • Private aircraft (>2,000 kg);
    • Private helicopters;
    • Automobiles (>$2 million MXP);
    • Yachts (>12 meters in length);
    • Heavy residential and vehicle armoring.

The Proposed Reform indicates that this tax would apply regardless of the place of registration, if there is a nexus with Mexico, as proposed to be defined through criteria such as domicile and nationality, among others.

Key Controversy Issues in Q2:

• The Decree published on June 9, 2026, reforms the Federal Law of Administrative Contentious Procedure by introducing express deadlines for procedural actions that previously had none (with administrative liability for the judge’s noncompliance). With reference to the summary trial, it would proceed if the case file does not exceed 30 UMA (Unit of Measurement and Update) multiplied by the year (~MXP 1.2 million, an increase of nearly 50% over the prior threshold) and brings resolutions on refund requests within the scope of this route. The Decree also raises the admissibility threshold for the fiscal review appeal to 27,000 UMA (~MXP 3 million) while simultaneously expanding its admissibility to resolutions annulling an act of authority on procedural grounds (previously not admissible). Finally, the Decree amends the stay-of-execution regime by eliminating the hard-to-repair damage standard and clarifying the concepts of harm to the public interest and contravention of public policy provisions. It should be noted that the Decree has different effective dates.

Tax policy developments across the UK and Europe in Q2 2026 reflected a continued focus on tax administration, cross-border reporting obligations and the implementation of OECD and European Union (EU) driven initiatives. In the UK, developments centered on enhancing tax certainty, advance assurance initiatives, expanded reporting requirements for cross-border and related-party transactions, and broader reforms aimed at modernizing tax administration and compliance processes. Across Europe, jurisdictions continued to progress Pillar Two implementation and reporting frameworks, advanced e-invoicing, e-reporting and digital tax administration measures, alongside reforms relating to transfer pricing, cross-border transactions and tax transparency. Legislative developments, judicial decisions and administrative guidance also played an important role in clarifying the operation of existing tax rules, treaty provisions and anti-avoidance measures. Overall, the quarter reflected a continued trend toward greater tax transparency, enhanced reporting and compliance obligations, and the operationalization of international tax frameworks across the region.

UK

Key Policy Updates in Q2:

• Corporate Taxes:
  • His Majesty’s Revenue and Customs (HMRC) has published a guidance detailing the application process for small and medium-sized enterprises (SMEs) seeking to use the new targeted advance assurance scheme for research and development (R&D) tax relief claims. The process allows eligible SMEs to obtain upfront clarity from HMRC on up to two specific complex or high-risk aspects of a prospective R&D claim, rather than the entire claim. Eligibility is restricted to SMEs carrying out, or planning to carry out, R&D activities in the accounting period for which assurance is requested, that have not yet claimed R&D tax relief for that period and have not already received assurance on the same aspects. Applications may be lodged by the SME or its agent through online portal, with each application covering a single project and a single area of R&D relief. Assurance does not substitute for the formal R&D claim in the tax return, and the existing full advance assurance scheme continues in parallel. The scheme enables SMEs to secure upfront certainty on high-risk elements, mitigating enquiry risk while necessitating earlier evaluation and stronger documentation of eligibility positions.
  • HMRC has issued guidance on the full claim advance assurance service for first-time R&D tax relief claims by SMEs, complementing the recently announced targeted advance assurance pilot. The service provides eligible SMEs with upfront clarity from HMRC on their first R&D claim, with the assurance capable of covering up to three accounting periods. Eligibility is restricted to SMEs that are claiming R&D tax relief for the first time, have a turnover below GBP 2 million and fewer than 50 employees, and are carrying out or planning R&D activities but have not yet submitted an R&D tax relief. Where the company is part of a group, neither the company nor any of its linked companies must have claimed R&D tax relief before. Applications may be lodged by the company or its agent and require company accounts, Companies House registration documents, prior HMRC correspondence on the application, Company Tax Returns (if any), and a main contact with direct knowledge of the R&D activities, costs and technological uncertainties. SMEs approaching their first R&D claim should consider using the service to de-risk eligibility positions and reduce enquiry exposure.
  • HMRC issued guidance aligning with the OECD’s transitional approach to filing of Pillar Two Global Information Returns (GIR), addressing the practical risk that fully operational filing portals or exchange relationships may not yet be in place when the first GIR filing deadlines fall due. The guidance follows an OECD paper articulating a common understanding among implementing jurisdictions, under which participating jurisdictions agree to waive penalties or suspend enforcement of local GIR filing obligations where the GIR has been centrally filed elsewhere in the network. HMRC has confirmed it will apply the transitional approach for GIR filing deadlines falling no later than December 31, 2026. Where a multinational enterprise (MNE) group’s GIR is centrally filed in one of the listed participating Pillar Two jurisdictions, and that information is received by HMRC from the foreign authority within six months of the filing deadline, HMRC will not require a separate local UK filing and will reduce certain associated penalties to nil. As a condition, the group must still submit its Overseas Return Notification (ORN) to HMRC on time. Groups subject to UK Global Anti-Base Erosion (GloBE) rules should identify the central filing jurisdiction, ensure timely ORN submission, and document the central filing and exchange chain to support reliance on the easement.
  • HMRC has published guidance on May 12, 2026, on the new Advance Tax Certainty Service, scheduled to launch on July 1, 2026. The service is designed to provide upfront tax clearance to businesses planning major UK investment projects and is available to applicants that will incur at least GBP 1 billion in qualifying expenditure in the UK over the lifetime of the project. Clearance can cover uncertainties spanning corporation tax, value added tax, stamp duty, stamp duty land tax, income tax, the pay as you earn (PAYE) regulations, and the construction industry scheme, providing a single-window route to certainty across the principal taxes touching a large capital investment. The service does not cover matters subject to transfer pricing rules, for which the existing Advance Pricing Agreement program remains the appropriate channel. HMRC will offer applicants an early pre-application meeting to scope uncertainties and aims to issue clearance within 90 days of formal submission. Multinationals and infrastructure investors planning UK projects above the GBP 1 billion threshold should begin scoping tax uncertainty maps and engaging with HMRC early to secure clearances ahead of investment commitments.
  • On May 21, 2026, the UK government announced changes to the taxation of UK-resident companies with foreign permanent establishments (PEs). Currently, companies may elect for an exemption so that the profits of foreign PEs are excluded from UK corporation tax, although this election is optional and can affect the treatment of related foreign PE losses. Under the revised rules, the exemption will become mandatory, meaning profits and losses attributable to foreign PEs will be automatically excluded from UK tax for accounting periods beginning on or after January 1, 2027. For UK companies engaged in oil and gas exploration or extraction through foreign PEs, the changes will take effect earlier, from September 1, 2026, with a deemed year-end of August 31, 2026, to facilitate transition into the new regime. The reform is intended to prevent foreign PE losses from being used to offset UK taxable profits while maintaining the exclusion of foreign PE profits from the UK tax base. The reform is supported by transitional provisions and anti-avoidance measures designed to prevent manipulation of historic losses.
  • HMRC launched a technical consultation on a proposed International Controlled Transactions Schedule (ICTS), which would require in-scope MNE groups to report details of their cross-border related-party transactions. The proposal follows the UK Budget 2025 announcement granting HMRC the power to introduce regulations requiring in-scope MNE groups to submit ICTS reports. The new reporting requirement is expected to apply to accounting periods beginning on or after January 1, 2027. Under the draft rules, taxpayers would be required to provide standardized information on cross-border related-party transactions. HMRC expects the additional data will improve its ability to identify transfer pricing risks more accurately and streamline related tax enquiries. The consultation seeks feedback on the draft regulations, reporting requirements, and a proposed reporting template. HMRC also invited stakeholders to suggest ways to achieve greater tax transparency while minimizing compliance burdens. The consultation, with a submission deadline of July 31, 2026, signals increased transfer pricing reporting obligations for multinational groups and reflects HMRC’s focus on risk-based scrutiny of cross-border related-party transactions.
  • HMRC has launched a consultation on potential double taxation issues faced by UK-resident individuals who invest through US Limited Liability Companies (LLCs) and other reverse hybrid entities. The consultation addresses situations where an entity is treated differently for tax purposes across jurisdictions. A reverse hybrid arises where an entity is treated as tax transparent in its home jurisdiction but tax opaque in another country. Such classification mismatches can result in the same income being taxed more than once, creating unintended tax burdens for investors and businesses. HMRC is seeking evidence on the extent of these issues and views on possible legislative changes to reduce or eliminate cases of double taxation arising from mismatched tax treatment of hybrid and reverse hybrid entities. The consultation with a submission deadline of July 31, 2026, will help shape potential reforms aimed at improving the UK tax treatment of investments made through such entities.
  • HMRC has updated its Capital Gains Manual with new guidance on the anti-avoidance provisions applicable to share exchanges, company reconstructions, certain business transfers and collective investment scheme reorganizations. The changes apply from November 26, 2025, and were enacted through the Finance Act 2026. A new appendix (CG-APP20) has been introduced, replacing most of the temporary guidance previously contained in CG-APP19. The updated guidance explains the operation of the revised anti-avoidance provisions under the Taxation of Chargeable Gains Act 1992 (TCGA 1992), including provisions affecting share exchanges, company reconstructions, collective investment scheme reorganizations and reconstruction-related business transfers. HMRC clarifies that the rules may restrict the availability of no gain/no loss or no disposal capital gains tax treatment where transactions are undertaken for tax avoidance purposes. The guidance also notes that simply deferring a tax liability does not, by itself, constitute tax avoidance. This follows measures announced in the Autumn Budget 2025 aimed at strengthening HMRC’s powers to tackle tax avoidance.
  • The UK government has unveiled a series of measures aimed at modernizing business tax administration and improving compliance processes. The proposals include consultations on PAYE Settlement Agreements, online marketplace VAT liability, the VAT Option to Tax regime, and the tax treatment of US LLCs and other reverse hybrid entities. The package also outlines plans to simplify customs and duties procedures and enhance HMRC’s tax administration and collection capabilities. These initiatives form part of the government’s wider agenda to create a more efficient and streamlined tax system for businesses.
  • On June 23, 2026, the HMRC launched a consultation, open until August 16, 2026, on introducing a new criminal offence for making reckless untrue statements or declarations in relation to direct taxes, including income tax, corporation tax and capital gains tax. The proposal aims to align the direct tax regime with existing offences for indirect taxes, providing a consistent enforcement framework across tax types. If introduced, the new offence would enable prosecutors to pursue cases where reckless conduct can be established even if dishonesty cannot be proven, while retaining existing fraud offences for deliberate tax evasion. Following the consultation, HMRC intends to publish a summary of responses together with any draft legislation.
• Personal Taxes:
  • HMRC published Self-Assessment Help sheet HS266 on April 6, 2026, providing detailed guidance on the foreign income and gains (FIG) regime that replaced the remittance basis from April 6, 2025. Anchored in tax residence under the Statutory Residence Test rather than domicile, the FIG regime allows qualifying new residents to claim relief on qualifying foreign income and gains during their first four years of UK residence; members of the House of Commons and House of Lords are excluded. Claims are made via the SA109 pages of the self-assessment return, with a time limit running to the January 31 anniversary following the end of the relevant tax year. The guidance flags significant collateral consequences: claimants forfeit the personal allowance, capital gains tax-exempt amount, blind person’s allowance, and married couple/civil partner reductions, cannot claim foreign tax credit relief, and may see pension contribution relief restricted. Foreign income and capital losses for the claim year are also unavailable. New arrivals should weigh the relief carefully against lost allowances before electing in.
  • HMRC has published draft regulations for consultation to operationalize the new inheritance tax (IHT) charge on unused pension funds, building on the primary legislation enacted in Part 2 of the Finance Act 2026 (which received Royal Assent in March 2026) and the earlier technical note. The IHT extension, taking effect from April 6, 2027, brings undrawn pension wealth within the scope of IHT on death, ending the long-standing inheritance-friendly treatment of unspent pension pots and aligning pensions more closely with other estate assets. The draft Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2026, published on May 18, 2026, amend the information-sharing framework between scheme administrators, HMRC, personal representatives, and beneficiaries. The regulations specify reportable pension fund amounts and require administrators to report where they settle IHT on behalf of personal representatives or beneficiaries. The consultation closed on June 11, 2026. Administrators, personal representatives, independent financial advisers, and estate planners should review their data collection and reporting workflows. Individuals may also need to revisit estate plans that assumed pensions would fall outside the IHT net.
  • HMRC has published a technical note providing additional detail on the IHT regime that will apply to pensions from April 6, 2027, building on the Finance Act 2026. Most unused pension funds and death benefits, designated as notional pension property will be brought within the scope of IHT, ending the inheritance-friendly treatment of unspent pension wealth and aligning pensions with other estate assets. The note sets out the core operating principles, including the timing of the vesting of notional pension property and when IHT arises, the persons liable to report and pay, estate administration mechanics, the role of personal representative, pension schemes within scope, and the valuation rules for qualifying non-UK schemes and section 615(3) schemes. It also covers excluded benefits, exempt beneficiaries, residency, situs, information-sharing, and the withholding and payment notice mechanism. HMRC’s manuals will be updated by April 2027. Estate planners, scheme administrators and high-net-worth individuals should reassess pension-based wealth transfer strategies and prepare for the new reporting obligations.
  • The UK government has announced reforms intended to simplify the tax and savings landscape for individuals. Key measures include proposals to introduce more timely self-assessment tax payments, a simplified Individual Savings Account (ISA) for first-time homebuyers, and changes to the Help to Save scheme aimed at improving accessibility. The reforms are intended to make the tax system easier to navigate for individuals while supporting savings and improving the overall taxpayer experience.
  • HMRC has published draft legislation proposing changes to the capital gains tax gift holdover relief rules for certain business asset transfers. The proposed reforms will affect individuals gifting shares or securities in a trading company or the holding company of a trading group, where the company is the individual’s personal company or the shares are unlisted. Under the proposed rules, gift holdover relief may be restricted when the gifted assets qualify for the Substantial Shareholding Exemption (SSE) or fall within the Intangible Fixed Assets (IFA) regime, if the company’s assets are not used in the company’s or group’s trading activities. The measure follows the broader tax modernization agenda and is intended to restore the level of relief available prior to the introduction of the SSE and IFA regimes. This legislation, published on June 23, 2026, is expected to be included in the Finance Bill 2026 and will take effect from April 6, 2027. These changes could limit the gift holdover relief in structures holding significant non-trading assets.
• Indirect Taxes:
  • HMRC issued fresh guidance on April 1, 2026, clarifying how intermediaries can register to act for clients under the VAT Import One-Stop Shop (IOSS) scheme. The IOSS allows e-commerce sellers of imported low-value goods (not exceeding EUR 150 or GBP 135) destined for consumers in the EU and Northern Ireland to account for VAT through a single registration, rather than registering in each Member State. Non-EU sellers must access the scheme via an EU intermediary. An agent seeking to act as an IOSS intermediary must hold a UK VAT registration and maintain a business address in Northern Ireland, register for IOSS, and then enroll each client it represents, handling VAT reporting and payment on the client’s behalf. An intermediary can hold only one IOSS registration, so any equivalent registration in another EU Member State must be cancelled first; previously excluded intermediaries are subject to a two-year cooling-off period before reapplying. The guidance enables non-EU sellers to streamline VAT compliance through centralized reporting while requiring careful structuring of intermediary arrangements and registration positions.
  • In July 2026, HMRC published an updated Carbon Border Adjustment Mechanism (CBAM) Policy Summary and laid several sets of secondary legislation covering administrative provisions, CBAM rates and carbon price relief, and transitional provisions. However, the draft Carbon Border Adjustment Mechanism (Emissions and Verification) Regulations 2026 remain subject to finalization, with the government expected to lay the final regulations later in 2026 following its review of consultation responses. HMRC has also indicated that further guidance on monitoring, verifying and reporting actual emissions will be published later in 2026. UK importers of CBAM-scope goods, overseas producers, and accredited verifiers should therefore continue to monitor developments and assess their readiness for the emissions data, verification and record-keeping requirements ahead of the January 1, 2027, implementation date.

