Legislative Environment

The US did not enact major tax legislation in the fourth quarter following the passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025.[3] The outlook for tax legislation in 2026 remains uncertain, as Congress continues to debate an extenders package and other provisions—either as part of federal government funding, with January 30, 2026, as the next deadline to avert a government shutdown, or as standalone legislation. With midterms later this year, a shrinking legislative window suggests only moderate or targeted tax bills likely (e.g., ACA credits, gambling losses).

A summary of key Q4 2025 US updates are as follows:

Federal Tax Regulations 

1. Stock Repurchase Excise Tax – On November 22, 2025, Treasury and the IRS released final regulations on the 1% excise tax on corporate stock repurchases, narrowing the scope of covered transactions and providing much-needed clarity.[4] Key exemptions include most corporate reorganizations, leveraged buyouts, take-private deals, certain preferred stock, and complete liquidations. The final rules also eliminate the “funding rule” that would have included repurchases by publicly traded foreign corporations funded by US affiliates. The final regulations significantly reduce compliance uncertainty and potential tax exposure for corporations by narrowing the scope of taxable repurchases and eliminating the funding rule. 
   Effective Date: Generally retroactive to stock repurchases occurring after December 31, 2022, as well as issuances and provisions of stock during taxable years ending after that date. 
    
2. US Investments of Foreign Governments – Treasury and the IRS issued final and temporary regulations on December 15, 2025, clarifying when income from US investments of foreign governments is exempt from US taxation. Income is generally exempt if not derived from commercial activity or a controlled commercial entity. 
   Effective Date: Generally applies to taxable years beginning on or after December 15, 2025, but taxpayers may apply them to open taxable years subject to consistency requirements.
    
3. Interest Capitalization – On October 2, 2025, Treasury and the IRS finalized regulations requiring taxpayers to capitalize interest for improvements that constitute the production of designated property, which eliminate the “associated property rule” in the capitalization calculations (and similar rules) and modify the definition of “improvement.” Taxpayers undertaking property improvements may see lower capitalized interest costs and simplified compliance as the associated-property rule is removed and the definition of improvement is aligned with existing tangible property rules.
   Effective Date: Taxable years beginning after October 2, 2025.
    
4. Base Erosion and Anti-Abuse Tax (BEAT) – On December 18, 2025, Treasury and the IRS finalized regulations clarifying the application of the BEAT rules for qualified derivative payments (QDPs) in securities lending transactions. Mark-to-market gains and losses on the securities leg of a securities lending transaction are not treated as QDPs, while the substitute payments or other payments to a foreign related party are included in QDP calculations. Overall, this is favorable to taxpayers as QDPs are not considered base erosion payments if taxpayers meet certain reporting requirements.  
   Effective Date: Taxable years beginning on or after December 18, 2025, with an elective early application for taxable years beginning on or after January 10, 2025.

A&M TAS Says: 

The impact of final regulations should be accounted for in the period they are released (e.g., Q4 2025). When proposed regulations include reliance language, companies should consider their intent to follow these regulations. If a company intends to comply with the proposed regulations, it may need to adjust its tax positions and disclosures accordingly, even before the regulations are finalized.

Other Federal Tax Guidance 

Beyond fourth-quarter developments, this update also highlights several topics we believe are worth elevating—issues that were not featured prominently in prior reports but are becoming increasingly relevant as companies finalize their Q4 financial statements and look ahead to 2026.

1. Corporate Alternative Minimum Tax (CAMT) – Treasury and the IRS issued a series of notices during 2025, which generally provide simplified methods for applying CAMT rules, which may be relied on until proposed regulations are published. The notices address:

• Higher safe harbor threshold, allowing more companies to avoid CAMT under the simplified method (Notice 2025-27, June 2, 2025) 
• Simplified alternative rules for applying CAMT to partnerships and CAMT entity partners (Notice 2025-28, July 29, 2025) 
• Closer alignment of CAMT rules with regular tax rules for domestic corporate transactions, troubled companies, and consolidated groups (Notice 2025-46, September 30, 2025)
• Additional adjustments for unrealized financial statement gains and losses, elimination of retroactivity, and allowing taxpayers to selectively adopt sections of proposed regulations (Notice 2025-49, September 30, 2025)

2. Selected Deregulatory Actions – During 2025, as part of the administration’s deregulation and simplification agenda, Treasury and the IRS released guidance, which taxpayers may rely on. The guidance included: 

• Proposed regulations that would eliminate the domestic corporation look-through rule for determining whether foreign investors control a Qualified Investment Entity (QIE) under the Foreign Investment in Real Property Tax Act (FIRPTA).  
  Effective Date: The proposed rules, once finalized, would apply to transactions occurring on or after October 20, 2025, with an option to apply to transactions beginning April 25, 2024 (REG-109742-25, October 21, 2025).
• A notice indicating intent to issue proposed regulations that would remove disregarded payment loss (DPL) regulations and modifications to dual consolidated loss (DCL) regulations, which were finalized in January 2025.  
  Effective Date: The proposed regulations would apply to taxable years beginning on or after January 1, 2026 (Notice 2025-44, August 20, 2025).

3. Digital Assets – The IRS has provided a safe harbor allowing investment and grantor trusts to stake their digital assets without jeopardizing their status as trusts for federal income tax purposes. To qualify for the safe harbor, trusts must meet specific requirements, including limits on assets owned and on the trust’s activities involving digital assets (Rev. Proc. 2025-31, November 10, 2025).  
Effective Date: Taxable years ending on or after November 10, 2025.

4. OBBBA International Tax Changes – Treasury and the IRS issued four notices outlining forthcoming proposed OBBBA international tax regulations.[5] The proposed regulations would generally apply in 2025 and beyond, and taxpayers may rely on the rules before proposed regulations are published, if for each notice they apply the rules in their entirety and consistently for all applicable years. The guidance addresses:

• Foreign tax credit calculations when a controlled foreign corporation (CFC) must conform its taxable year to that of its majority US shareholder (Notice 2025-72, November 25, 2025)
• A retroactive change to how US shareholders determine their pro rata share of subpart F income and global intangible low-taxed income (GILTI) (Notice 2025-75, December 4, 2025) 
• A new limit on foreign tax credits for taxes attributable to distributions of previously taxed earnings and profits (PTEP) (Notice 2025-77, December 4, 2025)
• A change to “deduction eligible income” for certain sales by domestic corporations to foreign persons (Notice 2025-78, December 4, 2025) 

A&M TAS Says:

This guidance helps taxpayers understand the IRS's interpretation and application of tax laws, aiding in both compliance and strategic planning. These updates offer direction on various issues, and companies should consider this guidance when optimizing their tax positions. 

While generally taxpayer friendly by reducing administrative burden, the heightened emphasis on deregulation increases uncertainty, not knowing which regulations might be invalidated or repealed. Taxpayers should proactively monitor challenges to regulations, assess how potential changes may affect their positions, and if they choose to rely on the rules, where applicable, determine the resulting ASC 740 implications.

Looking ahead, Treasury and the IRS plan to issue regulatory and other guidance, primarily related to OBBBA provisions, deregulation and burden reduction, and digital assets. These will be addressed in future quarterly updates.

Other Developments

Eighth Circuit Rejects ‘Blocked Income’ Regulations in 3M Transfer Pricing Case

In a taxpayer-favorable ruling, the Eight Circuit’s decision in 3M Co. v. Commissioner held Section 482 transfer pricing “blocked income” regulations invalid based on the “best interpretation” of the statute. The court concluded that the IRS cannot allocate royalties that 3M’s subsidiary cannot pay to the parent company under the Brazilian law because the parent does not have complete dominion over those royalties. 

Subsequent Events – Looking Ahead to Pillar Two

No sooner is year-end closed than Pillar Two takes center stage again, as Q1 2026 developments may trigger subsequent-event considerations and require rapid reassessment of global minimum tax assumptions. As a follow up to the G7 Pillar Two Statement in late June last year,[6] the OECD released the “Side-by-Side” (SbS) package on January 5, 2026. One element, the SbS safe harbor, allows the US minimum tax rules to coexist with Pillar Two starting in 2026, providing substantial relief to US-parented multinational groups. Specifically, it sets the top-up taxes (the Undertaxed Profits Rule (UTPR) and Income Inclusion Rule (IIR)) to zero for eligible groups, but with conditions and ongoing compliance requirements. In addition, under the UPE Safe Harbor, multinational groups headquartered in a jurisdiction with a Qualified Ultimate Parent Entity (UPE) regime may qualify for relief from the UTPR. 

To further simplify Pillar Two compliance, the OECD introduced several elective safe harbors, which apply broadly to multinational groups, including a simplified effective tax rate computation, a one-year extension of the transitional country-by-country reporting safe harbor, and additional simplifications. In addition, a new safe harbor allows multinational enterprise groups to continue to benefit from certain substance-based tax credits.

Companies should evaluate their eligibility for the SbS safe harbor and update compliance models, while monitoring evolving guidance for updates on unresolved questions.

State and Local

Legislation and Regulatory Changes Enacted or Promulgated in the Fourth Quarter (non-OBBBA)

California: 

• Senate Bill 711, signed October 1, 2025, updated California’s general Internal Revenue Code (IRC) conformity date for tax years beginning on or after January 1, 2025, to the IRC as in effect on that date. It should be noted that California continues to decouple from numerous IRC provisions, however, as discussed in more detail below.
   
• Notably, this legislation also made significant changes to the state’s research credit rules, repealing the alternative incremental credit (AIC) and allowing taxpayers to utilize an alternative simplified credit (ASC) method for tax periods beginning on or after January 1, 2025. Taxpayers that historically elected the AIC must take action when filing their 2025 return either by making an election on Franchise Tax Board (FTB) Form 3523, or by not claiming a credit. More information can be found in the FTB’s December 2025 Tax News.[7]

Iowa: On October 21, 2025, the Department of Revenue announced that the corporate income tax rate structure will not change for tax years beginning in 2026 as predetermined revenue targets needed to trigger a reduction were not met. See Order 2025-02. 

Massachusetts: Following a trend that we have been following in other jurisdictions in the wake of the Multistate Tax Commission’s 2021 revised Statement of Information concerning the application of Public Law 86-272 (P.L. 86-272), the Commonwealth’s corporate nexus regulation (830 CMR 63.39.1(4)(e)) was updated to clarify activities that will be deemed to exceed the protections of P.L. 86-272. The amended regulation was promulgated on October 10, 2025. 

The Department of Revenue added the following language as an example of when protection may not apply:

In-state activities that are conducted by a vendor through an Internet website accessible by persons in the state may include activity that is not entirely ancillary to the solicitation of orders of tangible personal property, such as the placement of Internet cookies onto the computers or other electronic devices of in-state customers that gather customer search information used to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale. 

Michigan: House Bill 4961, signed October 8, 2025, updated the state’s IRC conformity date to January 1, 2025. Taxpayers retain the option to elect to utilize the version of the Code in effect for the current year in some instances, however.

A&M TAS Says:

Companies must reflect the impact of a state (or local) law change (and the related federal deduction) on their current tax provision in the period in which the change becomes effective, and the deferred tax provision impact during the period of enactment. This will require adjusting the tax provision to account for the new rates or rules for taxable income generated after the effective date. Management should ensure that their systems and processes capture these law changes promptly and that financial statement disclosures clearly explain the impact on current period tax expense and overall tax positions.

State Reactions to OBBBA Impacting Corporations

As mentioned in our previous publications, the corporate income tax regimes in many jurisdictions are affected by federal tax law changes because states conform to the IRC for purposes of administrative ease by either incorporating the IRC in whole or in part, and/or by using federal taxable income as the starting point. Generally, states that incorporate the IRC either conform to the IRC as of a specific date (fixed date conformity) or automatically follow the version of the IRC in effect for the current tax year (rolling conformity). However, some states, such as California, only conform to specific IRC provisions (selective conformity).

California: The California conformity legislation mentioned previously also specifically decouples from updates to the corporate alternative minimum tax, IRC § 163(j) (for corporate tax purposes), and the 80% federal net operating loss (NOL) limitation. (The state’s NOL suspension for many taxpayers continues to apply through 2026.) California will also still decouple from IRC § 168(k) and all post-2015 changes to IRC §§ 174 and 174A.

Delaware: Delaware House Bill 255 was signed on November 19, 2025. Delaware now decouples from the OBBBA changes impacting IRC §§ 168(k), 168(n), and 174A. This treatment applies retroactively to tax year beginning on or after January 1, 2022.

District of Columbia: The District of Columbia has decoupled from many provisions of OBBBA, including IRC §§ 168(k), 168(n), 174A, and changes to IRC § 163(j). These changes were first made on an emergency basis on December 3, 2025 (Bill B26-0457) and could be made permanent by Bill B26-0458, following a congressional review period.