Key Controversy Issues in Q2:

• The First-tier Tribunal (Tax Chamber) has allowed HMRC’s application for a penalty against Tailored UK Services Limited (in liquidation) for failing to notify tax avoidance arrangements under the Disclosure of Tax Avoidance Schemes (DOTAS) regime. The company had promoted notifiable arrangements known as the ‘enhanced umbrella scheme’, which should have been disclosed to HMRC by August 25, 2017, but were not notified until June 14, 2022, when the liquidators made the disclosure. The Tribunal confirmed the arrangements were notifiable within section 306(1) of the Finance Act 2004 (FA 2004), consistent with the earlier DOTAS decision of May 6, 2022, and that the company had breached its section 308 FA 2004 obligation to notify HMRC within the prescribed five-day period. The reasonable excuse defense was rejected: neither the pre-liquidation directors nor the liquidators had acted as responsible traders who were alert to their DOTAS obligations. The penalty application was confirmed as made within the six-year limitation period in section 103(4) of the Taxes Management Act 1970. The decision reinforces heightened enforcement of DOTAS obligations and the importance for corporates of systems to identify and disclose notifiable arrangements within prescribed timelines.
• In Holiday Booking Management Ltd v HMRC, the First-tier Tribunal rejected HMRC’s application to strike out the taxpayer’s appeal against a reduction in a VAT repayment. HMRC argued that the change was simply a VAT credit adjustment and fell outside the statutory assessment framework. However, the Tribunal held that HMRC had not clearly established that the assessment provisions were irrelevant, noting in particular that the relevant provision merely defines a VAT credit without prescribing a procedural mechanism for adjustments. In the absence of clear legislative support or settled case law confirming HMRC’s position, the Tribunal held that the taxpayer had a reasonably arguable case that the decision could fall within the assessment regime and therefore allowed the appeal to proceed.
• In Panayi and Redevco v HMRC [2026] EWCA Civ 744, the UK Court of Appeal ruled that taxpayers subject to UK exit tax can discharge the liability in five equal annual installments, ensuring compliance with the EU principle of freedom of establishment. The case involved trustees of the Panayi settlements and Redevco Properties, both of whom transferred their tax residence from the UK to other EU countries before Brexit. Under UK law, relocating abroad triggered deemed disposals of assets, creating immediate capital gains and corporation tax liabilities. The taxpayers argued that these rules restricted their EU rights. While the Court affirmed the UK’s right to tax gains accrued during UK residence, it found that the legislation lacked a mechanism to defer payment in line with EU law. To address this, it interpreted the legislation as allowing payment over five annual installments, drawing on earlier EU case law that considered such a payment schedule as proportionate. The Court rejected the argument of deferring tax until actual sale of assets. Except for a limited issue concerning interest in the Redevco case, the appeals were dismissed. The decision confirms that UK courts may interpret domestic tax laws to ensure compatibility with EU legal principles.
• In Lifeplus Europe Ltd v HMRC [2026] UKFTT 797 (TC), the First-tier Tribunal held that HMRC could not require a UK subsidiary to produce its US parent company’s financial statements as part of a transfer pricing enquiry. Although HMRC had already received extensive information during the enquiry, it sought the parent company’s accounts without demonstrating a rational connection between those documents and the transfer pricing issue under review. The Tribunal also found that the UK subsidiary had neither the legal right nor the practical ability to obtain the documents, noting that HMRC’s own request for the same information from the US Internal Revenue Service had been refused. The decision confirms that HMRC’s information gathering notices must be proportionate, reasonably required to verify the UK tax position, and cannot extend to documents held by overseas group companies without a sufficient legal basis or practical ability to obtain them.
• In HMRC v HFFX LLP [2026] UKSC 17, the UK Supreme Court considered tax treatment of a hybrid Limited Liability Partnership (LLP) structure under which a significant share of trading profits was allocated to a corporate member, which later distributed value to individual members through deferred capital allocations subject to performance and other conditions. The Court rejected HMRC’s argument that the profits should instead be taxed directly on the individual members, confirming that partnership profits must be allocated according to the partners’ legal rights in the relevant accounting period. However, it held that the deferred amounts subsequently received by the individual members were taxable as income under section 687 of the Income Tax (Trading and Other Income) Act 2005, as the LLP agreement and capital allocation mechanism together constituted a taxable source of income. The decision confirms that in hybrid LLP structures, while contractual profit allocations to corporate members will generally be respected, deferred remuneration paid to individual members may still be subject to income tax when received. The ruling is expected to resolve several outstanding issues relating to such hybrid LLP structures.

Belgium

Key Policy Updates in Q2:

• Corporate Taxes:
  • Belgium’s Lower House is examining an opposition-sponsored bill to introduce a Digital Services Tax (DST) with effect from January 1, 2027. The proposal targets multinational enterprises whose global consolidated revenues exceed EUR 750 million and whose domestic revenues sourced in Belgium exceed EUR 3 million, broadly aligning the scope thresholds with the OECD Pillar One/EU DST template that has shaped similar regimes elsewhere in Europe. The tax would be charged at a 3% rate on gross revenues derived from specified digital activities, including online advertising, digital intermediation services, and the use or sale of data generated by users located in Belgium. Affected taxpayers would be required to file a dedicated DST return and settle the resulting liability within three months after the close of the financial year, creating a discrete compliance workstream distinct from corporate income tax cycles. Multinational digital businesses with Belgian-user-facing revenues should map current revenue streams to the three covered categories, model the potential 3% gross-basis exposure, and monitor parliamentary progression closely.
• Personal Taxes:
  • Belgium has enacted new legislation introducing a tax on capital gains realized on shares and cryptocurrencies, with rates ranging from 1.25% to 10%. The law also introduces a 10% withholding tax on certain financial instruments and insurance products. Both elements apply retroactively from January 1, 2026, with the legislation published in the Official Gazette on April 21, 2026. Individual investors, family offices and intermediaries should review portfolio acquisition values, model gain calculations under the applicable rate bands, and verify whether to engage with the optional withholding mechanism or the opt-out and voluntary payment routes introduced alongside the substantive charge. Operationally, system and reporting changes will be required to capture the new withholding and annual statement obligations associated with the regime.
  • Belgium has issued Royal Decrees implementing key administrative aspects of the new capital gains tax regime on shares, other financial assets and crypto-assets applicable from 2026. The measures clarify the operation of the withholding tax system, including procedures for claiming credits or refunds through the individual tax return where exemptions, higher acquisition values or capital losses are taken into account. The Decrees also introduced documentation retention requirements, reporting obligations for certain intermediaries, compliance procedures for the exit tax deferral regime, and detailed rules governing the optional withholding tax opt-out and voluntary payment mechanisms. Taxpayers electing out of withholding will be subject to annual reporting obligations, while transitional elections and voluntary payment arrangements apply for gains realized during 2026. The measures generally take effect from June 1, 2026, with certain reporting and exit tax provisions applying from April 16, 2026. Investors, intermediaries and affected taxpayers should review reporting, documentation and withholding processes to ensure compliance with the new regime.
• Indirect Taxes:
  • Belgium has amended its VAT treatment of deemed supplies of own goods to bring domestic practice into line with the Court of Justice of the European Union (CJEU) judgment in CHEP Equipment Pooling (Case C-242/19). Under Article 12bis(2)(5) of the VAT Code, the dispatch or transport of tangible movable property by or on behalf of a taxable person from Belgium to another EU Member State is not regarded as a transfer of goods within Article 12bis(1), provided that the goods are intended for temporary use in the destination Member State for services supplied by the taxable person established in Belgium. The tax authorities had read this exception broadly, allowing taxable persons not established in Belgium but holding a Belgian VAT identification to rely on the non-transfer treatment, an approach the ECJ judgment treats as incompatible with EU law. The non-transfer treatment now applies only where three cumulative conditions are met: the goods are used in another Member State by the Belgium-established taxable person to provide specific services within a reasonable period, the goods belong to that taxable person, and the goods are returned to Belgium after temporary use.

Key Controversy Issues in Q2:

• No key controversy update.

Spain

Key Policy Updates in Q2:

• Corporate Taxes:
  • On May 7, 2026, Order HAC/529/2026 was published in Spain, approving the corporate income tax forms applicable to tax periods beginning between January 1 and December 31, 2025. In addition, new formal obligations linked to the new Complementary Tax (Pillar Two) have been approved, with filing deadlines generally set as follows: Forms 240 and 241 before June 30, 2026, and Form 242 by July 27, 2026. Overall, these updates reflect an increasingly complex compliance environment for Corporate Taxes in FY2025
  • On June 27, 2026, Spain published Order HAC/649/2026, updating the list of non-cooperative jurisdictions and harmful tax regimes for Spanish tax purposes in line with international standards. The main changes include the removal of Barbados, Dominica, Gibraltar, Seychelles and Trinidad and Tobago from the list, as well as the removal of Samoa’s offshore business regime. Conversely, Spain has added the Russian international holding companies regime, although this change will only become effective six months after publication. From a practical perspective, these changes may affect taxpayers with investments, financing arrangements or transactions involving the jurisdictions concerned, as the classification as a non-cooperative jurisdiction may impact on the availability of certain tax benefits and trigger enhanced reporting obligations. The new list generally applies from June 28, 2026, while the Russian regime will only be included from December 2026. Importantly, a transitional rule ensures that tax periods already underway when the Order entered into force will continue to be governed by the previous list, avoiding any retroactive effects.
  • On June 23, 2026, Spain approved new reporting requirements affecting the Non-Resident Income Tax (NRIT) returns, particularly Forms 210 and 296, which will require taxpayers, withholding agents and financial institutions to provide significantly more detailed information. The most relevant practical changes include:
    • Enhanced reporting of dividend income, requiring each dividend payment to be reported separately and introducing new identification fields (e.g. ISIN, LEI and market codes).
    • Additional information requirements for Spanish real estate income, including detailed disclosure of deductible expenses, rental periods, ownership percentages and property identification data.
    • Changes to the filing deadlines for rental income returns, which will generally move to an annual filing due during the first 20 calendar days of April of the following year.
    • Expanded reporting obligations under Form 296, particularly in relation to securities, issuers and beneficial owners, with increased use of ISIN codes and new classifications for holders.

Although most changes will apply to filings submitted from 2027, businesses and investors with Spanish-source income should begin reviewing their data collection and reporting processes now, as the new requirements will increase the level of detail expected by the Spanish tax authorities and may require updates to existing compliance procedures and systems.

• Personal Taxes:
  • The Spanish Tax Agency (AEAT) issued a Note on April 1, 2026, confirming the personal income tax (PIT) consequences of Royal Decree-Law 16/2025 of December 23, 2025, and Royal Decree-Law 2/2026 of February 3, 2026, despite their subsequent non-ratification by parliament. For tax year 2025, measures that were legally effective on the PIT accrual date continue to apply. These include the reduced 1.1% deemed-income rate on the cadastral value of immovable property (instead of 2%) subject to certain conditions; the tax credit for residential energy-efficiency improvement works, the exemption for personal damages stemming from forest fires, and the exemption for aid granted by the Valencian regional government to businesses and self-employed workers affected by the 2024 DANA windstorm and flooding. Waivers or revocations of the objective estimation method filed during the validity window of either decree-law remain valid. For 2026, the quantitative thresholds governing the objective estimation method are held at the 2016–2024 levels. Affected individuals should reassess filings and elections considering this continuity.
• Indirect Taxes:
  • The AEAT issued a Note on April 1, 2026, clarifying that, notwithstanding parliament’s failure to ratify Royal Decree-Law 16/2025 of December 23, 2025, and Royal Decree-Law 2/2026 of February 3, 2026, certain VAT measures remain applicable for fiscal year 2026. The thresholds for the simplified VAT regime and the special regime for agriculture, livestock and fisheries continue at the levels that applied during 2016–2024. In a subsequent update to the Note, the AEAT confirmed that the extraordinary deadline for taxpayers to opt out of the electronic VAT record-keeping system (SII) via the AEAT’s electronic platform, and to voluntarily deregister from the monthly VAT refund register (REDEME), was extended until February 16, 2026, with waivers and deregistration requests filed within that window treated as fully valid. Businesses operating under the simplified or agricultural regimes, as well as those reviewing their SII or REDEME positions, should confirm that filings and elections made during the relevant windows are documented to withstand later scrutiny.
  • Royal Decree-Law 18/2026, published on June 30, 2026, and effective from July 1, 2026, extends a number of the energy-related tax measures originally introduced by Royal Decree-Law 7/2026, which were otherwise due to expire on June 30, 2026. The extension is accompanied by a gradual phase-out mechanism and safeguard measures linked to inflation (CPI). Key measures include:
    • A staggered withdrawal of temporary energy tax incentives until September 30, 2026.
    • The immediate abolition, from July 1, 2026, of the 10% reduced VAT rate on fuels.
    • The conditional maintenance (subject to CPI developments) of the reduced VAT and Electricity Excise Duty rates applicable to electricity, as well as the reduced VAT rates applicable to natural gas and biomass.
    • The extension, until September 2026, of the direct support scheme for professional transport operators and the agricultural sector, consisting of a EUR 0.20 per liter rebate on diesel fuel.

In addition, the legislation introduces a significant structural reform through the progressive phase-out of the Tax on the Value of Electricity Production (IVPEE). The measure provides for a reduction of the taxable base in 2026, a temporary reduction of the tax rate to 3.5% in 2027, and a 0% rate from January 1, 2028.

Key Controversy Issues in Q2:

• A recent Supreme Court judgment (STS 93/2026 - ECLI:ES:TS:2026:93) has clarified the limits on the use of tax loss carry forwards in restructuring scenarios, extending the restriction on their offsetting to reverse mergers. The Court concludes that, even in the absence of an explicit legal provision, double use of the same losses is not permitted where such losses have already been effectively utilized by prior shareholders and, consequently, losses generated prior to a restructuring cannot be reused within the new group if they have already produced tax benefits. The ruling adopts a substance-over-form approach, confirming that the legal structure of the transaction (e.g., direct vs. reverse merger) cannot circumvent the anti-abuse rationale underlying the limitation. This decision reinforces the need for a careful review of pre-existing tax losses in M&A and restructuring transactions, given the increased scrutiny on potential double benefit situations.
• A resolution of the Administrative Court has clarified the scope of related-party rules in structures involving indirect shareholders, adopting a more restrictive interpretation of Article 18.2 of the corporate income tax law. The case concerned a holding structure in which the tax authorities treated an indirect shareholder and a subsidiary as related parties under the general rule for entity–shareholder relationships, leading to transfer pricing adjustments. However, the Court concluded that this provision only applies to direct shareholders, since indirect shareholdings must instead be assessed under the specific rule requiring a minimum participation threshold (generally 25%). The Court considered the tax authorities had relied on an incorrect legal basis, leading to insufficient reasoning and, consequently, annulling the assessment. Notwithstanding its relevance, this criterion does not yet constitute binding doctrine, although it signals a potentially significant shift in the interpretation of related-party rules and highlights the importance of carefully substantiating the legal grounds for transfer pricing adjustments.