Illinois: Statutory language was updated via Senate Bill 1911 to reflect terminology change from GILTI to net controlled-foreign-corporation tested income (NCTI); taxation of 50% remains the same. The legislation was signed on December 12, 2025. Illinois also decoupled from IRC § 168(n) as part of this bill. 

Iowa: Department of Revenue guidance published on November 4, 2025, clarified that because of OBBBA’s change in nomenclature from GILTI to NCTI, the subtraction modification applicable to GILTI will not extend to NCTI starting in 2026. However, the state will follow change impacting foreign-derived intangible income (FDII)/foreign-derived deduction eligible income (FDDEI).

Maine: Following the process outlined in P.L. 2025, c. 336 (LD 221) in connection with temporary tax administration adjustments in a period where significant federal law changes took place after the state’s legislature had adjourned, Governor Mills announced a number of preliminary OBBBA-related decoupling and conformity recommendations on October 1, 2025. Maine will decouple from IRC § 174 and some IRC § 174A changes, as well as from IRC § 168(n). However, Maine will conform to the IRC §§ 165(h), 168(b), 179, 163(j), and certain portions of IRC § 174A benefiting small businesses. The legislature reconvened at the beginning of this month, and we expect additional action on its part in the coming weeks. 

Michigan: House Bill 4961, mentioned previously, also decouples the state from IRC§§ 168(k), 168(n), and 174A for tax periods beginning after December 31, 2024. The legislation also provides that IRC §§ 163(j), 174, and 179 are to be applied as they existed on December 31, 2024, and makes it clear that Michigan is not following the transitional rules for R&D expenses provided in OBBBA. 

New Jersey: 

• The Division of Taxation issued guidance on November 25, 2025, stating that R&E deductions are to be determined by reference to the timing rules codified in the state’s law, versus those provided for in OBBBA. See N.J. TB-114.
   
• The Division of Taxation also published a statement on December 4, 2025, indicating that the federal name changes made to GILTI and FDII by OBBBA (to NCTI and FDDEI) will not impact their existing treatment for corporation business tax purposes.

Pennsylvania:

• The state has decoupled from IRC § 163(j) by adopting the version in effect on the last day of the 2024 calendar year. Pennsylvania will also be decoupling from IRC § 168(n). See generally House Bill 416 (signed November 12, 2025).
   
• House Bill 416 also provides that deductions taken federally as a result of IRC §§ 174, 174A and 59(e) must be added back for corporate income tax purposes. A subtraction of 20% of R&E expenses will then be allowed each year until the amount is depleted. Pennsylvania has also addressed taxpayers who elect the transitional treatment of unamortized domestic research and development (R&D) expenses by codifying that an add-back will be required for any corresponding IRC § 481 deduction amounts.

Rhode Island: The release of R.I. Adv. Notice 2025-20 on October 2, 2025, made Rhode Island the first state to formally issue guidance following the enactment of OBBBA. The state is decoupling from the new IRC §§ 163(j), 174A, 179, 181, and qualified opportunity zone designations.

Tennessee: The Department of Revenue released guidance reminding the tax community that the state is tied to the TCJA’s bonus depreciation rules. As a result, Tennessee does not conform to the OBBBA’s 100% bonus depreciation rules, nor will it follow IRC § 168(n) absent legislative action. See Tenn. Notice 25-36.

Texas: The Comptroller of Public Accounts published an announcement on December 1, 2025, stating that Texas will conform to the bonus depreciation-related changes included in OBBBA. The announcement indicates that after a more recent legal review, the state will no longer be tied to its general conformity date of January 1, 2007, in this area. This change is intended to be effective for 2026 franchise/margin tax reports for qualifying additions acquired after January 19, 2025.

A&M TAS Says: 

Given the significant business tax changes included in OBBBA, it is important that taxpayers do not assume these changes will automatically be adopted by the states. Additionally, with significant changes in federal tax and the potential for increased state corporate income tax liabilities, taxpayers must monitor state legislative developments and consider the impact of federal tax elections on state (and local) tax posture, particularly in states with substantial physical or market presence. The upcoming months, which will see the start of most 2026 legislative sessions, will be pivotal as states determine their alignment with federal policy and the resulting impact on their budgets. Businesses must review state conformity rules, monitor legislative changes, and determine the timing of these impacts on state income tax accounting on a continuous basis as developments continue to evolve. 

Other Developments

Florida v. California: The State of Florida filed a motion for leave to file a bill of complaint with the United States Supreme Court on October 28, 2025. Florida is challenging the constitutionality of a portion of the State of California’s apportionment regulation, claiming that it unlawfully discriminates against out-of-state corporations. The portion of the regulation at issue is California’s long-standing special rule that operates to exclude from the sales factor certain “substantial” (amounting to those resulting in a greater than 5% impact on the sales factor denominator) and “occasional” sales. See Cal. Code Regs., tit. 18,§ 25137(c)(1)(A). We are closely watching this situation as things develop, as any state and local tax case heard by the U.S. Supreme Court has nationwide implications.

New Hampshire: The New Hampshire Department of Revenue Administration is currently offering a tax amnesty program until February 15, 2026. Qualifying participants can save not only penalties, but 50% of the interest that would otherwise be due. For more information, see our article.[8]

Virginia: Bulletin 25-5 was issued on October 28, 2025. This publication clarified the state’s treatment of the amount of pass-through income on which a corporate partner can be taxed, as well as how to report certain items on Form 500A. 

A&M TAS Says:

When assessing anticipated tax law changes that are neither yet enacted nor effective, companies should monitor developments closely, but refrain from reflecting any impact in their current ASC 740 calculations. Proactive scenario planning and open communication with stakeholders and advisors can help to ensure readiness for potential adjustments, while maintaining compliance with reporting standards.

 [3] Kevin M. Jacobs et al., “The OBBBA Passed … Now What?,” Alvarez & Marsal, July 8, 2025.  

 [4] Kevin M. Jacobs et al., “Treasury Redeems Complex Proposed Excise Tax Regulations,” Alvarez & Marsal, December 2, 2025.

 [5] Alon Kritzman et al., “OBBBA International Tax Provisions: What’s New, What’s Looming,” Alvarez & Marsal, January 6, 2026. 

 [6] Kevin M. Jacobs et al., “G7 Pillar 2 Statement: Getting Something for Nothing,” Alvarez & Marsal, July 2, 2025. 

 [7] California Franchise Tax Board, Tax News, December 2025. 

 [8] Leanne Scott, “New Hampshire Tax Amnesty Program Provides an Excellent, Limited Time Opportunity to Resolve Prior Period Liabilities,” Alvarez & Marsal, January 7, 2026. 

Featured Experts

Emilio Martinez 

Emily L. Foster

Leanne Scott

On October 1, 2025, the Australian Tax Office (ATO) finalized practical compliance guide (PCG) 2025/2 and Taxation Ruling 2025/2, setting out its compliance approach on the new debt deduction creation rule (DDCR) and the Commissioner of Taxation's (the Commissioner) compliance approach and binding interpretive guidance on the third-party debt test (TPDT) in the new thin capitalization rules.[9]

Despite industry submissions, the finalized guidance does not reflect a marked change from the drafts released last year. The ATO released compendiums (PCG 2025/2EC and PCG 2025/2EC1) providing the ATO's response to issues raised during consultation.

Key takeaways include:

• Refinancing with third-party debt can be low risk
  • For taxpayers not applying the TPDT and subject to the DDCR, the guidance provides further examples where replacement of related party debt with third-party debt will be "low risk" for DDCR purposes. This is a relief given third-party debt will ordinarily be the most commercially feasible option for taxpayers forced to refinance related party debt.
• Longer period for TPDT restructures
  • The guidance provides some additional transitional compliance approaches for complying restructures undertaken up to January 1, 2027, including around the "minor or insignificant" and foreign asset recourse restrictions in the TPDT.
• Highly restrictive ATO view
  • Despite some limited improvements, interpretation remains highly restrictive and involves a reading in of policy intent not evident on face of legislation. It is evident that the Commissioner of Taxation will take a hard-line approach to interpreting the (already narrow) TPDT.

A&M TAS Says:

Debt deductions will be a key area of focus for both external statutory auditors and the Commissioner of Taxation. If an entity is subject to the DDCR, review arrangements involving related party debt, asset acquisitions from associates, or new distribution patterns. 

If an entity is seeking to rely on the TPDT, review security and recourse arrangements to assess required changes for compliance within ATO timeline. 

And lastly, a reminder that the Australian transfer pricing provisions will also now apply to both the price and the quantum of debt. Accordingly, even if an entity satisfies the tests under the thin capitalization provisions, there may still be a denial of interest deductions if the ATO determines that the level of debt exceeds what an independent party would reasonably lend under comparable conditions.

 [9] Joanna Black et al., “The Roses Have Wilted and Only a Few Less Thorns—Australia’s Finalised Third Party Debt Test Guidance,” Alvarez & Marsal, October 28, 2025.  

Featured Experts

Andrew Moore

In the fourth quarter of 2025, the Brazilian Federal Government enacted measures introducing relevant amendments to corporate income taxation rules and withholding tax regimes applicable to cross-border payments. These measures may increase the tax burden on certain corporate taxpayers and cross-border distributions, while also introducing significant changes to the framework governing tax incentives and special regimes. 

Dividends or Profits Distributed to Nonresidents

Pursuant to Law No. 15,270/2025, dividends or profits paid, credited, made available, or remitted abroad to nonresident recipients will be subject to withholding income tax in Brazil at a 10% rate.

The same rule also applies to dividends and profits paid, credited, made available, or remitted to shareholders resident or domiciled in jurisdictions that do not tax income or that apply a maximum income tax rate below 17%, as classified as low-tax jurisdictions (tax havens) under Brazilian tax legislation.

No withholding tax will apply to dividends and profits related to earnings accrued up to the 2025 calendar year, provided that their distribution was approved by December 31, 2025, and is payable in accordance with applicable corporate and civil legislation.

It is important to note that the Brazilian Supreme Federal Court (Supremo Tribunal Federal – STF) has extended the deadline until January 31, 2026, for the approval of profit and dividend distributions related to earnings accrued up to 2025, as required under Law No. 15,270/2025. This decision is subject to ratification by the plenary of the STF in a virtual session scheduled to take place between February 13 and February 24, 2026.

Increase in the Presumed Profit Method (Lucro Presumido)

On December 29, 2025, Complementary Law No. 224/2025 (LC No. 224/2025) was enacted, introducing changes to Brazilian tax legislation, including a 10% increase in the deemed profit percentage applicable to annual gross revenue exceeding BRL 5 million for taxpayers adopting the Presumed Profit Method (PPM, Lucro Presumido) for purposes of calculating corporate income taxes (IRPJ and CSLL).

As a result, the increase in the taxable base will lead to a higher IRPJ and CSLL tax burden, depending on the taxpayer’s activities and the applicable presumed profit margin.

The BRL 5 million threshold must be assessed based on accumulated gross revenue throughout the year. The increased presumed profit margin will apply in the quarter in which the threshold is exceeded, solely to the portion of revenue exceeding the limit. In subsequent quarters of the same year, the increase will apply to the total revenue of each period.

For taxpayers engaged in activities subject to different deemed profit percentages, the increase must be applied proportionally, based on the revenue attributable to each activity, both in the quarter in which the threshold is exceeded and in subsequent quarters.

Increase in the Withholding Tax on Interest on Net Equity (JCP)

LC No. 224/2025 also introduced changes to the taxation of Interest on Net Equity (Juros sobre o Capital Próprio – JCP). Under the new rules, the withholding income tax rate applicable to JCP paid or credited to shareholders has increased from 15% to 17.5%.

Reduction on Tax Benefits 

LC No. 224/2025 also introduced significant changes to the Brazilian federal tax system regarding the granting and maintenance of tax incentives, special regimes, and sector-specific tax benefits, including a 10% reduction in federal tax benefits related to IRPJ, CSLL, and other federal taxes, affecting exemptions, reduced rates, presumed credits, and special regimes. 

In addition, the legislation established new criteria for granting tax benefits, such as a maximum duration of five years (except for long-term investments), the requirement of objective performance targets, and the implementation of transparency mechanisms, among others.

A&M TAS Says:

Because these measures were enacted in Q4 2025, companies should reflect them in 2025 year-end ASC 740 analyses, with particular focus on APB 23 conclusions and outside basis differences. The introduction of dividend withholding tax and the increased JCP rate may impact indefinite reinvestment assertions, the recognition of withholding taxes on expected remittances, and the measurement of any related outside basis deferred taxes or current tax expense. Companies should also update cash tax and effective tax rate forecasts for 2026, reassess dividend and JCP strategies, and evaluate whether changes to tax incentives or presumed profit regimes affect valuation allowance judgments, uncertain tax positions, or required enactment-related disclosures.