Netherlands

Key Policy Updates in Q2:

• Corporate Taxes:
  • The Netherlands completed public consultation on four proposed anti-dividend-stripping measures. The first measure would deny Dividend Withholding Tax (DWHT) relief, where arrangements compress the net dividend return below 15% of the gross dividend, primarily affecting listed shares, triggered where dividend-related costs exceed 85%, subject to thresholds and targeted carve-outs. The second introduces an economic risk requirement, conditioning DWHT relief on the recipient bearing at least 70% of the economic risk on the underlying shares over a defined holding period. The third restricts DWHT exemptions and refunds where dividends derive from business activities other than pension investment, addressing perceived abuse of pension vehicles. The fourth strengthens existing group-level anti-abuse rules to prevent dividend stripping arrangements being fragmented across affiliated entities. A de minimis threshold is proposed for the first three measures. The consultation ran from April 16, 2026, to May 28, 2026. Funds, custodians, pension structures and corporate groups with Dutch dividend flows should evaluate potential exposure under each prong and monitor further developments following the close of the consultation.
  • The Dutch government has submitted the Omnibus Tax Bill to parliament, bundling a series of mainly technical adjustments across the tax code. From a corporate income tax perspective, the most notable element is a clarification confirming that qualifying domestic top-up taxes (QDMTT) imposed under the global minimum tax framework are taken into account when determining income tax and foreign profit tax for set-off purposes under the participation credit and the credit for foreign profits not qualifying for the object exemption for foreign PEs. The Bill also addresses the treatment of debt reductions in bankruptcy cases, an area of practical importance for distressed corporates and restructuring practitioners, although detailed substantive parameters will need to be reviewed in the explanatory memorandum. Multinational groups should reassess their Dutch credit position considering the QDMTT clarification, particularly where low-taxed investment participations are involved.
  • The Dutch State Secretary of Finance has issued a ministerial regulation amending the Implementing Regulation of the Tax Collection Act 1990 (IRTCA 1990) with effect from January 1, 2027, recalibrating legal protection in cases involving deferral of payment and forgiveness of tax debts. Under the current framework, decisions of the tax collector on forgiveness or deferral requests are subject only to an administrative appeal within the tax administration, with a residual claim before the civil courts but no tax court route. From January 1, 2027, these decisions will be brought into line with the regime for regular tax matters, providing for an objection procedure followed by access to the tax courts (District Court, Court of Appeal and Supreme Court). The regulation also codifies several existing policy positions from the Leidraad Invordering 2008. It specifies grounds on which forgiveness will be refused. Conditions for participation in debt restructuring agreements, including creditor involvement, treatment of special creditors and the tax collector’s position are also clarified. Distressed taxpayers and advisers should map pending requests against the transitional cut-off and prepare to use the new judicial route where strategically beneficial.
  • The Netherlands updated its decree on Fiscal Investment Institutions (FBIs) to address practical issues arising from the Act on Qualification of Entities for Tax Purposes and the Act on the Adjustment of Common Funds and Exempt Investment Institutions, both effective from January 1, 2025. The reforms may cause certain entities previously treated as non-transparent to become transparent for tax purposes, resulting in their assets, liabilities, income, and debts being attributed directly to an FBI. This creates challenges in meeting the FBI distribution obligation and financing limit requirements. To address these issues, the Dutch State Secretary for Finance has introduced a temporary approval allowing FBIs to continue treating affected interests as non-transparent for purposes of the distribution obligation and financing limit. The measure applies for up to seven financial years, provided the FBI notifies the tax authorities in writing within three months, and applies the treatment consistently throughout the relevant period. The updated decree took effect on June 26, 2026, and replaces the previous 2024 guidance.
  • The Dutch Tax Administration issued guidance on the tax treatment of non-business-related loans (NBRLs) and the application of Article 8bb of the Corporate Income Tax Act 1969, which seeks to prevent double non-taxation arising from transfer pricing mismatches. The clarification relates to a Dutch parent company that extended a loan to its wholly owned foreign subsidiary. While the contractual interest rate was 5%, the parent applied a lower 3% rate for tax purposes. Meanwhile, the subsidiary deducted the full 5% interest expense. The Tax Administration clarified that reducing the interest rate from 5% to 3% constitutes a downward profit adjustment under the arm’s length principle. It further confirmed that Article 8bb applies in such cases and may deny the downward adjustment where no corresponding upward taxable adjustment is recognized by the related borrower. The guidance confirms that Article 8bb also applies to arm’s length interest adjustments involving NBRLs.
  • The Dutch government is proposing several corporate tax measures under the forthcoming Tax Plan 2027 package. Proposed changes include amendments to the tax treatment of foreign exchange gains and losses on hedging instruments covered by the participation exemption, determining the acquisition price of substantial shareholdings transferred to the Netherlands based on fair market value, introducing a dividend withholding tax refund mechanism for Dutch investors in foreign investment institutions, removing the presumption of abuse in demergers following a recent Supreme Court ruling, and incorporating OECD minimum tax safe harbor rules into Dutch legislation. These measures are intended to refine the Netherlands’ corporate tax framework and align it with recent judicial and international developments.
  • The Dutch Ministry of Finance has indicated that it will, for the time being, not introduce measures to counter the fragmentation of real estate across multiple entities aimed at taking advantage of the EUR 1 million de minimis amount under the earnings stripping rule. The EUR 1 million de minimis applies per corporate taxpayer. Although such measures have been under consideration for several years, the Ministry has decided to postpone further action in light of expected amendments to the EU earnings stripping rule under the EU Tax Omnibus Directive. The Ministry noted that previously considered policy options either had overly broad and disproportionate effects, failed to fully address base erosion concerns, or would create significant administrative burdens.
  • The Dutch Ministry of Finance has launched a public consultation as part of its Simplifying Profit Taxation project, inviting interested parties to share practical experiences on complexity and administrative burdens within profit taxation. The initiative reflects broad support for simplification at both EU and domestic level and seeks to identify rules and processes that are difficult to apply or create disproportionate compliance costs. The consultation covers corporate income tax, business taxation within the personal income tax system, dividend and conditional withholding taxes, and related regimes. It excludes Pillar Two. The consultation will be open for submissions until August 3, 2026.
• Personal Taxes:
  • The Netherlands completed a public consultation held between April 1, 2026, and April 29, 2026, on draft legislation introducing targeted personal tax measures to bolster startups and scale-ups, with an intended effective date of January 1, 2027, subject to European Commission state aid clearance. The proposal reforms the taxation of employee share options, which early-stage companies frequently use in lieu of competitive cash salaries. The draft defers the taxing point to the actual realization of gains on disposal, including where the employee has since left the qualifying employer, and limits the taxable base to 65% of the gain realized while the company holds startup or scale-up status. Employees may elect to remain under the existing regime to avoid any disadvantage. The package also revisits the definition of startups and scale-ups for Box 3 purposes (taxation of individual savings and investment income). Affected employers and employees should evaluate equity plan structures and elections ahead of the proposed rollout.
  • The Dutch tax authorities have issued guidance addressing the Box 3 (savings and investment income) treatment of cryptocurrencies where the taxpayer claims to have lost access to the private key and seed phrase controlling the wallet. The fact pattern involved a taxpayer who had acquired crypto held at a private wallet, declared it initially, and then omitted it from a later return on the basis that access was no longer available. Drawing on case law, the guidance confirms that crypto constitutes an asset with economic value falling within Box 3, and ownership, and hence the qualifying possession, is not extinguished by loss of access; the private key and wallet themselves are not Box 3 possessions. The burden of proving lost access rests with the taxpayer, and regaining access in a later year does not retroactively alter the valuation unless access was, or could have been, available on the valuation date. Taxpayers may also invoke the statutory counter-evidence scheme for Box 3; the sale of a hardware wallet holding inaccessible crypto is treated as a Box 3 transfer at the sale price. Crypto holders should keep robust contemporaneous evidence of any access-loss event to support valuation positions.
  • The Netherlands has issued an updated Decree on the Business Succession Facility (BOR) under the inheritance and gift tax. The updated Decree No. 2026-174 of April 30, 2026, was published on May 22, 2026. Where a donor dies within 180 days of a donation, triggering a fictitious acquisition by inheritance under Article 12(1) of the Inheritance Tax Act (ITA) - an allowance has been added in the Implementing Regulation, so the BOR remains available where the donor met the possession requirement at the donation date. The Decree clarifies the application of the BOR to indirect share acquisitions through holding structures, with a three-year continuation requirement on the receiving shareholder and the relevant holding companies. Detailed conditions are set out for preferred shares created before 2010 (whether by conversion, receivable exchange, or tax-neutral conversion and contribution), and the possession requirement is deemed met in cases such as certification or decertification of shares and certain reclassifications (lettering) that do not amount to alienation. Family businesses and advisors should revisit pending succession structures, particularly involving holding companies, preferred shares, or matrimonial property elements, to align with the updated approvals.
  • The Dutch government has announced a series of personal tax measures that are expected to form part of the Tax Plan 2027 package. Key proposals include limiting the indexation of individual income tax brackets in 2027 and 2028, reducing the start-up deduction in 2027 ahead of its abolition from 2028, and removing the deduction for specific healthcare expenses from 2028. The measures are intended to reshape personal tax reliefs and deductions as part of the government’s broader tax reform agenda.
• Indirect Taxes:
  • The Dutch government has proposed several indirect tax measures as part of the forthcoming Tax Plan 2027 package. These include reducing the real estate transfer tax rate for non-owner-occupied residential property from 8% to 7% with effect from January 1, 2027, extending the reduced petrol excise duty rate through 2027, and temporarily lowering fuel duties in the BES islands. The package further proposes increasing the VAT rate on ornamental horticulture products from 9% to 21% starting in 2028 and updating the definition of ‘final destination’ for air passenger tax purposes. These measures are intended to adjust existing consumption and transaction tax rules while supporting broader fiscal policy objectives

Key Controversy Issues in Q2:

• The Dutch Supreme Court has ruled that taxpayers who did not file timely objections to their 2017–2020 Box 3 wealth tax assessments cannot obtain relief based on the landmark 2021 Christmas Decision. The Court held that the judgment constitutes new case law and therefore cannot generally be relied upon to seek reductions of finalized assessments under the ex officio relief framework. It also rejected arguments based on proportionality, discrimination and ECHR protections, confirming that statutory objection deadlines remain applicable. The ruling provides greater certainty on the application of the Box 3 relief framework and reinforces the importance of complying with procedural requirements when challenging tax assessments.
• The Dutch Supreme Court ruled that a Dutch resident receiving a German old-age pension is taxed in the Netherlands only on the portion of the pension attributable to tax-deductible contributions made in Germany. The case involved a taxpayer who received benefits from Germany’s statutory pension system and argued that only 45% of the pension should be taxed, as only that proportion of the contributions had been deductible. The Court upheld the taxpayer’s position, confirming that Article 3.82 of the Dutch Income Tax Act applies to foreign pensions and requires taxation only to the extent that the underlying pension rights were not previously subject to comparable taxation. The Court also rejected the argument that the German pension should be fully taxed as employment income or treated as a social security benefit. It confirmed that the pension qualifies as a foreign pension scheme under Dutch tax law and should be taxed accordingly. As a result, only 45% of the German pension income was held to be taxable in the Netherlands. The decision offers greater certainty for taxpayers with cross-border pension arrangements and clarifies the application of Dutch tax rules to foreign pension schemes.
• The Dutch Supreme Court has ruled that a Dutch-resident pilot employed by a Turkish airline cannot claim the exemption method for double tax relief available under the Gulf States Decree and remains subject to the credit method under the Netherlands–Türkiye tax treaty. While the Court of Appeal had ruled in favor of the taxpayer, the Supreme Court held that the Dutch State Secretary for Finance has broad discretion to introduce favorable tax policies for specific countries without violating the equality principle. The Court concluded that limiting the exemption method to the designated Gulf States is objectively justified and does not constitute discrimination. The ruling provides greater certainty on the availability of double tax relief for cross-border employment income and clarifies the scope of preferential relief granted under Dutch tax policy measures.

Italy

Key Policy Updates in Q2:

• Corporate Taxes:
  • The Italian Council of Ministers has granted preliminary assent to a legislative decree establishing a consolidated code on tax compliance and assessment, marking a substantial reorganization of the country’s tax procedural framework. Comprising 368 articles, the code consolidates and harmonizes existing rules across direct and indirect taxes, while repealing outdated provisions and is structured in three parts. Part I (Compliance) covers taxpayer registration and identification, accounting and record-keeping obligations, filing requirements for income taxes and VAT, the synthetic tax reliability indices (ISA), and periodic VAT settlements. Part II (Cooperative compliance, controls and assessments) addresses cooperative compliance tools, preventive settlement agreements, dispute-resolution mechanisms, tax assessment procedures and international information exchange. Part III sets out transitional measures to ease the migration to the new framework. Companies and advisers should track the parliamentary scrutiny process and begin mapping current compliance workflows against the consolidated rulebook, particularly, cooperative compliance and preventive settlement entry criteria, which may shift in scope or operation under the new code. Relatedly, the access threshold for the cooperative compliance regime (adempimento collaborativo) falls to EUR 500 million in turnover or revenues from 2026, dropping further to EUR 100 million from 2028, substantially widening the population of groups eligible to opt in.
  • Italy’s implementation of the OECD Pillar Two/global minimum tax rules (Legislative Decree No. 209/2023, transposing EU Directive 2022/2523) entered its first compliance cycle during the quarter. On March 31, 2026, the Revenue Agency opened the telematic channel for the GloBE filings and released free software for both the identification notification (NotificaGlobe) and the annual GloBE return (DichiarazioneGlobe), supported by a dedicated FAQ portal. The framework captures the three Italian top-up taxes — the income inclusion rule (IIR), the undertaxed profits rule (UTPR) and the QDMTT — each with its own F24 payment code (2730, 2731 and 2732, respectively). With 2024 as the transitional year, in-scope groups (consolidated revenues of at least EUR 750 million) face filing and payment obligations maturing in mid-2026, the GloBE information return itself is due no earlier than June 30, 2026 (the first-application floor set under the implementing rules), while the second installment of the top-up tax due for FY2024 is payable separately by the end of July 2026 — the two deadlines should not be conflated. Affected groups should finalize their GloBE data collection, confirm the entity responsible for filing, and validate the return through the Agency’s control software well ahead of both deadlines.
• Personal Taxes:
  • Sicily’s regional government has approved a decree implementing Article 25 of Regional Law No. 1 of January 5, 2026, introducing an individual income tax (IRPEF) refund scheme to attract new residents. Individuals relocating to Sicily from outside Italy and establishing tax residence and domicile in the region between January 1, 2026, and December 31, 2028, may obtain a non-repayable grant equal to 50% of the IRPEF due and paid, capped at EUR 100,000 per tax year. Eligibility requires either purchasing a residential property in Sicily within 12 months of establishing tax domicile or undertaking qualifying (non-ordinary) renovation works on a Sicilian property already owned. The benefit applies to individuals with employment, employment-like, self-employment/business, or pension income; self-employed persons and entrepreneurs are not excluded and may also qualify. The benefit runs for three years, with residence, domicile and property ownership to be maintained until December 31 of the second year after relocation on pain of revocation. Inbound individuals considering relocation to Italy should compare this regional incentive with existing national impatriate regimes.
  • The Italian Ministry of Labor and Social Policies has published the 2026 deemed remuneration values for Italian-resident employees working abroad. These values are used to calculate social security contributions and, where prescribed conditions are met, employment income subject to Italian tax. The regime applies to employees who work abroad as the sole and continuous object of their employment and spend more than 183 days overseas during a 12-month period. The 2026 remuneration levels generally reflect increases compared to 2025 due to salary adjustments under applicable collective labor agreements. The decree also confirms the rules for determining remuneration bands, daily apportionment and unemployment benefit calculations for repatriated workers.
  • The Italian tax authorities have confirmed that a pension paid by France’s CNIEG pension fund remains taxable in both France and Italy when the recipient becomes an Italian tax resident. The clarification relates to a retired EDF employee who argued that, following EDF’s nationalization in 2023, his pension should be treated as a public-sector pension taxable only in France under the France–Italy tax treaty. The authorities rejected this view, confirming that CNIEG pensions continue to be classified as social security pensions and therefore fall within Article 18(2) of the treaty, which permits taxation in both states. Accordingly, any resulting double taxation must be relieved through the foreign tax credit mechanism available in Italy.
  • The Italian tax authorities have confirmed that regional and municipal IRPEF surcharges continue to apply to Italian public pensions paid to non-residents and are not covered by the Italy–Luxembourg tax treaty. The clarification concerned a Luxembourg-resident individual receiving a public pension from Italy’s social security authority (INPS). The authorities clarified that the surcharges remain payable whenever IRPEF is due and that INPS must continue withholding them. They also concluded that the surcharges fall outside the scope of the treaty, as they are not among the taxes covered by it, and therefore derive solely from domestic law. The clarification confirms Italy’s ability to levy regional and municipal surcharges on public pensions paid to Luxembourg residents, notwithstanding treaty protection from double taxation.
  • The Italian Tax Authorities through the ‘Risposta a interpello’ 126/e June 22, 2026, confirmed that the Italy–Switzerland Frontier Workers Agreement (2020) can apply even where an employer’s registered office is located outside Italy’s designated border region. The clarification relates to a Swiss-resident employee working in Lombardy for an Italian company headquartered in Veneto. The authorities clarified that the agreement requires the employee to reside within the border zone, perform employment activities in the designated frontier area and be employed by an employer resident in the other contracting state. As the agreement does not require the employer’s registered office to be located within the frontier area, the regime can apply provided the other conditions are met. The clarification provides greater certainty for cross-border workers and employers by confirming that the employer’s registered office location does not, by itself, affect eligibility for the frontier worker regime.
• Indirect Taxes:
  • Italy’s conversion of the recent law-decree on urgent tax measures has materially revised the VAT treatment of barter transactions originally set out in the Budget Law for 2026. Under the Budget Law, the VAT taxable base for such transactions was anchored to the costs incurred by the supplier. The conversion law replaces that cost-based approach with a value-based one: the taxable base is now determined by reference to the contractual value of the goods and services exchanged, subject to a floor equal to the total amount of the costs relating to the transfers made and the services rendered by each of the parties. The revised regime applies to contracts concluded from January 1, 2026. Parties to barter and exchange arrangements should ensure that contractual valuations of the goods and services are robustly documented and consistent with arm’s-length principles, given that the contractual value now serves as the primary reference for the taxable base, with the cost-based floor operating as an anti-avoidance backstop.