Featured Experts

Canadian Federal Budget 2025

On November 4, 2025, Canada’s Minister of Finance tabled Budget 2025 followed by significant draft legislation for both new and previously announced tax measures. Budget 2025 was that of a minority government juggling different priorities of various political parties to garner enough support to pass, and focused on three main areas:

• Development of critical resources and minerals, and dual use infrastructure within a broader defense strategy
• Development of manufacturing and production capacity to shift the economy away from reliance on the US with a focus on global trade and becoming “our own best customer”
• A smaller focus on domestic affordability and home development concerns 

Budget 2025 focused on spending over broader tax measures, and there were no new tax regimes or major overhauls to existing regimes. Budget 2025 passed first and second readings in the House of Commons and is currently before the Senate as Bill C-15. 

Several notable developments included:

1. Reaccelerated Investment Incentive Property 

The Accelerated Investment Incentive (AII) provides an enhanced first-year capital cost allowance (CCA), Canada’s approach to tax depreciation, for eligible property acquired after November 20, 2018, that becomes available for use before 2028. Previously, AII began phasing out in 2024 and was set to be fully eliminated after 2027. 

Budget 2025 proposes to reinstate the AII for qualifying property acquired after 2024 and that becomes available for use before 2030, with a phase-out for property that becomes available for use between 2030 and 2033. In the draft legislation, the incentive is referred to as the “Reaccelerated Investment Incentive.” The draft legislation also extends equivalent treatment to Canadian vessel property, as well as property classified under Classes 13 and 14.

2. Clean Economy Investment Tax Credits

The Government of Canada previously announced a suite of major economic investment tax credits, representing $93 billion in incentives by 2034–2035, to create jobs and keep Canada on track to reduce pollution and reach net zero by 2050. Four of those clean economy investment tax credits were enacted, with draft legislation released for the Clean Electricity Investment Tax Credit in draft legislation released August 2024. 

Budget 2025 included several technical amendments to the Clean Economy Investment Tax Credits including:

• Expanding eligibility for the Clean Technology Investment Tax Credit for systems that produce electricity, heat, or both electricity and heat from waste biomass
• Expanding eligibility for the Clean Technology Manufacturing Investment Tax Credit for qualifying equipment used in eligible polymetallic mining projects, and expanding the list of eligible critical minerals
• Expanding eligibility for the Clean Hydrogen Investment Tax Credit to include hydrogen produced from methane pyrolysis 
• Significantly amending requirements of the Clean Electricity Investment Tax Credit to remove eligible jurisdiction requirements, expanding access for nuclear energy property, expanding the natural gas energy equipment definition, and reducing the expected ratio of net electrical energy to net heat energy exported to 1 from 2 
• Extending the availability of full credit rates for the Carbon Capture Utilization and Storage Investment Tax Credit from 2031 to 2035

3. Comprehensive Modernization of Transfer Pricing Rules

Further to previously released draft legislation and the Department of Finance consultation paper from June 2023, Budget 2025 proposed to modernize Canada’s transfer pricing rules to better align with the Organisation for Economic Co-operation and Development’s Transfer Pricing Guidelines. Budget 2025 provided rules that will:

• Require transfer pricing analysis to not be based solely on the contractual terms of a transaction or series, but also on “economically relevant characteristics”—this includes contractual terms, functional profiles, characteristics of the property or service, economic and market context, and business strategies 
• Introduce a new transfer pricing adjustment rule requiring that amounts under the Income Tax Act (Canada) be adjusted (in quantum or nature) to reflect what they would have been under arm’s length conditions under the new definitions of “arm’s length conditions” and economically relevant characteristics (as outlined above)

Budget 2025 would also modify certain administrative measures:

• Streamlined documentation rules – Providing for simplified documentation requirements when prescribed conditions are met
• Penalty threshold – Providing relief from transfer pricing penalties by increasing the threshold for the application of transfer pricing penalties from a transfer pricing adjustment of $5 million to $10 million
• Shortened documentation timelines – Reducing the time to provide transfer pricing documentation from 3 months to 30 days

Budget 2025 does not contain any new measures relating to Pillar Two of the OECD/Group of 20 Inclusive Framework on Base Erosion and Profit Shifting, nor Canada’s Global Minimum Tax Act (Canada) (GMTA) implementing these rules.

A&M TAS Says:

Budget 2025 does not significantly overhaul existing tax measures, nor introduce new regimes; instead the Budget implements many targeted technical amendments. While enhancements to the Clean Economy Investment Tax Credit regime are helpful, the Government of Canada has not addressed many other criticized restrictions on access and cost inclusions. 

From an international perspective, the Government of Canada did not provide further insight on an Under Taxed Profits Rule (UTPR) and Canada’s approach to implementing a Side-by-Side system in response to the potential application of US’s Section 899.

From an ASC 740 standpoint, Budget 2025 and the related draft legislation are not yet enacted (currently before the Senate as Bill C-15) and therefore should not be reflected in the measurement of current or deferred taxes, but they may warrant subsequent-event or enacted-but-not-effective disclosure depending on facts and materiality. Tax provision teams should closely monitor enactment and be prepared to model the impact of the reaccelerated CCA rules and expanded clean economy investment tax credits on deferred tax balances, ETR forecasts, and valuation allowance conclusions once enacted (ASC 740) or substantively enacted (IAS 12). In parallel, the proposed transfer pricing modernization is a clear tax reporting readiness item, requiring reassessment of transfer pricing policies, uncertain tax accounting positions, documentation processes, and potential exposure profiles. Companies with Canadian operations should begin impact assessments now so enactment can be operationalized quickly in the provision and financial statement disclosures.

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China Tax Considerations for Hong Kong’s Inward Re-Domiciliation Regime

Hong Kong’s inward re-domiciliation regime, effective from May 23, 2025, marks a significant milestone in reinforcing the city’s role as a global business hub. The regime allows eligible non-Hong Kong incorporated companies to relocate their domicile to Hong Kong without winding up or creating a new legal entity. This offers continuity of corporate identity, contractual rights, and obligations, an attractive proposition for multinational enterprises seeking stability and strategic positioning in Asia.

However, for businesses with operations or investments in Mainland China, re-domiciliation introduces complex tax considerations. Among these are the indirect transfer rules of China under the State Taxation Administration Notice [2015] No. 7 (Notice 7) and the post-domiciliation eligibility of income tax treaty benefits. Failure to address these issues proactively can result in unexpected tax exposure, compliance risks, and reputational challenges. This article focuses primarily on the highlights of China tax considerations from the indirect share transfer and applicability of income tax treaty benefits perspectives.

Re-domiciliation—Would it trigger an indirect share transfer for China tax purposes?