Key Controversy Issues in Q2:

• The Italian Supreme Court (Corte di Cassazione, the ISC) has ruled that Italian nationals holding a university degree who transfer their tax residence to Italy can access the inward expatriates regime under Article 16(2) of Legislative Decree No. 147/2015 (applicable until 2024) only if they have been resident abroad for at least five years, effectively importing the general five-year requirement of Article 16(1) into Article 16(2). The taxpayer, an Italian national with EU citizenship, a university degree and at least 24 months of continuous foreign employment, had sought refunds on the basis that Article 16(2) imposed only a 24-month foreign activity threshold. ISC denied the refund, reasoning that treating Italian nationals as EU citizens for Article 16(2) purposes would hollow out the five-year condition in Article 16(1), and that the two paragraphs cannot operate independently. The ruling departs sharply from the settled administrative practice.
• The ISC held that taxpayers may not rely on conscientious objection to withhold tax or divert sums otherwise owed as IRPEF toward causes reflecting their personal convictions. The dispute arose after a taxpayer paid most of his liability but retained part of his IRPEF and regional surcharge, claiming he had instead donated those amounts in protest against military spending and abortion-related policies. He invoked Article 10 of the Charter of Fundamental Rights of the EU and Article 9 of the European Convention on Human Rights, seeking a referral to the CJEU. Dismissing the appeal, the ISC ruled that freedom of conscience does not encompass a right to direct how tax revenues are spent, since the budget operates as an indivisible whole. Earmarked mechanisms such as the ‘8 per mille’ and ‘5 per mille’ remain legislative options, not recognized forms of fiscal objection.
• The ISC held that the foreign tax credit under Article 165 of the Income Tax Code (TUIR) can be claimed only if the taxpayer timely files an Italian tax return for the tax period in which the foreign-source income arose and discloses that income in the return, even where domestic rules would otherwise exempt the taxpayer from filing. The dispute concerned an Italian resident seconded to Congo in 2009 and 2010 who paid local tax on his employment income and sought to claim the credit through his 2013 return, having filed no return for 2010 in reliance on the employment-income exemption from filing. Under Article 165, the ISC treated the filing and disclosure obligations as substantive conditions for entitlement rather than mere formalities, with Article 165(7) available only where the foreign tax becomes final after the Italian return is filed. Article 165(8) expressly denies the credit on omitted returns or omitted disclosure, and the absence of an explicit forfeiture rubric in the current wording does not soften that consequence. The ruling underscores the need to file Italian tax returns in a timely manner and disclose foreign-source income to secure foreign tax credit relief.
• The ISC held that, for purposes of the look-through taxation regime applicable to foreign trusts under Article 73(2) of the TUIR, a person qualifies as an ‘identified beneficiary’ only where they have an actual, enforceable right to demand the allocation of trust income from the trustee. Mere designation in the trust deed does not suffice where the trustee retains genuine discretion over the attribution of income. The dispute arose from a 2007 assessment on an Italian resident who had settled a trust in New York in 2004. The tax authorities sought to attribute the trust’s dividends, interest, and capital gains directly to him under Articles 44(1) and 73(2) of the TUIR at progressive rates. The first-instance court ruled partially in favor of the taxpayer on the applicable rate (12.5% substitute tax), while the second-instance court sided with the authorities, treating the taxpayer as an identified beneficiary because he was named in the deed, with trustee discretion limited to timing and amount. The ISC reversed, drawing a sharp line between transparent trusts and opaque trusts. Settlors and beneficiaries of foreign discretionary trusts should reassess prior look-through positions and consider documenting the genuine scope of trustee discretion.
• The ISC confirmed that state tax claims are subject to the 10-year ordinary limitation period under Article 2946 of the Civil Code, rejecting constitutional challenges based on equality, reasonableness, good administration, and the reasonable duration of proceedings. The case concerned a taxpayer’s claim that a tax debt was time-barred, while the tax authorities argued that a 24-month COVID-19-related suspension kept the collection notice within the limitation period. Upholding its established position, the ISC ruled that absent a specific statutory provision, state taxes such as income tax and VAT remain subject to the 10-year limitation period and declined to extend the 5-year period applicable to periodic obligations and certain local taxes. The judgement also confirmed that the 5-year limitation period continues to apply separately to tax penalties and interest, which advisers should continue to track separately when assessing collection exposure.
• The ISC ruled that, for purposes of the group VAT settlement regime, the control requirement may be satisfied through combined indirect shareholdings held via multiple wholly-owned subsidiaries. The case involved a parent company that indirectly held a subsidiary through two wholly-owned intermediary companies, each owning 37.5% of the subsidiary. Rejecting the tax authorities’ restrictive interpretation, the Court held that the parent’s indirect participation should be assessed on a consolidated basis and that the relevant ownership threshold may be met by aggregating interests held through controlled entities. The ruling confirms a broader interpretation of control for VAT group settlement purposes and departs from the approach historically adopted by the Italian tax authorities.
• The ISC ruled that taxpayers are entitled to double taxation relief under the Germany–Italy Tax Treaty even where they failed to file an Italian tax return or report the relevant foreign-source income. The case involved an Italian resident who received dividends from German companies in 2007 and 2008. The Italian tax authorities denied relief on the basis that the taxpayer had not complied with the reporting requirements under Article 165(8) of the Italian Income Tax Code. The Court held that Italy’s treaty obligation to eliminate double taxation cannot be restricted by domestic procedural requirements. Accordingly, relief cannot be denied solely due to failures in filing or disclosure. The case was remanded to the lower court for reconsideration. The ruling offers additional clarity on the availability of treaty-based relief in case of international tax disputes.

Finland

Key Policy Update in Q2:

• Corporate Taxes:
  • On April 22, 2026, the Finnish government announced the outcomes of its mid-term budget negotiations, reaffirming its commitment to reduce the corporate income tax rate from 20% to 18% with effect from January 1, 2027. The signaled cut is intended to strengthen Finland’s competitive positioning for inbound investment and to align the headline rate more closely with peer Nordic and EU jurisdictions. While the announcement does not introduce additional corporate measures at this stage, it provides greater certainty regarding the trajectory of the headline rate ahead of the 2027 tax year. Corporates with Finnish operations should begin modeling the impact of the lower rate on deferred tax positions, group effective tax rates, and any Pillar Two top-up tax exposure, since a reduction in the nominal rate may affect GloBE jurisdictional effective tax rate calculations and safe harbor outcomes. Implementing legislation has yet to be introduced.
• Personal Taxes:
  • The Finnish government’s mid-term budget announcement unveils a wide range of individual taxation measures. The tax credit for certain household services rises from 35% to 40% of remuneration paid, with the annual cap lifted from EUR 1,600 to EUR 2,100, both effective during 2026. The commuting cost deduction threshold falls to EUR 800 (from EUR 900) to cushion fuel price increases. The taxation of share options issued by non-listed companies will shift from the exercise moment to the date the underlying shares are sold, and stock purchase plans are widened so that employees of subsidiaries may acquire parent-company shares. Charitable donation deductibility is extended to gifts to health and social welfare organizations and entities. An inflation adjustment will apply to the EUR 400 annual cap on employer-provided recreational vouchers, the scope of which is broadened to include hunting and fishing. Finally, the entrepreneur deduction rises from 5% to 5.5%. Affected employers and individuals should align plan documentation, payroll processes, and household budgeting to the new thresholds.
• Indirect Taxes:
  • Finland’s Ministry of Finance launched a public consultation on proposed amendments to the VAT Act following the ECJ’s decision in Sögård Fastigheter (Case C‑787/18). Under the proposal, where real estate benefiting from input VAT deductions is transferred, any remaining VAT adjustment would be made immediately for the rest of the adjustment period. Given that real estate transfers are generally VAT-exempt, the property would be treated as used for non-deductible purposes during the remaining period. The proposal also introduces an option to apply VAT to certain real estate transactions. The amendments are intended to align Finnish VAT legislation with EU case law. The consultation is open until August 14, 2026, and the proposed amendments are expected to take effect from January 1, 2028.

Key Controversy Issues in Q2:

• No key controversy update.

France

Key Policy Update in Q2:

• Corporate Taxes:
  • The tax authorities issued revised guidance on April 15, 2026, following a public consultation held from January 15, 2025, to March 1, 2025, regarding Mutual Agreement Procedures (MAP) and Advance Pricing Arrangements (APA). The updated guidance clarifies which administrative measure may give rise to treaty-inconsistent taxation, explains when taxpayers may seek MAP relief for transfer pricing matters through an amended return, and sets out the circumstances in which an APA may be applied retroactively. This updated guidance enhances clarity around dispute resolution mechanisms and transfer pricing certainty, and taxpayers should evaluate ongoing or potential cross-border disputes to effectively leverage MAP and APA options under the revised framework.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • The France government adopted a new Customs Code through Ordinance No. 2026-265, recodifying a legal framework that had not been substantially revised since 1948. The Code is structured into seven books covering customs administration and territory, goods and financial flows, payment and recovery of duties, inspection powers, offences and penalties, post-inspection procedures, and special rules for overseas territories. The Code entered into force on May 1, 2026, subject to certain exceptions. This reform reflects France’s effort to modernize its customs framework and enhance administrative clarity, and businesses engaged in cross‑border trade should review their compliance processes to align with the updated provisions.
  • The French tax authorities issued updated guidance confirming that while the mandatory e-invoicing regime does not apply to foreign businesses without a PE in France for VAT purposes, such businesses may still be subject to e-reporting obligations if they undertake transactions deemed to take place in France and are liable for French VAT. The e-reporting obligations will apply from September 1, 2026, for large and intermediate-sized enterprises acting as sellers or service providers, and from September 1, 2027, for micro-enterprises, very small enterprises (VSEs), small- and medium-sized enterprises (SMEs), and entities reporting VAT as purchasers under reverse-charge and intra-community acquisition rules. The guidance clarifies the scope and phased implementation of France’s e-reporting regime for non-resident businesses registered for French VAT.

Key Controversy Issues in Q2:

• No key controversy update.

Germany

Key Policy Update in Q2:

• Corporate Taxes:
  • Germany’s Ministry of Finance opened a consultation on the draft Annual Tax Act 2026, which updates tax rules to reflect EU law, CJEU case law, and other technical changes. The draft also implements the OECD Side-by-Side Package, and the consultation period closed on June 12, 2026. Among the main measures are expanded reporting and exchange rules under the Platform Tax Transparency Act, simplified withholding tax relief for royalties by raising the exemption threshold from EUR 10,000 to EUR 100,000, and an increase in the state-aid threshold under the R&D tax credit regime from EUR 15 million to EUR 25 million. The bill also proposes an upward adjustment of the interest rate for full interest under Section 233a of the German Fiscal Code (tax refunds and additional tax payments) from January 1, 2027, a higher tax-free threshold for certain performance payments, new VAT grouping rules requiring express declaration, and new safe harbors under the OECD Side-by-Side framework together with a one-year extension of the transitional CbCR safe harbor. The developments significantly enhance tax transparency and harmonization with global standards, and businesses should begin evaluating the implications for compliance, reporting, and tax planning frameworks.
  • On April 27, 2026, the German Federal Ministry of Finance amended its administrative guidance on the German Tax Haven Defense Act, particularly clarifying the deduction restriction under Section 8 and the enhanced cooperation obligations under Section 12. The Act targets business transactions involving non-cooperative tax jurisdictions through four main measures: restrictions on the deduction of business expenses, stricter controlled foreign company taxation, withholding tax measures, and limitations on participation exemptions. The amended guidance explains that certain bearer bonds and insurance and reinsurance benefits are excluded from the deduction restriction, while insurance and reinsurance premiums generally remain covered unless a specific withholding tax rule applies; customary banking deposit transactions also fall outside Section 8. In addition, the Ministry narrows the scope of the enhanced documentation and cooperation duties by confirming that they apply only to the specific transactions subject to an anti-avoidance measure under Sections 8 to 11, rather than to all business relationships with the jurisdiction concerned. The amendments therefore provide greater clarity and may reduce documentation requirements in individual cases, although the deduction of restriction for insurance premiums in particular remains a significant area of risk.
  • Germany’s Ministry of Finance issued updated PE guidelines dated June 18, 2026, largely replacing the previous guidance issued in 1999. The revised guidelines set out the factual requirements for determining the existence of a PE under German domestic law and clarifies the interaction between domestic PE rules and the PE concept under Article 5 of the OECD Model Tax Convention. The update incorporates recent German court decisions and the latest OECD Commentary on Article 5, providing an updated framework for assessing PE risks in Germany.
  • On May 19, 2026, the German government introduced a bill to amend the German Tax Advisory Act and related tax provisions. Among other changes, the bill reinstates and clarifies the rules restricting non-professional (‘outside’) ownership of tax advisory firms. Under the revised Section 55g German Tax Advisory Act, only professional practice companies where tax advisors and authorized tax agents hold the majority of voting rights, and whose management body consists predominantly of tax advisors or authorized tax agents, may use the designation ‘Steuerberatungsgesellschaft’ (Tax Consulting Firm). Section 55a is amended to extend the capital-binding requirements to companies that participate directly or indirectly, and a new Section 76e introduces disclosure duties requiring firms to promptly report to the competent Chamber of Tax Advisors any change in a direct or indirect shareholder where a recognized auditing or accounting firm holds a stake, including full details of the ownership chain. Section 154 clarifies that these capital-binding requirements also apply to companies participating indirectly in a tax advisory firm. According to the accompanying committee report, these amendments are intended as a clarification of the existing prohibition on foreign ownership in response to concerns about indirect participation by financial investors, including private equity firms, in tax advisory companies.
• Personal Taxes:
  • The draft Annual Tax Act 2026 also proposes shortening the period after which an employee is deemed to have a first place of work in Germany from 48 months to 24 months under Section 9(4), sentence 3 of the German Income Tax Act. This would tighten the requirements for an activity performed in Germany to qualify as business travel for tax purposes. For activities performed abroad, the existing 48-month period would continue to apply.
  • On May 28, 2026, the Bavarian State Tax Office issued guidance (S 2332.1.1-29/4 St36) addressing for the first time the payroll tax treatment of employee participations with a negative liquidation preference, commonly referred to as hurdle or growth shares. These shares are designed to give employees an economic interest only in future increases in the company’s value, excluding any value that already exists when the shares are granted. According to the guidance, the grant does not automatically result in employment income: employment income arises only where the shares are transferred below their fair market value, taking the negative liquidation preference into account. Later dividends, sale proceeds, or liquidation proceeds are also not automatically treated as employment income if they arise from a legally effective shareholder relationship independent of the employment relationship; depending on the circumstances, such proceeds may instead constitute investment or capital-gains income. Employment income may nevertheless arise where the employee does not obtain beneficial ownership, the participation is not legally valid or implemented as agreed, distributions exceed the shareholder rights, or a disposal does not take place at market value. The guidance therefore emphasizes reliable valuation, clear contractual arrangements, market-based terms, and consistent implementation. Although it is not binding throughout Germany, it provides practical guidance for start-ups, growth companies, management participation schemes, and private-equity structures.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• In its judgment of March 11, 2026 (I R 13/23) that was published on May 28, 2026, the German Federal Fiscal Court resolved the long-standing dispute concerning treaty-based participation exemptions for hybrid US entities in favor of taxpayers. The case concerned structures in which a US entity that is treated as non-transparent from a German tax perspective, such as an S corporation holds at least 80% of a German corporation but is treated as fiscally transparent in the United States, with the dividends attributed directly to its US resident shareholders. According to the Court, Article 1(7) of the Germany US tax treaty provides that the income is treated, to the relevant extent, as income of a US resident and that the US entity must therefore be recognized accordingly for treaty purposes. Subject to the remaining requirements, the full exemption from German withholding tax under the treaty participation exemption may therefore be claimed. Former Section 50d(1), sentence 11 of the German Income Tax Act does not prevent this result, as the provision does not alter the substantive beneficial ownership of the income but merely determines who may procedurally assert the existing refund or exemption claim. The judgment therefore provides greater legal certainty for US investment structures involving hybrid entities and is also likely to apply to the current provision in section 50d(11a) of the German Income Tax Act, which is based on substantially identical wording.
• In its judgment concerning Section 50d(12) of the German Income Tax Act, the German Federal Fiscal Court (on January 22, 2026–VI R 3/24, NV published on April 9, 2026) held that the provision does not constitute an impermissible retroactive effect where a severance payment, originally due upon termination of employment in September 2016, was postponed at the employee’s request until January 2017 in anticipation of her move from Germany to Malta. Under the Germany–Malta tax treaty, severance payments would ordinarily have been taxable only in the employee’s state of residence, but Section 50d(12), effective from January 1, 2017, treats such payments as additional remuneration for past employment and thereby allocates the taxing right to Germany unless the relevant treaty expressly provides otherwise. The Court found that the rule merely had an indirect retroactive effect and the employee’s reliance on the previous law was not sufficiently protected, particularly because she had voluntarily shifted the payment into a later tax year and should have anticipated a possible change in the law. The Court therefore confirmed Germany’s right to tax the severance payment and rejected the constitutional challenge.
• The German Federal Fiscal Court (decision dated November 19, 2025 – I R 6/23 published on April 9, 2026) held that a passive exit taxation event under Section 12(1), sentence 1 of the German Corporate Income Tax Act requires Germany to have held the relevant taxing right before that right was subsequently excluded or restricted. In the case at hand, a German company owned real estate in Australia, and the Court found that Germany had already lacked the right to tax gains from a disposal of that property under the former Germany–Australia tax treaty of 1972, because Article 6 covered both current income from immovable property and gains from its disposal. The entry into force of the 2015 treaty on January 1, 2017, therefore, did not trigger passive exit taxation. The Court also clarified, contrary to the position taken in prior administrative guidance, that when Section 12(1), sentence 1 applies, the deemed disposal occurs in the final legal second before Germany’s taxing right is lost or restricted. Accordingly, even under the tax authority’s interpretation, any exit gain would have arisen in 2016 rather than 2017.
• In its judgment of December 4, 2025, in case V R 37/23 published on April 9, 2026, the German Federal Fiscal Court held that advertising services commissioned by a German liaison office of a company established in a third country are not attributable to that German fixed establishment merely because the office ordered them. The question is whether the services were supplied for the fixed establishment’s own needs and used by it. In the case at hand, the German office performed local sales and marketing functions, while the actual hotel services were supplied directly by the company’s head office abroad. As the advertising services were used for the economic activity of the foreign head office rather than for the German office itself, the place of supply was outside Germany. The VAT shown on the invoices was therefore not legally due in Germany and could not be deducted as input VAT. The Court emphasized that the place where the recipient has established its business is the primary point of reference, while attribution to a fixed establishment is an exception that applies only where the establishment is the actual recipient and uses the services for its own needs.

Poland

Key Policy Update in Q2:

• Corporate Taxes:
  • No significant update.
• Personal Taxes:
  • On May 5, 2026, the Polish government adopted a draft law introducing a new Personal Investment Account (Osobiste Konto Inwestycyjne, OKI), a tax-favored vehicle for long-term investing and saving. Expected to take effect in 2027, OKI will allow investments in shares, investment fund units, and other financial instruments with a tax exemption of up to PLN 100,000, while savings assets such as bank deposits and treasury savings bonds will qualify for an exemption of up to PLN 25,000. This initiative signals Poland’s focus on encouraging retail investment participation and long-term wealth creation, and taxpayers should evaluate how to effectively utilize these exemptions within their financial planning strategies once implemented.
• Indirect Taxes:
  • Poland’s Ministry of Finance and Economy proposed amendments to VAT rules for exports and imports, including a revised definition of export, removal of the requirement for customs authority confirmation in specified cases, acceptance of alternative evidence of export outside the EU, and a new condition for applying the 0% VAT rate to export-related advance payments, which would require the exporter to have been an active VAT payer for at least 12 months. The proposal also states that import declarations may only be submitted electronically. These measures aim to simplify compliance procedures while tightening eligibility requirements for VAT benefits, and businesses engaged in cross-border trade should assess the potential impact on documentation, eligibility, and operational processes.
  • Poland’s Minister of Finance and Economy issued a regulation amending the VAT refund framework for non-Polish businesses to align with the National e-Invoicing System. Under the revised rules, EU businesses (excluding those setup in Poland) and eligible non-EU businesses seeking VAT refunds in Poland, must provide the National e-Invoicing System identification numbers for invoices relating to purchases of goods or services in Poland or, where such numbers are unavailable, copies of the relevant invoices must be attached to their refund applications. The amendments apply to refund applications submitted on or after June 6, 2026, for periods beginning January 1, 2026, while applications filed before that date remain subject to the previous rules The changes reflect the phased implementation of the Poland’s mandatory e-invoicing regime.

Key Controversy Issues in Q2:

• No key controversy update.

Denmark

Key Policy Update in Q2:

• Corporate Taxes:
  • Denmark’s new coalition government proposed reducing the corporate income tax rate by 3% over three years, excluding the financial sector. The government also intends to introduce broader capital taxation reform, expanded use of employee share schemes, and improved access to capital and financial security for entrepreneurs. The proposals reflect the government’s focus on enhancing Denmark’s business and investment environment.
  • The Danish government announced a plan to reintroduce a tax deduction for salary costs related to software development with effect from 2025 as part of a broader package of tax measures. The proposal forms part of the government’s planned initiatives to support business activities and digital innovation.
• Personal Taxes:
  • Denmark’s new coalition government unveiled proposals to restructure personal tax system. Key measures include abolishing the top-top tax and the middle-bracket tax, reducing the maximum marginal tax rate on salary income to approximately 56%, increasing the lower-rate threshold for taxation of share income, and raising the contribution limit for tax-favored share savings accounts. The proposals also include a cap on interest deductions and a temporary freeze on various tax thresholds. The proposals are intended to simplify the tax system while enhancing incentives for work, investment, and savings.
  • The Danish government announced plans to reintroduce several personal tax measures that lapsed following the recent election, including an enhanced employment tax credit for senior workers, equal inheritance tax treatment for nieces and nephews, an increased standard deduction for childminders, higher reimbursement limits for volunteers, and tax deductions for sports activities and music tuition. Certain measures are expected to apply from the 2026 income year. The proposals would expand the availability of tax reliefs for individuals and families.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• No key controversy update.

Sweden

Key Policy Update in Q2:

• Corporate Taxes:
  • The Swedish government referred a Bill to the Council on Legislation proposing an expansion of the scope of the R&D deduction by broadening the definitions of ‘research’ and ‘development’. The proposal would also remove the requirement for employees to spend at least 15 hours per month on R&D activities, while retaining the condition that at least 50% of their working time be devoted to R&D. The changes are intended to widen access to the R&D deduction and are proposed to take effect from January 1, 2027.
• Personal Taxes:
  • The Swedish government proposed introducing a statutory definition of ‘permanent residence’ in the Swedish Income Tax Act. Under the proposal, an individual would generally be regarded as a permanent resident of Sweden if they stay in Sweden for more than 160 days in a calendar year, or more than 120 days in a year where the stay exceeded 120 days in the immediately preceding year. As individuals who are permanent residents of Sweden are generally subject to tax on their worldwide income. The proposed rules are intended to enter into force from January 1, 2027, providing greater certainty regarding Swedish tax residency
  • The Swedish government proposed a Bill to the Council on Legislation making its expert tax regime more generous by increasing the tax-exempt portion of salary for qualifying foreign experts working in Sweden from 25% to 30%. The proposed amendment is intended to strengthen Sweden’s attractiveness for foreign talent and would take effect from January 1, 2027.
• Indirect Taxes:
  • The Swedish parliament approved a bill amending several VAT rules and expanding the Swedish Tax Agency’s enforcement powers. The changes will enter into force on July 1, 2026, and will give the Agency greater control over VAT registration, including the ability to refuse or deregister a person for VAT purposes, mark a VAT number as invalid in the VAT Information Exchange System (VIES), and, in certain cases, deny credit for excess input VAT. These developments reflect a stronger compliance and enforcement focus, and businesses should review their VAT registration status, reporting practices, and input VAT claims to mitigate the risk of an increased scrutiny under the revised framework.
  • The Swedish Council on Legislation proposed amendments to the VAT deduction rules for businesses carrying out both taxable and exempt activities. Under the proposal, turnover would become the main method for determining the deductible percentage of input VAT, subject to certain exceptions, including area-based allocation for buildings and special rules for certain financial activities. The amendments would also require deduction calculations to be made separately for each line of business and introduce year-end adjustments based on the final deductible percentage. The proposed changes would provide a clearer framework for allocating input VAT in mixed activities from January 1, 2027.
  • The Swedish Ministry of Finance proposed amendments to the VAT Act to align Sweden’s VAT rules with the EU’s VAT in the Digital Age (ViDA) package. The proposal includes extending the scope of the One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) schemes, as well as introducing new rules for accounting for output VAT under the special schemes and for taxable persons facilitating supplies through electronic interfaces. The amendments are proposed to take effect from January 1, 2027, with older rules continuing to apply where the chargeable event occurred before the effective date.

Key Controversy Issues in Q2:

• No key controversy update.

Norway

Key Policy Update in Q2:

• Corporate Taxes:
  • No significant update.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • Norway enacted new legislation mandating the adoption of digital bookkeeping and electronic invoicing as part of its broader efforts to modernize financial reporting and compliance processes. The law requires businesses subject to bookkeeping obligations to maintain records using electronic accounting systems and to issue and receive invoices in a structured electronic format that supports automated processing. It also introduces statutory definitions for key concepts such as electronic invoices, electronic accounting systems, and mandatory accounting reporting, while empowering the Ministry of Finance to prescribe additional technical standards and exemptions. Businesses will be required to retain e-invoices in their original format and comply with prescribed record-keeping periods. The provisions relating to e-invoicing, documentation, and record retention will take effect from January 1, 2027, while the mandatory use of electronic accounting systems for certain entities will be phased in from January 1, 2030.

Key Controversy Issues in Q2:

• No key controversy update.

Ireland

Key Policy Update in Q2:

• Corporate Taxes:
  • Irish Revenue updated its guidance on Investment Limited Partnerships (ILPs), confirming their tax-transparent treatment, with income, gains, and losses flowing through to partners. The guidance also notes that ILPs may qualify for dividend withholding tax exemption on distributions from Irish subsidiaries, subject to certain conditions. However, for interest withholding tax, ILPs are treated as separate entities, meaning interest payments may still be subject to withholding unless an exemption applies. The update reinforces ILPs’ tax-transparent status and supports their use in investment structures, while also flagging continued withholding tax exposure on interest, requiring careful structuring of funding flows.
  • Irish Revenue released guidance on Pillar Two top-up tax reporting requirements. Irish entities within multinational enterprise (MNE) groups are required to either file a top-up tax information return locally or submit a notification where the filing is carried out in another jurisdiction, typically by the ultimate parent entity (UPE) or a designated entity. In such cases, the Irish entity must disclose details of the filing entity, country, and confirm that the information will be shared with Ireland. The guidance also permits a single Irish entity to file on behalf of all local group entities. Filing deadlines are generally 15 months from the fiscal year-end, extended to 18 months for the first year, with the initial deadline set at June 30, 2026.
  • Irish Revenue clarified the territorial reach of capital gains tax relief on company reconstructions and amalgamations, confirming that the relief continues to be available where a UK-resident company is involved following Brexit. Under the relief, where a company resident in Ireland, the UK, or a European Economic Area (EEA) state with which Ireland has a double tax treaty, takes over the whole or part of another such resident company’s business as part of a reconstruction or amalgamation, and the only consideration is the assumption of the transferor’s liabilities, no corporation tax charge arises on chargeable gains in the hands of the transferor. In such cases, the transferee is treated as having acquired the underlying assets at the same acquisition date and base cost as the transferor, preserving the embedded gain on a deferred basis. Importantly, Irish Revenue confirms that this treatment continues to apply to UK-resident companies notwithstanding the United Kingdom’s withdrawal from the EU, with effect from December 31, 2020, providing welcome certainty for Irish-UK reorganizations. Groups planning post-Brexit Irish-UK restructurings should revisit transaction structures to confirm eligibility and maintain appropriate supporting documentation.
  • Irish Revenue updated its guidance on Dividend Withholding Tax (DWT), introducing a more practical exemption for dividends paid to partnerships. Previously, dividends paid to Irish or foreign partnerships were generally subject to DWT, even when the individual partners qualified for an exemption, which often required refund claims afterward. Under the revised approach, Irish Revenue will allow qualifying dividends to be paid without withholding tax to Irish partnerships and equivalent foreign partnerships subject to certain conditions. To benefit from the exemption, the partnership must be tax-transparent, the partners themselves must be eligible for DWT exemption, the arrangement must have a genuine commercial purpose, and valid exemption declarations must be maintained for each partner. The amendment reduces administrative compliance requirements and eliminates the need for withholding tax where the underlying partners are eligible for relief.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• The Irish High Court in Accenture Global Solutions Limited v. Revenue Commissioners (2026 IEHC 305) ruled that foreign withholding tax (FWHT) on royalty income is not deductible as a trading expense, even where no foreign tax credit relief is available. The Court held that FWHT constitutes a tax on income and is governed solely by the statutory foreign tax credit regime, which is intended to be exhaustive. Accordingly, FWTH is not deductible where foreign tax credits cannot be utilized in loss-making years, as it constitutes an application of income after it has been earned rather than a cost incurred in generating profits. It limits taxpayers’ ability to claim deductions for unrelieved foreign withholding taxes, potentially increasing effective tax costs where foreign tax credits cannot be utilized.