The indirect share transfer rules of China aim to prevent tax avoidance through offshore transactions that effectively transfer China taxable assets without triggering domestic tax obligations. Under Notice 7, if a nonresident enterprise transfers equity interests in an offshore holding company that indirectly owns China taxable assets, the transaction may be recharacterized as a direct transfer of those assets under certain criteria.

For companies considering re-domiciliation to Hong Kong, the regime itself does not involve a sale of shares. However, the change in corporate domicile could be interpreted as a shift of ownership or control over the China assets.

The cornerstone of Notice 7 is the concept of “reasonable commercial purpose.” Transactions lacking such purpose may be deemed as tax avoidance arrangements. Re-domiciliation driven solely by tax benefits, without operational or strategic rationale, could raise red flags. Companies should document the commercial drivers behind the move. Notice 7 provides safe harbor exemption for qualified group reorganization. While re-domiciliation may resemble a group restructuring, eligibility for safe harbor is not automatic. Companies should assess whether their specific circumstances meet the criteria and seek advance clarification where possible.

Treaty benefits post-re-domiciliation—Does the China–Hong Kong Tax Arrangement apply?

When a holding company re-domiciles to Hong Kong, its tax residency status becomes critical for treaty application. Under the Mainland China–Hong Kong Income Tax Arrangement, benefits such as reduced withholding tax rates and potential capital gains exemptions are available only to Hong Kong tax residents that also satisfy other conditions.

Post-re-domiciliation, the company can apply for benefits under the China–Hong Kong Tax Arrangement, provided it meets the criteria applicable to the specific subject matter in question. China would examine closely whether the re-domiciled entity has genuine business activities in Hong Kong, supported by documentary evidence, focusing on factors such as operational presence, employees, and decision-making authority in Hong Kong, to decide whether the re-domiciled entity qualifies for treaty benefits.

Hong Kong’s inward re-domiciliation regime offers strategic advantages, but companies with China exposure must navigate indirect transfer rules and treaty complexities carefully. Proactive planning, robust documentation, and cross-border coordination are essential to mitigate risks and unlock opportunities.

A&M TAS Says:

For tax accounting purposes, re-domiciliation to Hong Kong may not create an income tax expense because Hong Kong taxes on a territorial basis rather than by domicile; however, companies with China exposure must assess whether the change triggers deferred tax implications related to indirect transfer rules and treaty eligibility under the China–Hong Kong Tax Arrangement. Post-re-domiciliation, an entity’s ability to claim treaty benefits hinges on meeting beneficial ownership and substance requirements, which may affect recognition and measurement of deferred tax assets or liabilities. Judgment is required to determine if these changes represent adjustments to current or deferred taxes under IAS 12, considering the probability of future tax consequences and the timing of enactment or substantive enactment of relevant laws. 

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Legislative Environment

The fourth quarter of 2025 brought several important rulings from the German Federal Fiscal Court (BFH) with significant implications for income tax accounting: 

BFH Ruling on Incorrect Formation of a § 6b Reserve

The German Federal Fiscal Court (BFH) has issued a significant ruling on the treatment of incorrectly established reserves under § 6b of the German Income Tax Act (EStG). These reserves allow companies to defer taxation on hidden reserves revealed during the sale of certain assets, such as real estate, by either reducing the cost basis of reinvestment assets or creating a special reserve for future investments.

The German Federal Fiscal Court (BFH) has clarified that an incorrectly established reinvestment reserve constitutes an accounting error. Such errors must generally be corrected retroactively at their source rather than at the end of the reinvestment period. However, if the balance sheet has already served as the basis for a final tax assessment, the correction must be made in the closing balance sheet of the first year that can still be amended under general rules (principle of formal balance sheet continuity).

The case involved a GmbH that sold its real estate portfolio in 2002 and created a § 6b reserve, even though it no longer maintained a domestic permanent establishment. The tax assessment became final. The BFH ruled that the incorrectly recognized reinvestment reserve under § 6b EStG must be reversed in the next open year (2003), increasing taxable income, rather than in the fiscal year that the corresponding investment period has expired. The court confirmed that the reserve is an independent balance sheet item, rejecting the lower court’s view that it was merely part of equity.

A&M TAS Says:

Companies should review past § 6b reserves to ensure they were correctly established, particularly in cases involving cross-border transactions or structural changes. If errors are identified, adjustments may need to be made in the earliest year still open for amendment, which could result in additional tax liabilities.

It is also important to monitor developments at the European level. A pending case before the European Court of Justice (C-410/25) challenges whether the domestic nexus requirement for applying § 6b EStG complies with the EU principle of free movement of capital. A decision in this case could significantly impact eligibility criteria for § 6b benefits.

While this BFH ruling does not introduce a rate change, it may affect the sustainability and treatment of certain § 6b reserve positions and therefore warrants review of existing tax accounting conclusions. Companies with German operations should consider whether any historically recognized § 6b positions, deferred taxes, or uncertain tax positions need to be reassessed in light of the court’s clarification on error correction and timing.

BFH Clarifies Loss Carryback in Case of Harmful Shareholder Changes

The German Federal Fiscal Court (BFH) has issued a landmark decision (I R 1/23, July 16, 2025) regarding the interaction of § 8c KStG and § 10d EStG. The case involved an under-year harmful share acquisition and subsequent merger, where the GmbH incurred a loss in a short fiscal year ending September 30, 2018. The key question in this case was whether this loss could be carried back to 2017 despite § 8c KStG.

Contrary to the tax authority and BMF guidance (November 28, 2017), the BFH ruled that § 8c KStG does not exclude a loss carryback under § 10d EStG. The court emphasized that the purpose of § 8c KStG is to prevent old losses from benefiting new shareholders—not to restrict loss utilization for periods where ownership remained unchanged. Legislative history and systematic interpretation support this view.

Losses incurred up to the harmful acquisition date can be carried back to prior years, benefiting the original shareholders. This decision aligns with earlier BFH rulings on loss carryforward (I R 14/11, 2011) and closes a long-standing interpretative gap.

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Malaysia Budget 2026 announced on October 10, 2025

Prime Minister Anwar Ibrahim announced the Malaysia Budget 2026 on October 10, 2025 (the 2026 Budget),[10] with emphasis that the government continues its commitment toward building a high-value, innovation-driven, and fiscally disciplined economy, while maintaining an expansionary stance to sustain growth momentum, in alignment with the 13th Malaysia Plan. 

A few of the key tax highlights announced in Malaysia Budget 2026 which have important financial reporting and tax accounting implications, particularly around deferred tax, effective tax rate management, and timing differences are outlined below:

A&M TAS Says:

Malaysia’s Budget 2026 introduces several important considerations that will impact year-end reporting, compliance, and strategic planning. For income tax accounting purposes, the question arises when the tax law is enacted or substantively enacted to appropriate tax account for financial reporting. 

ASC 740 defines the enactment date as the point when all steps in the legislative process for a tax law to become law have been fully completed. In contrast, IAS 12 introduces the concept of “substantively enacted,” permitting recognition when a tax change is virtually certain to be enacted even if some formal steps remain. Determining substantive enactment under IAS 12 requires judgment based on factors such as the legislative process in the jurisdiction, the status of the proposed change, the degree of certainty that the law will pass without significant amendment, and whether remaining steps are largely administrative or ceremonial rather than substantive. 

The announced tax rates by the government is deemed to be “substantively enacted” (based on prior practices) after the voting by the members of the House of Representatives by a simple majority after the Third Reading.[11] This action has been completed in December 2025. Following its passage in the lower house, the budget will now be referred to the Senate before being presented for royal assent for passage into law. 

For year-end 2025 tax reporting, it is prudent to focus on the enactment status to appropriately tax account for the changes in provision calculations. 

 [10] Government of Malaysia, Budget Official Website, “Budget 2026 Documents,” accessed January 15, 2026. 

 [11] Malaysia Accounting Standards Board, accessed January 15, 2026.

Featured Experts

As part of its 2025 internal review of the financial reporting standards governing basic financial statements, the Mexican Council for Financial Reporting Standards (Consejo Mexicano de Normas de Información Financiera, or CINIF) identified areas where additional clarification was needed to support consistent application of Mexican Financial Reporting Standards (Normas de Información Financiera, or NIF). In response, CINIF issued targeted amendments in December 2025 as part of its publication Mejoras a las Normas de Información Financiera 2026 (2026 Improvements to Mexican Financial Reporting Standards).

One area of focus was Financial Reporting Standard D-4, Income Taxes (NIF D-4, Impuestos a la Utilidad). Throughout the year, CINIF received feedback from stakeholders highlighting practical uncertainty about which taxes fall within the scope of NIF D-4. To address these concerns, CINIF amended the standard to clarify that NIF D-4 applies to all for-profit entities that issue financial statements and are subject to taxes calculated on taxable profit determined on a net basis (that is, income less costs and expenses).

A&M TAS Says: 

We believe this clarification will enhance consistency in practice and provide greater certainty for professionals responsible for tax accounting for current and deferred income taxes under Mexican FRS.

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Dutch Accounting Standards 272 – 2025-2

Deferred Tax at Initial Recognition – DAS 272 Clarification

The Dutch Accounting Standards Board published a clarification regarding the deferred tax at initial recognition exemption which is applicable to financial years beginning on or after January 1, 2026.

The initial recognition exception (as also known under IFRS Accounting Standards – IAS 12) entails that when an asset or liability is recognized for the first time in a transaction that is not a business combination, and that transaction does not affect either accounting profit or taxable profit, no deferred tax asset or liability is recognized arising from that initial temporary difference. The logic behind this exception is that recognizing such deferred tax would add amounts to the financial statements that do not relate to future tax consequences of existing differences, which could reduce transparency.

The Dutch Accounting Standards reflect this same principle and allow entities to apply the initial recognition exception for deferred taxes on initial recognition of assets or liabilities. The Dutch Accounting Standards Board has clarified that an entity can choose whether or not to recognize deferred tax on a temporary difference that arises at initial recognition provided the conditions for the exemption are met. When the exemption is applied, no deferred tax liability or asset is recognized at that moment and the carrying amount of the asset or liability is adjusted. 

There are, however, limits to the use of this exemption. It cannot be applied where the initial recognition of an asset and a related liability give rise to equal taxable and deductible temporary differences, for instance where an acquisition includes an asset and an associated provision that create offsetting temporary differences. In such situations, recognizing the deferred tax immediately is required because the temporary differences will reverse in future periods and have real tax consequences. 

A&M TAS Says:

In practice, this clarification mainly calls for careful judgment and clear policy choices, rather than immediate changes to existing financial statements. For entities that already apply the initial recognition exemption, the clarification will often not change the outcome, but it does confirm that the application of the exemption is a policy choice, rather than a mandate, and must be applied consistently. Entities are advised to clearly document whether the initial recognition exemption is applied and the types of transactions to which the exemption is applied.

Featured Experts

Patrick van Min

Andreea Butnaru 

Oscar Traast 

Consolidation of European case law in Spain: Nonresident companies in a loss-making situation are effectively exempt from nonresident income withholding tax on dividends paid by its Spanish subsidiaries, in that financial year. 

While not a Q4 update, The Spanish National Court (ruling of July 28, 2025) has walked the same path as the High Court of Justice of the Basque Country (ruling of May 12, 2025) and confirmed that the taxation of nonresidents on dividends received from Spanish sources is not applicable if the foreign EU parent company incurs in losses during the fiscal year. In other words, even though the source state generally taxes the foreign parent company on the positive income obtained (dividends), the fact that the total income taxed in their country of residence is negative is a circumstance that must be considered in both jurisdictions.

This situation had been analyzed by the Court of Justice of the European Union (CJEU) and confirmed again in its Judgment C-601/23 of December 19, 2024[12], in response to a preliminary ruling requested by the High Court of Justice of the Basque Country Court. 

In this crucial case, a nonresident entity with operating losses received dividend payments from a resident entity in the fiscally autonomous Province of Bizkaia, Spain. These dividend payments were subject to withholding tax—10% rate, as per the Double Tax Treaty (DTT) between Spain and United Kingdom. In this context, a refund of the withholding tax applied was requested from the Bizkaian Tax Authorities, but the request was denied, and the matter was finally referred to the CJEU. 

The core issue in this case is the differential treatment in the reimbursement of withholding tax on dividends between residents and nonresidents:

• Nonresidents: Credit Suisse, as a nonresident, was not reimbursed for the withholding tax on the dividends. This is because nonresidents cannot offset this tax under the DTT between Spain and the United Kingdom on the elimination of double taxation when the company is operating at a loss.
• Residents: In contrast, residents who suffer financial losses during the financial year are reimbursed for the withholding tax in full.

In this sense, the CJUE understands that the non-reimbursement of withholding tax to nonresidents is a restriction on the free movement of capital (Article 63 of the Treaty on the Functioning of the European Union), as it places nonresidents at a disadvantage compared to residents, which could deter cross-border investments. This is contrary to the objectives of the EU's internal market. 