Switzerland

Key Policy Update in Q2:

• Corporate Taxes:
  • The Swiss Federal Tax Administration clarified that the OECD’s Pillar Two Side-by-Side Safe Harbor Package, released on January 5, 2026, will be effective in Switzerland through the existing framework of the Minimum Taxation Ordinance. As a result, Switzerland will adopt all five OECD safe harbor measures, including the extended Transitional CbCR Safe Harbor, the Simplified ETR Safe Harbor, the Substance-based Tax Incentive, Side-by-Side, and UPE Safe Harbors. These measures will be applicable according to the timelines specified by the OECD and where the relevant qualifying conditions are satisfied.
  • Switzerland approved a further extension of the withholding tax exemption on interest payable on certain TBTF instruments (i.e. the instruments issued by financial institutions too big to fail), such as bail-in and write-off bonds. The measure extends the temporary relief previously introduced, ensuring that such instruments continue to benefit from the existing tax treatment. The extension is intended to provide continuity while a permanent exemption is discussed. The extended withholding tax exemption will apply from January 1, 2027, and will remain in force until December 31, 2031, following legislative approval and expiry of the referendum period.
  • Switzerland adopted a reform extending the tax loss carry forward period from seven to ten years for losses incurred from 2020 onwards. The rules apply to individuals and companies and cover federal and cantonal/communal taxes. The extension also affects foreign PE losses, which were provisionally absorbed by the Swiss head office and may trigger a recapture if the foreign PE reports profits again within ten years following the assumption of losses. Losses before 2020 remain subject to the seven-year limit. The implementation by the Federal Council is pending, and the law is expected to enter into force by January 1, 2028, at the latest.
• Personal Taxes:
  • France and Switzerland formalized their understanding on the tax treatment of cross-border employees undertaking telework through a mutual agreement in accordance with the applicable double taxation treaty. The agreement specifically addresses the interaction between the 10-day allowance for temporary work and the 40% telework threshold, by laying down common rules for their application and calculation. This is intended to eliminate ambiguity, ensure uniform application of treaty provisions, and reduce the risk of double taxation for cross-border employees as well as the associated risks for employers. The agreement entered into force on April 30, 2026, and applies retrospectively from 2026, in line with the amended treaty provisions.

Key Controversy Issues in Q2:

• No key controversy update.

Romania

Key Policy Update in Q2:

• Corporate Taxes:
  • No significant update.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • Romania updated the application rules under its Fiscal Code to reflect recent changes to the excise duty regime. The amendments introduce a 36-month validity period for authorizations granted to importers and registered consignees and strengthen the authorization framework for warehouse keepers, registered consignees, registered dispatchers, and importers. Businesses dealing with excise goods are now subject to additional compliance requirements, including obtaining fire safety and environmental permits, implementing video surveillance systems, maintaining stock management controls, and notifying authorities of certain operational changes. The rules also introduce a certification procedure for exporters of certain energy products and provide clarifications on the treatment of specific fuel supply transactions that are not treated as wholesale, and natural gas used for own consumption.

Key Controversy Issues in Q2:

• Romania’s High Court of Cassation and Justice issued Decision No. 6/2026, ruling that taxpayers may carry forward negative VAT balances to future VAT periods without any statute of limitations applying to that right. The decision clarifies the interpretation of the relevant provisions under both the former and current Fiscal Code and confirms that unutilized VAT credits do not expire solely due to the passage of time. This provides greater certainty for businesses with accumulated VAT credits and may benefit taxpayers that have historically carried forward significant negative VAT balances. Organizations should review their VAT positions and assess whether any previously unclaimed or disputed VAT credits may be affected by the ruling. The decision has been published in Romania’s Official Gazette on May 26, 2026, and is now binding on courts and tax authorities.

Türkiye

Key Policy Update in Q2:

• Corporate Taxes:
  • The Tax Administration issued updated guidance on the corporate income tax exemption for capital gains derived from the sale of immovable property and participation The guidance reflects recent legislative changes, including the abolition of the exemption for immovable property acquired on or after July 15, 2023, a reduced 25% exemption for grandfathered properties, and a reduction in the exemption rate for participation shares from 75% to 50%, effective November 27, 2024. The guidance also reiterates the conditions for claiming the exemption.
  • Türkiye enacted Presidential Decision No. 11257 introducing targeted enhancements to its corporate tax framework to promote cross-border investment and service exports. The changes include a significant relaxation of participation exemption rules by reducing the minimum ownership threshold from 50% to 20%, thereby allowing a broader range of resident companies to benefit from an 80% exemption on foreign dividend income and participation income. In addition, the decision increases the deduction for qualifying service export income from 80% to 100%, enabling resident entities providing services to non-residents to fully deduct such income, subject to conditions such as invoicing to non-residents and repatriation of income to Türkiye by the annual tax return filing deadline. These measures, applicable from January 1, 2026.
  • Türkiye’s enactment of Law No. 7582 on June 4, 2026, brings significant corporate tax and investment incentives targeting production activities, regional service centers and strategic business sectors. Key corporate tax changes include a reduced 12.5% corporate income tax rate for qualifying production and agricultural activities, effective from 2027; the introduction of a preferential tax regime for qualifying service centers serving foreign affiliated parties, enhanced incentives for businesses operating within the Istanbul Finance Centre and designated industrial zones, and the extension of certain financial services tax benefits. The legislation also introduces measures supporting technology start-ups, including exemptions from certain restrictions on conditional capital increases based on convertible debt contracts and relief from chamber of commerce fees and dues for qualifying businesses. In addition, taxpayers may benefit from more flexible tax debt deferral arrangements through extended repayment periods and increased thresholds for unsecured deferrals. The measures form part of Türkiye’s broader efforts to strengthen its competitiveness and support business growth through targeted tax and investment incentives.
• Personal Taxes:
  • As part of the broad tax reforms enacted under Law No. 7582 on June 4, 2026, Türkiye ha introduced a new inpatriate regime and expanded several individual tax incentives. The legislation grants a 20-year income tax exemption for qualifying foreign-source income earned by eligible individuals relocating to Türkiye, provides a preferential inheritance tax rate for certain assets transferred during the exemption period, and enhances the income tax exemption available for employee share awards granted by qualifying technology start-ups. In addition, employees working in qualifying service centers may benefit from income tax exemptions on a portion of their salary income, with enhanced exemption thresholds available for personnel employed within the Istanbul Finance Centre and designated industrial zones. The law also introduces a new wealth repatriation program allowing taxpayers to declare previously undisclosed domestic and foreign assets in exchange for preferential tax treatment and protection from future tax assessments. The reforms reinforce Türkiye’s efforts to attract talent, encourage investment, and enhance the competitiveness of its tax framework.
• Indirect Taxes:
  • The Tax Administration issued updated guidance on the VAT exemption applicable to the sale of immovable property. The guidance confirms that the exemption was abolished for qualifying property sales from July 15, 2023, while preserving relief for properties held before that date under transitional provisions. It also clarifies certain practical aspects of the exemption regime, including the treatment of mergers, demergers, and the calculation of the two-year holding period. The updated guidance provides greater clarity on the application of the VAT rules for immovable property transactions and related restructuring activities.
  • Türkiye issued updated VAT implementation guidance to align with recent legislative amendments, introducing several changes to VAT exemptions and refund procedures. The guidance expands the VAT exemption for the construction of places of worship and religious education facilities, removes the VAT exemption for healthcare services provided by foundation university hospitals from January 1, 2027, and extends the scope of existing donation-related VAT relief to cover donations made to certain social welfare institutions. It also clarifies the VAT exemption for qualifying property transfers to the State and public bodies under expropriation rules and simplifies VAT refund procedures for certain exports, reducing administrative requirements for taxpayers. The changes further modernize Türkiye’s VAT framework by clarifying the application of VAT exemptions and administrative procedures.

Key Controversy Issues in Q2:

• Türkiye’s Council of State ruled that the classification of a taxpayer as subject to mandatory tax audits for VAT refund purposes is a definitive administrative act that can be challenged directly before the courts. The decision resolves conflicting judicial interpretations and recognizes that such classifications can extend beyond the refund process by affecting a taxpayer’s reputation and commercial relationships within the supply chain. While the Court confirmed the tax authority’s statutory power to subject taxpayers with negative VAT compliance findings to the tax-audit refund process, it also confirmed taxpayers’ right to challenge their inclusion in the category and seek judicial review of the underlying findings. Businesses should, therefore, monitor their VAT compliance status closely and assess any potential implications of risk-based categorizations on refund claims and commercial operations.

Tax policy developments across the APAC region in Q2 2026 reflected a continued focus on the implementation of internationally driven tax frameworks, the enhancement of tax transparency initiatives, and expanded reporting obligations. Several jurisdictions, including Malaysia, Korea, Indonesia, Japan and Thailand, advanced Pillar Two implementation and reporting frameworks, while Hong Kong and Vietnam introduced measures relating to information exchange, CbCR and broader tax transparency. Hong Kong also progressed targeted tax measures and incentives to support investment and economic activity. Administrative guidance remained an important feature across the region, with tax authorities providing clarification on compliance requirements, reporting frameworks, transfer pricing matters, and the application of existing tax rules. Legislative developments and judicial decisions further provided guidance on indirect tax provisions, foreign tax relief, and cross-border transactions. Taken together, these developments reflect continued efforts to enhance reporting and compliance obligations and provide greater certainty in the application of international tax rules across the region.

China

Key Policy Update in Q2:

• Corporate Taxes:
  • No significant update.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • The Consumption Tax reporting regime is undergoing significant changes, with intensified granular audits on indirect transfer pricing in the liquor sector. Key areas of focus include the mandatory disclosure of related distributors and their relationship details, as well as full transparency in value chain pricing among related parties. These developments are leading to increased tax audit exposure, particularly for businesses in the fast-moving consumer goods and luxury goods sectors. At the same time, China tax authorities are increasingly leveraging digital systems to monitor pricing across entities, enabling real-time, data-driven detection of transfer pricing risks in indirect tax areas and strengthening overall tax enforcement.
  • The Customs Authorized Economic Operator (AEO) framework is undergoing a significant update, with revised rules placing stronger emphasis on data governance as a core component of AEO accreditation. Enterprises are now required to demonstrate strict integration of data governance practices, while uncertainties have emerged regarding whether sharing logistics data with overseas headquarters may breach China’s data localization requirements. As a result, AEO qualification is increasingly linked not only to traditional trade compliance, but also to broader data compliance standards, which may lead to potential delays in obtaining certification or even the loss of fast-track customs benefits. Overall, this reform reflects a policy shift toward enhancing data governance within the AEO framework, which itself is evolving into an ‘integrated compliance certification’ system and is gradually taking shape as a two-tiered structure aligned with both global regulatory expectations and domestic enterprise needs.
• Others
  • China introduced a new anti-extraterritorial compliance regime, which will shape the international tax and legal landscape. Under this framework, multinational enterprises may be penalized for implementing discriminatory overseas compliance protocols within China borders. The regime also establishes mechanisms such as a ‘Malicious Entity List’ and corresponding countermeasures, signaling a more assertive stance on safeguarding domestic regulatory sovereignty. As a result, cross-border structuring, intercompany transactions, and supply chain arrangements are increasingly subject to sanctions-driven restrictions and heightened scrutiny. Overall, this policy shift is driving multinational companies toward China-specific compliance and operating models, thereby requiring more sophisticated, regionally tailored strategies to mitigate legal and regulatory risks.

Key Controversy Issues in Q2:

• No key controversy update.

Hong Kong

Key Policy Update in Q2:

• Corporate Taxes:
  • Hong Kong proposed enhancements to its intellectual property (IP) tax deduction regime, including allowing deductions for certain IP acquisitions from related parties, subject to anti-avoidance safeguards and valuation requirements. The proposals also expand relief for licensing arrangements by permitting deductions for qualifying upfront license payments used in generating taxable profits, regardless of whether they are capital or revenue in nature. In addition, if income derived from the overseas use of IP is taxable in Hong Kong under the foreign-sourced income exemption regime, a corresponding deduction for related acquisition costs may be available. The government intends to introduce the necessary legislation during 2026, with the changes expected to apply to eligible IP acquisitions and licensing rights from April 1, 2026. These measures are intended to encourage IP-related investment and reinforce Hong Kong’s position as a regional hub for IP activities.
  • Hong Kong introduced legislation to implement the OECD’s Crypto-Asset Reporting Framework (CARF) and the updated Common Reporting Standard (CRS), strengthening tax transparency and expanding information exchange obligations. Under the proposed rules, crypto-asset service providers with sufficient connections to Hong Kong would be subject to registration, due diligence, reporting, and record-retention requirements. The CARF regime is expected to take effect in 2027, with the first exchange of crypto-asset information anticipated in 2028, while the revised CRS framework is scheduled for implementation in 2028 with the first exchange in 2029. The Inland Revenue Department (IRD) is expected to issue guidance and provide operational support to assist affected entities with compliance. These measures are intended to align Hong Kong’s reporting framework with evolving international tax transparency standards and strengthen cross-border exchange of tax information.
  • Hong Kong gazetted the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026, which proposes significant enhancements to the preferential tax regimes for privately offered funds, family-owned investment holding vehicles and carried interest. The Bill expands the definition of a ‘fund’, broadens the scope of qualifying investments, removes the existing 5% threshold for incidental transactions, relaxes the tax exemption treatment for certain special purpose entities, and enhances the carried interest concession by expanding the scope and simplifying the eligibility requirements for eligible carried interest distributions. Once enacted, the reforms are expected to apply retroactively from April 1, 2025. The proposed amendments are intended to strengthen Hong Kong’s attractiveness as a leading wealth and asset management hub and provide a more competitive tax framework for investment funds and carried interest arrangements. See A&M Tax Alerts on the updates to Carried Interest Tax Concession and Unified Funds Exemption and Single Family Office Regimes.
• Personal Taxes:
  • Hong Kong’s refined Carried Interest Tax Concession (referenced above) states that carried interest and performance fees that are linked to fund performance can qualify for a 0% concessionary salaries tax rate for qualifying employees. See A&M Tax Alert for additional insights.
• Indirect Taxes:
  • Hong Kong does not have indirect tax.

Key Controversy Issues in Q2:

• No key controversy update.

Vietnam

Key Policy Update in Q2:

• Corporate Taxes:
  • Vietnam’s Tax Department clarified compliance requirements for CbC reporting under the Multilateral Competent Authority Agreement on the Automatic Exchange of CbC Reports (CbC MCAA). The letter provides a guidance that, where a Vietnamese taxpayer’s Ultimate Parent Entity (UPE) is located overseas, that is required to file a CbC Report under the regulations of its jurisdiction of residence, and falls within the scope of exchange under the CbC MCAA with the countries and territories specified in the letter, the tax authority will receive the CbC Report via automatic exchange of information mechanism under the international tax agreements to which Vietnam is a party and will not receive CbC Reports submitted by taxpayers in paper form or any other methods. This could reduce administrative burden for CbC reporting compliance
• Personal Taxes:
  • Vietnam’s Tax Department clarified the change of personal income tax (PIT) declaration period for employment income from April 2026 onwards. This could reduce the administrative burden of PIT compliance for employment income.
• Indirect Taxes:
  • Vietnam issued Decree No. 144/2026/ND-CP (Decree 144) on May 5, 2026 (effective from June 20, 2026) to clarify/amend the regulations on VAT exemptions, inter alia regulated insurance services, and debts trading. Decree 144 also regulates that VAT calculation is not required for revenue from insurance brokerage commissions that are not subject to VAT, while expanding the VAT taxable revenue for the input VAT allocation purpose to include VAT non-declarable revenue. Decree 144 also further regulates on the allowable input VAT reclaim upon having regulated non-cash payment evidence (that was previously disallowed due to a lack of non-cash payment evidence). This new Decree provides more clarity and flexibility in VAT treatments for taxpayers, especially the rule on the allowable input VAT reclaim that could potentially benefit cashflow for taxpayers.

Key Controversy Issues in Q2:

• No key controversy update.

Malaysia

Key Policy Update in Q2:

• Corporate Taxes:
  • Malaysia continued to advance the implementation of its Global Minimum Tax (GMT) regime in Q2 of 2026 issuing additional administrative guidelines and Frequently Asked Questions (FAQs) through the Inland Revenue Board of Malaysia (IRBM). The publication of the Guidelines on the implementation of Domestic Top-up Tax in Malaysia on February 3, 2026, provides a greater certainty to in-scope Malaysian constituent entities and guidance on the operation of the Domestic Top-up Tax, including the computation of top-up tax, filing obligations, transitional rules, safe harbor provisions, and administrative requirements. IRBM also expanded its administrative guidance through multiple updates via FAQs (i.e., Version 7.0 and 8.0) addressing practical implementation issues encountered during the first year of the GMT regime. These updates also clarify that the GMT provisions under the Malaysian Income Tax Act 1967 (MITA) are intended to automatically incorporate any Agreed Administrative Guidance issued by the OECD Inclusive Framework from time to time. In the event of any inconsistency between the IRBM guidelines and the Agreed Administrative Guidance, the latter shall prevail.
  • The IRBM issued updated Public Ruling in relation to Bilateral Credit and Unilateral Credit on May 22, 2026, which supersedes the previous Public Ruling issued in 2021 and 2011 in relation to Bilateral Credit and Unilateral Credit. The updated ruling has been expanded to include new paragraphs regarding the introduction of the taxation of foreign-sourced income with effect from January 1, 2022, and the introduction of capital gains tax with effect from January 1, 2024. The updated ruling clarifies that a bilateral credit or unilateral credit may be claimed in respect of foreign-sourced income received in Malaysia and gains or profits from disposal of capital assets, provided that such income, gains or profits have also been subjected to foreign tax and the applicable conditions for the foreign tax credit are satisfied.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • The Ministry of Finance (MOF) announced several updates relating to the Malaysia’s Sales and Service Tax (SST). This includes a temporary facilitative measure that exempts Import Duty and Sales Tax on goods manufactured by a Malaysian registered manufacturer, exported, and subsequently re-imported by the same manufacturer due to disruptions arising from the Middle East conflict. This exemption is effective until December 31, 2026, and is subject to conditions prescribed by the MOF.
  • The Royal Malaysian Customs Department (RMCD) issued service tax policies and amendments to policy, covering management services and financial services. Key measures include:
    • Charging 8% service tax on health screening management services from May 1, 2026.
    • Service tax exemption on acquisition of brokerage services relating to trading shares.
    • Service tax exemption on fees or commissions charged for services provided through a domestic commodity trading platform.
• Others:
  • Malaysia implemented the Stamp Duty Self-Assessment System effective January 1, 2026, marking a significant shift in stamp duty administration. To facilitate the transition, the IRBM introduced the Stamp Duty Special Voluntary Disclosure Program 2026 running from January 1, 2026, to December 31, 2026, under which taxpayers are granted full remission of late stamping penalties for eligible instruments executed within the program period. In addition, the IRBM issued an updated Stamp Duty Audit Framework 2026, effective January 1, 2026. The framework clarifies that audit coverage may extend to the current year and the preceding three years, and introduces procedural enhancements aimed at improving audit efficiency and strengthening compliance oversight. Collectively, these measures reflect the IRBM’s continued focus on modernizing stamp duty administration while strengthening compliance enforcement under the self-assessment regime.

Key Controversy Issues in Q2:

• No key controversy update.

India

Key Policy Update in Q2:

• Corporate Taxes:
  • India issued a notification amending Rule 128 of the Income-tax Rules, 2026, to clarify that GAAR does not apply to income arising from investments made before April 1, 2017, reaffirming the grandfathering protection available to such investments. Effective April 1, 2026, the amendment aims to remove uncertainty about the scope of the grandfathering provisions following the Supreme Court’s ruling in the Tiger Global International II Holdings case and provide greater certainty to taxpayers.
  • On June 5, 2026, India issued an Ordinance whereby an income tax exemption is provided to Foreign Institutional Investors (FIIs)/Foreign Portfolio Investors (FPIs) and Bank for International Settlements (BIS) on the following incomes earned after April 1, 2026:
    • Interest from Indian Government Securities (G-secs).
    • Capital Gains arising from sale, exchange, or transfer of such G-secs.

While the Ordinance is effective immediately, it will need to be approved by both the Houses of the Parliament in the next working session to be enacted into the Income-Tax Act, 2025.

• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • The India-UK Comprehensive Economic and Trade Agreement (CETA) officially entered into force with effect from July 15, 2026, is a landmark trade agreement aimed at deepening economic cooperation between India and the United Kingdom. The agreement grants preferential market access, including duty-free treatment for approximately 99% of Indian exports to the UK, benefiting key sectors such as textiles, engineering goods, pharmaceuticals, auto components, gems, and jewelry, and marine products. It also expands opportunities for Indian service providers in areas such as information technology, consulting, engineering, and financial services. On the import side, India will provide phased tariff concessions on selected UK products, including industrial machinery, automobiles, and alcoholic beverages. The agreement further strengthens trade facilitation, customs cooperation, and professional mobility, including relief from double social security contributions through the Double Contribution Convention.

Key Controversy Issues in Q2:

• The Supreme Court in the case of L.K. Trust v. CIT, held that interest on borrowings is deductible as revenue expenditure even when funds are deployed in group/subsidiary entities, provided there is a business purpose. The Court clarified that the section applies to borrowed money (not all debts) and that ‘purpose of business’ includes commercial expediency. It rejected the High Court’s view and held that use through group structures does not deny the deduction where a business nexus exists.
• The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), in the case of Alibaba.com Singapore E‑Commerce Pvt. Ltd., held that taxpayers can apply the provisions of the Income Tax Act or the Tax Treaty on a transaction-wise basis, treating each investment as a separate source of income. Therefore, allowing taxpayers’ claim of Tax Treaty exemption on long term capital gains (grandfathered investments pre‑April 2017), while permitting carry forward of capital losses under the Income Tax Act for other capital gains transactions during the year. Rejecting forced aggregation, the ITAT held that exempt gains cannot be brought into the computation of taxable income.
• The Special Bench of the Chandigarh ITAT, in the case of Malwa Gramin Bank, held that provisions created on ‘standard assets’ under Reserve Bank of India (RBI) norms are eligible for deduction as provisions for bad and doubtful debts, even though such assets are not bad/non-performing assets. The bench observed that standard assets also carry risk and prudential provisioning is required, and therefore, such provisions also qualify for deduction under the prescribed clause permitting deduction for non-performing asset provisions within prescribed limits.
• The Delhi High Court in the case of Ernst & Young U.S. LLP (EY US), held that EY US retained a ‘lien’ and overarching control over the seconded employees on the facts presented. Consequently, cost to cost salary reimbursements of such employees from their Indian members firms was taxable as Fees for Technical Services (FTS). The Court relied on the ruling in the case of Centrica India Private Limited (Centrica Ruling) and observed that given EY US continued to retain a ‘lien’ over the employees sent to India and Indian entities did not have the termination right over these employees, these employees never ceased being employees of EY US. Further, given that the seconded employees were imparting know how and technical expertise to the employees of the Indian entities, the services constituted FTS. As to the taxability of receipts earned by EY US from their Indian clients for services rendered in and from the USA, the Court remanded the matter to the ITAT for factual examination of the nature of services. See A&M Tax Alert for additional insights.
• The Bombay High Court in case of D P Jain & Co. Infrastructure Private Limited, held that issuance of a corporate guarantee by a parent company in favor of its subsidiary, without charging any consideration, does not constitute a supply or supply of services under the GST law. The Court observed that a corporate guarantee is merely an in-house financial support arrangement and a contingent contract that becomes enforceable only upon default by the borrower. It also distinguished corporate guarantees from bank guarantees, noting that the former are generally issued without consideration or security and are not part of a commercial business activity. However, while granting relief to the taxpayer, the High Court declined to strike down the GST rule prescribing the valuation mechanism for corporate guarantees. The issue related to taxability of corporate guarantee is not yet settled as there are a bunch of petitions being heard by Gujarat High Court on corporate guarantee issue. For certain sectors such as education, healthcare, renewable energy, and businesses operating under an inverted duty structure the GST on corporate guarantee is resulting in significant working capital blockages and adds costs for businesses. In this backdrop, media reports suggest that the Government is examining industry concerns and may issue clarification or revise the valuation mechanism for corporate guarantees to mitigate the unintended tax burden and provide relief to the affected industries. However, pending further clarity and unresolved litigation on the issue, taxpayers are required to carefully evaluate their positions on the taxability and valuation of corporate guarantees.
• The Mumbai ITAT, in the case of Sterling Holiday Resorts Ltd. v. DCIT, held that tax-neutral treatment for a demerger under the Income-tax Act, 1961 requires strict compliance with statutory conditions. The Tribunal denied carry forward and set-off of accumulated losses under section 72A, ruling that the transaction did not qualify as a demerger because the undertaking was transferred to one group company while shares were issued by its holding company, instead of the resulting company itself. The Tribunal emphasized that holding and subsidiary companies are separate legal entities and that company law approval of a restructuring scheme does not automatically entitle taxpayers to tax benefits when the specific requirements of the Income-tax Act are not satisfied. See A&M Tax Alert for additional insights.
• The Supreme Court of India held that online gaming, fantasy sports, and casino activities involving pooled stakes constitute taxable actionable claims arising from betting and gambling under the GST regime. The Court ruled that GST is leviable on the entire stake or deposit amount contributed by players, including amounts allocated to prize pools and payouts, rather than only on the platform fee. It upheld the constitutional validity of the levy and held that the 2023 amendments clarifying the valuation and collection framework are retrospective in nature. The Court also confirmed that gaming platforms act as principal suppliers of the taxable actionable claims, not merely as intermediaries. This decision provides greater certainty on GST treatment of online gaming, fantasy sports, and casino activities and clarifies the valuation framework applicable to such transactions.
• The Karnataka High Court delivered a significant ruling in favor of Canara Bank, Bank of Baroda, and Karnataka Bank (collectively referred to as ‘Petitioner banks’), holding that the maintenance of a Minimum Average Balance (MAB) in bank accounts by the customers does not constitute ‘consideration’ for the provision of free (banking) services by banks and, therefore, cannot be subjected to service tax. The Court observed that consideration requires a real and identifiable economic benefit flowing to the service provider and an irretrievable outflow from the recipient. Since customers retain unrestricted ownership over funds, can withdraw them at any time, and continue to earn interest thereon, the Court held that no consideration accrues to the bank merely because a minimum balance is maintained. The judgment also rejects the Revenue’s attempt to classify the arrangement as a declared service of ‘agreeing to the obligation to do an act,’ noting the absence of a direct quid pro quo and relying on Central Board of Indirect Taxes and Customs (CBIC) circulars that require a separate contractual arrangement and identifiable consideration for such services. Further, relying on favorable GST ruling in the case of South Indian Bank, the Court quashed the show cause notices issued to the Petitioner banks. The judgment is expected to have significant implications for similar industry-wide disputes and provides important guidance on the concepts of consideration, quid pro quo, and the tax treatment of penal charges under both Service Tax and GST laws.

Singapore

Key Policy Update in Q2:

• Corporate Taxes:
  • The Inland Revenue Authority of Singapore (IRAS) clarified the transfer pricing treatment of share-based compensation (SBC) for entities applying a full cost mark-up under the Transactional Net Margin Method (TNMM). While SBC continues to form part of the transfer pricing cost base for determining the arm’s length mark-up, from year of assessment (YA) 2026, taxpayers may apply a practical concession allowing uncharged and notional SBC costs to be excluded from billable service income. The clarification is relevant for multinational groups with Singapore entities operating cost-plus or TNMM-based intra-group service models. Groups should review intercompany service agreements, cost base definitions, accounting segmentation, recharge calculations, billing mechanics, and transfer pricing documentation ahead of YA 2026 filings. See A&M Tax Alertfor additional insights.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • The GST Board of Review denied input tax where transactions lacked commercial reality. This case deals with the issue of whether the Comptroller of Goods and Services Tax had incorrectly denied the appellant’s claim for input tax related to goods supplied to it in numerous disputed transactions in an accounting period, in a case of missing trader fraud. The Goods and Services Tax Board of Review dismissed the appeal because the appellant failed to prove, on the balance of probabilities, that the goods described in the tax invoices were genuinely supplied or that the transactions were part of a legitimate business.

Key Controversy Issues in Q2:

• No key controversy update.

Korea

Key Policy Update in Q2:

• Corporate Taxes:
  • Korea’s National Tax Service (NTS) announced the commencement of the first filing period under its GMT regime, with returns and any associated tax payments for the 2024 fiscal year due by June 30, 2026. The regime implements the OECD/G20 Pillar Two framework and a 15% minimum effective tax rate, under which additional tax may arise through the Qualified Domestic Minimum Top-Up Tax (QDMTT), Income Inclusion Rule (IIR), or Undertaxed Profits Rule (UTPR). For the 2024 fiscal year, Korea will apply the IIR. In-scope Multinational Enterprise (MNE) groups are required to submit the relevant GMT information returns and, where applicable, top-up tax returns. The commencement of the first filing season represents an important milestone in the administration of Korea’s Pillar Two framework.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• No key controversy update.

Indonesia

Key Policy Update in Q2:

• Corporate Taxes:
  • Indonesia has introduced detailed administrative rules for operating its OECD/G20 Pillar Two regime, applicable to MNE groups with annual consolidated revenue of at least EUR 750 million. The framework sets out registration, reporting, filing, and payment obligations relating to the IIR, UTPR, and Domestic Minimum Top-Up Tax (DMTT), together with requirements for the submission of GloBE Information Returns (GIRs). The rules also establish procedures for return corrections, tax assessments, audits, and dispute resolution. Effective May 4, 2026, these measures are intended to support the practical administration and enforcement of Indonesia’s global minimum tax regime.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• No key controversy update.

Japan

Key Policy Update in Q2:

• Corporate Taxes:
  • Japan has enacted its 2026 tax reform package, introducing several OECD/G20 Pillar Two safe harbors into domestic law. Effective April 1, 2026, the measures provide a zero-top-up tax outcome under the IIR and UTPR for groups operating in jurisdictions covered by qualifying side-by-side regimes. The package also introduces safe harbors for Ultimate Parent Entities (UPEs) and certain substance-based tax incentives, while extending the transitional CbCR safe harbor to fiscal years beginning through December 31, 2027. In addition, recent OECD administrative guidance on Article 9.1 of the GloBE Model Rules has been incorporated into domestic legislation. These changes are intended to align Japan’s Pillar Two framework with international developments and reduce compliance complexity for MNE groups.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• The Supreme Court of Japan held that when a Japanese resident uses one foreign currency to acquire another foreign currency or a foreign-currency-denominated security, any foreign exchange (FX) gain or loss is realized at the time of the transaction. The Court ruled that the yen-converted value of the acquired asset constitutes the ‘amount to be received’ under Article 36(1) of the Income Tax Act, and the difference between such value and the yen cost of the foreign currency used is taxable. Rejecting the taxpayer’s argument that gains remain unrealized until conversion into yen, the Court observed that the economic value of the fluctuating foreign currency becomes fixed upon acquisition of the new asset. The decision provides important judicial clarification on the timing of FX gain or loss recognition; however, the court also highlighted the lack of specific statutory provisions governing FX gains and losses and called for legislative action to improve tax certainty.

Thailand

Key Policy Update in Q2:

• Corporate Taxes:
  • On June 16, 2026, the Thai Cabinet approved Thailand’s participation in the OECD’s GloBE information exchange framework by authorizing the signing of the Multilateral Competent Authority Agreement on the Exchange of GloBE Information (GIR MCAA). The GIR MCAA facilitates the automatic exchange of GloBE Information Returns (GIRs) among participating jurisdictions and constitutes a Qualifying Competent Authority Agreement under the OECD Pillar Two framework. The first exchange of GIR information with partner jurisdictions is expected to commence by December 2027.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • Thailand revised its customs reward regime while preserving key enforcement incentives. Under the new Regulation on Informer and Officer Rewards, effective June 30, 2026, rewards will be allocated under a more structured framework among customs officers involved in seizures, investigations, and supporting activities, while eligibility for certain payments is limited to operational-level officials. However, the fundamental incentive structure remains largely unchanged, including rewards linked to customs enforcement actions and additional duty recoveries. As a result, businesses should not expect any material reduction in customs audit or enforcement activity, particularly in areas such as customs valuation, tariff classification, origin claims, and licensing compliance.
  • Thailand commenced implementation of its new export control regime following the issuance of the National Control List in May 2026. On June 30, 2026, the Ministry of Commerce issued two notifications introducing export licensing requirements and licensing procedures for Category 0 (nuclear-related) dual-use items, with the licensing requirement becoming effective on July 30, 2026. These measures represent the first phase of Thailand’s transition to a licensing-based export control framework under the Trade Controls on Weapons of Mass Destruction Related Items Act B.E. 2562 (2019). Businesses involved in international trade should assess whether their products fall within the scope of the new controls and evaluate the potential impact of future licensing requirements as the regime expands to additional categories.

Key Controversy Issues in Q2:

• No key controversy update.

Tax developments across the Middle East in Q2 2026 reflected a continued focus on tax administration, reporting frameworks, and the implementation of emerging tax regimes. In the UAE, developments centered on the rollout of the e-invoicing framework, including further guidance on compliance and record-keeping requirements clarifying treatment of advance payments and retention amounts. Saudi Arabia’s updates focused on VAT administration, through revised guidance and amendments to the Gulf Cooperation Council (GCC) Unified VAT Agreement affecting intra-GCC transactions and information exchange. Bahrain advanced its Pillar Two implementation with the release of the Domestic Minimum Top-up Tax (DMTT) Computation Guide and the DMTT Transfer Pricing Guide and enhanced tax administration procedures through updated Tax Agent and VAT Representative guidance. In Qatar, reforms aimed to streamlining the application of treaty withholding tax relief via the introduction of the Trusted Entity regime. Overall, the quarter reflected continued efforts to enhance reporting and compliance frameworks, strengthen tax administration processes, and provide greater certainty in the application of new and evolving tax regimes across the region.

UAE

Key Policy Update in Q2:

• Corporate Taxes:
  • No significant update.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • The UAE Ministry of Finance introduced a four-corner e-invoicing model that allows businesses to exchange structured electronic invoices through accredited service providers (ASPs), without directly sharing invoices with the Federal Tax Authority (FTA). The model operates within a broader five-corner framework that incorporates the FTA as an additional participant, enabling tax data to be reported to the FTA while invoices continue to be exchanged through the ASP network. Following a pilot phase commencing from July 1, 2026, the regime will be implemented in stages from January 2027, with larger businesses (annual revenue over AED 50 million) required to comply first, followed by smaller businesses and government entities. Businesses should assess invoicing processes and prepare for compliance with the upcoming e-invoicing requirements.
  • The UAE’s electronic invoicing framework has been updated through Version 1.1 of the Electronic Invoicing Guidelines released by the Ministry of Finance. The revisions introduce greater flexibility by permitting taxpayers to maintain electronic invoicing records outside the UAE, provided such records can be furnished promptly to the Federal Tax Authority upon request. The updated guidance also clarifies the invoicing treatment of advance payments and retention amounts under the Peppol International Invoice – UAE (PINT-AE) billing specifications, while leaving the technical and procedural framework established under Version 1.0 unchanged.

Key Controversy Issues in Q2:

• No key controversy update.

Kingdom of Saudi Arabia

Key Policy Update in Q2:

• Corporate Taxes:
  • No significant update.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • The Zakat, Tax and Customs Authority (ZATCA) issued the third edition of its General VAT Guideline, reflecting recent amendments to the VAT Implementing Regulations and the e-invoicing framework. The updated guideline provides additional guidance on key VAT matters, including registration and deregistration, deemed supplies, invoicing requirements, input tax recovery, error corrections, objections, and the VAT treatment of used goods. It also reflects the latest e-invoicing requirements, confirms the applicable VAT registration thresholds, and sets out revised conditions for the formation of VAT groups. The guideline serves as administrative guidance and does not amend the VAT Law or its Implementing Regulations.
  • Saudi Arabia approved amendments to the GCC Unified VAT Agreement to update the VAT framework for cross-border transactions within GCC. The amendments revise the rules governing intra-GCC supplies, import VAT collection, VAT recovery in certain cases involving individuals and non-registered persons, and the exchange of information between member states. They also provide for import VAT to be collected at the first GCC point of entry and subsequently transferred to the member state of destination. The changes were approved by the Saudi Council of Ministers and amend the Agreement originally adopted in Saudi Arabia in 2017.

Key Controversy Issues in Q2:

• No key controversy update.

Bahrain

Key Policy Update in Q2:

• Corporate Taxes:
  • Bahrain’s National Bureau of Revenue (NBR) released Version 1.0 of the Domestic DMTT Computation Guide, providing practical guidance on the application of the 15% minimum tax for in-scope Multinational Enterprise (MNE) Groups. The guide outlines a 12-step methodology for calculating DMTT liability, covering financial accounting income, covered taxes, deferred tax adjustments, and effective tax rate calculations. It also provides guidance on substance-based income exclusions, safe harbors and specific rules for investment entities, joint ventures, minority-owned entities, and corporate restructurings. The release represents an important milestone in Bahrain’s Pillar Two implementation and highlights the need for MNE Groups to prepare for upcoming compliance and reporting obligations.
  • Bahrain’s NBR issued Version 1.0 of the DMTT Transfer Pricing Guide, outlining arm’s length requirements, OECD-aligned methodologies, and documentation (master and local file) obligations for in-scope entities, with limited application to DMTT framework. The guidance signals increasing alignment with global transfer pricing standards and MNEs should proactively assess potential adjustments and strengthen documentation readiness. See A&M Tax Alert for additional insights.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • The NBR issued Version 2.0 of its Tax Agent and VAT Representative Guide, setting out updated procedures for the registration, authorization, and appointment of tax agents and VAT representatives in relation to VAT and DMTT obligations, including clarification of their respective roles, with VAT representatives of non‑resident taxpayers being jointly liable for VAT dues and penalties. The guidance also outlines eligibility conditions (including residency requirements), applicable fees, and a three‑year renewable authorization, while providing details on the NBR portal functionalities for managing appointments, client accounts, sub‑users, registration updates, renewals, and deregistration. This update highlights a move toward more formalized and streamlined administrative processes for managing tax obligations and representations.

Key Controversy Issues in Q2:

• No key controversy update.

Israel

Key Policy Update in Q2:

• Corporate Taxes:
  • No significant update.
• Personal Taxes:
  • The Israel Tax Authority issued guidance on claiming tax credits for donations to approved public institutions. Eligible resident individual donors may claim a 35% credit, subject to specified thresholds, capping, and carry‑forward rules, and may obtain the benefit through payroll or through refund filings. The guidance also introduces the Israel Donations System, under which approved institutions are required to report donations electronically from January 1, 2026. This reporting will serve as the primary mechanism for donors to obtain the corresponding tax credit. The update highlights the increasing importance of digital reporting in supporting the accurate and efficient administration of tax credits.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• No key controversy update.

Qatar

Key Policy Update in Q2:

• Corporate Taxes:
  • Qatar’s General Tax Authority has introduced a ‘Trusted Entity’ regime that enables eligible resident taxpayers to apply tax treaty withholding tax relief at source on payments made to non‑residents, replacing the earlier pay‑and‑refund mechanism. Under the regime, approved entities may apply reduced treaty rates or exemptions upon verifying the recipient’s eligibility through required documentation (such as tax residency and beneficial ownership confirmations), undertake due diligence within prescribed timelines, report transactions via the Dhareeba portal, and retain supporting records. Trusted Entity status is granted for a limited period (generally three years), subject to renewal and potential withdrawal if conditions are not met. This regime took effect on April 12, 2026, and signals a more streamlined approach to applying treaty relief in cross‑border transactions.
• Personal Taxes:
  • No significant update.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• No key controversy update.

Tax developments across Australia and New Zealand in Q2 2026 focused on tax reform, compliance frameworks, and the implementation of internationally driven tax initiatives. In Australia, developments centered on Pillar Two reporting and compliance obligations, enhancements to transfer pricing risk assessment guidance, reforms to the foreign-resident capital gains tax regime, and broader corporate and personal tax reform measures. In New Zealand, developments focused on tax administration and compliance improvements, information-sharing initiatives, and the release of guidance and consultation documents relating to GST and the application of OECD GloBE guidance. Overall, the quarter reflected continued refinement of tax and compliance frameworks, enhanced reporting and administrative processes, and greater certainty in the application of existing tax rules across both jurisdictions.

Australia

Key Policy Update in Q2:

• Corporate Taxes:
  • The Government introduced the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Bill 2026 in Parliament on July 2, 2026, to progress reforms strengthening the foreign-resident Capital Gains Tax (CGT) regime. The Bill retains key measures from the exposure draft, including a broader definition of taxable Australian property, a 365-day principal asset test for indirect interests, enhanced notification and withholding requirements, and a temporary 50% CGT concession for eligible renewable energy asset disposals completed by June 30, 2030. The proposed retrospective application of the expanded real property definition has been removed, with the reforms intended to apply on a prospective basis after Royal Assent. The Bill has not yet been enacted.
  • The Australian Taxation Office (ATO) has updated its guidance under PCG 2019/1 on transfer pricing risk assessments for inbound distribution arrangements involving Australian entities. The revised guidance includes updated profit benchmarks by industry based on recent financial data and provides clearer distinctions for entities performing complex functions or developing marketing intangibles in Australia. It also introduces a new ‘white zone’ category for taxpayers with advance pricing agreements or high-assurance ratings, signaling a lower likelihood of compliance review. Multinational enterprises with inbound distribution arrangements will need to reassess their transfer pricing positions against the updated profit indicators. This may require revisiting pricing policies, financial outcomes, and documentation to align with the revised benchmarks.
  • Australia has opened its lodgment system for Pillar Two returns, enabling multinational groups to file the GloBE Information Return (GIR) and the Combined Global and Domestic Minimum Tax Return (CGDMTR) through the ATO’s online platform. Initial filings were due by June 30, 2026, with a one‑time 30‑day extension provided for the first cycle. The GIR supports standardized global tax reporting and information exchange, while the CGDMTR captures liabilities under the Income Inclusion Rule (IIR) and the Domestic Minimum Tax Rules (DMT). The ATO has also issued guidance and urged taxpayers to ensure readiness of systems and processes for compliance. Multinational enterprises now need to ensure acceleration in tax administration and compliance to ensure accurate jurisdiction-level reporting.
  • As part of the Government’s 2026–27 Federal Budget tax reform package, Australia’s Parliament has introduced the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026, which would become law upon Royal Assent. The Bill proposes to allow eligible corporate taxpayers to carry back tax losses against taxes paid in prior income years through a refundable tax offset, and to permanently extend the AUD 20,000 instant asset write-off for small business entities with annual turnover less than AUD 10 million, enabling an immediate deduction for eligible depreciating assets. The proposed measures highlight the government’s continued focus on refining the corporate tax framework through targeted legislative reforms.
• Personal Taxes:
  • Following the announcement of tax reform measures in the 2026–27 Federal Budget, Australia’s Parliament has passed the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which will become law upon Royal Assent. The Bill proposes significant changes to the taxation of individuals and investment income, including replacing the 50% CGT discount with an inflation-based cost indexation method, introducing a 30% minimum effective tax rate on realized capital gains, tightening negative gearing rules for residential property investments, providing a non-refundable tax offset of up to AUD 250 and a standard AUD 1,000 deduction for eligible employment expenses, and strengthening integrity rules for discretionary trust arrangements. The measures are scheduled to commence in phases after Royal Assent. The proposed reforms are expected to reshape the taxation of investment income while strengthening the integrity of Australia’s tax framework.
• Indirect Taxes:
  • No significant update.

Key Controversy Issues in Q2:

• No key controversy update.

New Zealand

Key Policy Update in Q2:

• Corporate Taxes:
  • Ahead of New Zealand’s general election in November 2026, the Green Party has proposed a range of measures aimed at increasing the tax burden on large businesses and multinational groups. The party has proposed a series of business tax measures targeting large corporations, including increasing the corporate income tax rate from 28% to 33% for companies with annual turnover more than NZD 30 million, introducing a 0.06% levy on the total liabilities of banks with liabilities above NZD 100 billion, and imposing a 5% withholding tax on offshore profit remittances by large multinational technology and e-commerce companies. The party also proposes additional funding for Inland Revenue to support implementation and enforcement of these measures.
• Personal Taxes:
  • New Zealand’s Inland Revenue initiated a public consultation on a proposed Approved Information Sharing Agreement (AISA) with the New Zealand Customs Service. The proposal aims to reduce the risk of overpayments and associated debt under the Working for Families tax credit scheme by enabling Customs to share border movement information with Inland Revenue when recipients leave New Zealand. The AISA would replace existing Information Matching Agreements relating to student loans and child support with a single framework. The consultation outlined the proposed data-sharing process, categories of information to be exchanged, privacy safeguards, and potential debt recovery actions. Overall, the consultation reflects efforts to strengthen information‑sharing mechanisms for more effective administration of tax measures. Following the closing of the public consultation on June 5, 2026, Inland Revenue finalized its post-consultation advice and sought ministerial approval for the proposed AISA. The AISA has not yet been approved or brought into force.
  • In advance of New Zealand’s general election in November 2026, the Green Party has unveiled proposals targeting wealth and higher-income individuals through new taxes and changes to the personal tax system. The party has proposed significant changes to the taxation of individuals, including a 2.5% annual tax on net assets exceeding NZD 10 million (excluding the family home), a 33% capital acquisitions tax on inherited and gifted assets exceeding NZD 1 million (excluding family homes and family farms), a tax-free income threshold of NZD 10,000, and a new top personal income tax rate of 45% for income exceeding NZD 160,000. The package would also reinstate interest deduction restrictions for landlords and the 10-year bright-line property disposal test.
• Indirect Taxes:
  • Inland Revenue of New Zealand issued an exposure draft setting out updated GST guidance on directors’ and board members’ fees following recent amendments to the GST law. The draft clarifies GST treatment across various engagement models, including direct contracts, third‑party arrangements, and situations involving employees or partners who must remit fees, as well as cases where taxable activity is carried on or not. It also addresses appointments made by government authorities and outlines implications for both payers and recipients. The draft addresses uncertainties in the GST treatment of directors’ fees and provides a more structured framework for determining taxability across different engagement arrangements. The proposed rulings, supported by explanatory materials, are intended to replace earlier guidance. The public submission period closed on June 11, 2026.
  • New Zealand’s Inland Revenue issued a draft Interpretation Statement on May 21, 2026, for consultation, clarifying the GST treatment of arranging and brokering financial products. The guidance explains that intermediaries may qualify for a GST exemption when their role involves ‘arranging’ financial services, defined as direct and integral participation in bringing about a transaction under the GST law. It emphasizes first determining whether services constitute a single or multiple supply, because only qualifying arranging activities are exempt, while ‘advising’ activities remain taxable. Where both taxable and exempt elements exist, apportionment rules may apply. The draft provides greater clarity regarding the GST treatment of financial intermediation services, particularly in distinguishing between exempt arranging activities and taxable advisory services. The draft should be read alongside existing guidance on financial planning fees. The public submissions closed on July 2, 2026.
  • Inland Revenue of New Zealand released the ‘Current GST Issues’ paper on May 22, 2026, seeking feedback on areas where GST rules may not reflect policy intent or need technical improvements. Key international proposals include ensuring non-residents are not treated as New Zealand residents due to temporary activities, and zero-rating services provided to offshore businesses for events. Domestic suggestions involve refining definitions such as ‘dwelling’ and ‘commercial dwelling’, excluding certain zero-rated supplies from registration thresholds, and zero-rating surplus residential solar electricity. The paper also examines GST treatment for Māori land housing and unincorporated bodies. Administrative reforms cover improved error correction, alignment of refund timeframes, pre-registration input tax deductions, and adoption of e-invoicing. Overall, the proposals reflect Inland Revenue’s ongoing efforts to enhance the clarity, consistency, and effectiveness of the GST regime. The public submissions closed on June 29, 2026.
  • New Zealand’s Inland Revenue released a Commissioner’s Statement relating to the GST treatment of low-value pre-registration acquired goods and services. It confirms that although section 21B of the GST Act 1985 allows registered persons to make an adjustment for certain goods and services acquired before GST registration, section 21(2)(b) prevents any adjustment where the GST-exclusive value of those goods or services is NZD 10,000 or less. For eligible pre-registration acquisitions exceeding this threshold, taxpayers must maintain appropriate records and use a fair and reasonable method to determine taxable use, with further adjustments required if actual use changes in subsequent adjustment periods. Inland Revenue also released an Officials’ Issues Paper in this regard outlining potential legislative changes in this area. 
• Key Controversy Issues in Q2:
  • No key controversy update.