The CJEU considers that the refund is an exception to the principle of taxation and that this does not preclude the effective collection of taxes or the prevention of tax evasion. Furthermore, the Court emphasizes that the nonresident taxpayer shall provide the relevant elements that would allow the tax authorities of the Member State of taxation to verify that the legal requirements for benefiting from the refund of the withholding tax at source are met and, in addition, that the mutual assistance mechanisms between tax authorities are sufficient to allow the Member State of source to verify the accuracy of the information provided by the nonresident taxpayer.

A&M TAS Says: 

Based on the above, we strongly recommend that EU parent companies that have collected dividends from their Spanish subsidiaries, in financial years in which they have reported operating losses, consider requesting from the Spanish Tax Authorities a refund of the withholding taxes on dividends paid. In addition, the implications of these rulings should be reflected in the financial and tax reporting effective as of 2025.

This change in criteria constitutes a significant challenge within the EU, as Member States generally base the taxation of their resident entities on their accounting profit, which has been determined using local tax accounting rules and applying local tax criteria, and not all these rules are fully harmonized across all EU countries. 

Although the CJEU requires nonresident companies to provide the relevant information, enabling the tax authorities of the Member State of taxation to verify that the conditions for benefiting from a tax deferral are met, in practice this is a complex issue. 

In the case of the Spanish Tax Authorities, certain management and procedural problems may arise, as the control bodies do not have the information and capacity enough to assess the accounting losses incurred by a nonresident entity in its country of origin, in order to decide whether to refund the withholdings paid in Spain. Therefore, Spanish Tax Authorities should accept that accounting losses recorded and adjusted for tax purposes in another country are adequate for excluding a locally sourced dividend from taxation in Spain.

This will lead to increased litigation in Spain and will force Member States to establish a common action plan.

While these Spanish and EU court decisions do not change enacted tax law, they may affect the recoverability of dividend withholding taxes for certain nonresident structures and therefore warrant review of existing ASC 740 conclusions. Multinationals receiving Spanish-source dividends should consider whether current tax positions, receivable recognition, uncertain tax positions, or disclosures around withholding taxes and cross-border distributions need to be reassessed in light of this evolving case law.

 [12] EUR-Lex, Credit Suisse Securities (Europe) Ltd v, Diputación Foral de Bizkaia, Case C 601/23, December 19, 2024.

Featured Experts

Patricia Alonso de la Fuente

Jesus Gonzalez 

Claudia Fraga Bugallo 

Laura Fernandez Parrado 

In December 2025, the Swiss Parliament opposed abolishing certain tax advantages granted after November 30, 2021, to certain taxpayers in connection with implementing OECD Pillar Two. Following the National Council, the Council of States also approved a motion on December 18, 2025. Both chambers favor rulings between Cantons and companies to remain valid if concluded before January 1, 2025. This stance rejects retroactive application of the OECD’s integrity rule, newly introduced at the beginning of 2025.

The integrity rule requires certain tax benefits granted after November 30, 2021, to be neutralized through a top-up tax starting in 2026. Based on the corresponding motion issued by Parliament, the Swiss Pillar Two legislation will be adjusted to specify that the integrity rule shall not apply retroactively, as outlined in the administrative guideline.

This motion provides a certain degree of inter-state legal certainty for concerned taxpayers that have obtained corresponding tax rulings from the Swiss tax authorities after November 30, 2021. However, it is not clear at this stage whether and to what extent this Swiss practice will affect the qualifying status for the Swiss Qualified Domestic Top-Up Tax (QDMTT) and the QDMTT safe harbor.

A&M TAS Says:

The Swiss Parliament’s December 2025 motion should not be considered as enacted law for Q4 2025 purposes. We recommend that companies continue to monitor these developments for future consideration. 

Featured Experts

Kersten A. Honold

Saudi Arabia’s Tax Penalties Exemption Initiative

Zakat, Tax and Customs Authority (ZATCA), has announced the relaunch of the Tax Penalties Exemption Initiative, effective from January 1, 2026, through June 30, 2026. This initiative provides a renewed opportunity for taxpayers to regularize their tax positions and benefit from relief on a broad range of penalties across all tax systems.

Key Features:

• Scope: The initiative covers waivers for penalties related to late registration, late filing and payment of tax returns, VAT return corrections, and violations identified during field audits (including e-invoicing and VAT compliance breaches).
• Eligibility: Taxpayers must be registered (or complete registration) via ZATCA’s portal, submit all outstanding tax returns, provide accurate disclosures, and settle principal tax liabilities. Installment requests must be submitted within the initiative period.
• Exclusions: The initiative does not cover principal tax amounts, penalties paid before the initiative period, or cases under litigation unless the principal tax is settled and the case is withdrawn.
• Period Covered: Only penalties for returns due before January 1, 2026, are eligible. Returns due from January 1, 2026, forward are excluded.

A&M TAS Says:

This initiative may affect the measurement and recognition of penalty-related exposures. Companies with Saudi operations should consider whether existing uncertain tax positions, accruals for penalties and interest, or related disclosures should be reassessed in light of the potential relief available during the 2026 exemption window.

Tax Bulletin clarifies difference in interpretation of terms ‘transfer of know-how/knowledge’ and ‘technical and consultancy services.’

In late December 2025, Zakat, Tax and Customs Authority (ZATCA), issued a tax bulletin regarding the tax treatment of services provided by nonresidents to entities in the Kingdom of Saudi Arabia (KSA). The focus was on distinguishing between ‘transfer of know-how/knowledge’ and ‘technical and consultancy services’ for the purpose of withholding tax (WHT) application under domestic tax law and relevant tax treaties.

Distinction Between ‘Know-How/Knowledge Transfer’ and ‘Technical and Consultancy Services’

The document explains that ‘transfer of know-how/knowledge’ involves transferring proprietary expertise that enables the recipient to independently use and operate the knowledge. The provider’s obligation is to make the knowledge available rather than perform a service. In contrast, ‘technical and consultancy services’ involve the provider using professional expertise to perform work directly for the recipient’s benefit, without necessarily transferring proprietary knowledge (e.g., after-sales services, professional opinions).

This distinction is important because payments for know-how transfers are classified as royalties and subject to a higher WHT rate, while payments for technical or consultancy services have different tax implications.

Tax Treatment Based on Permanent Establishment (PE) Status

Nonresidents Without a PE in KSA

Income from services provided by nonresidents without a PE in KSA is subject to WHT, which serves as the final tax liability discharge. For transfer of know-how or knowledge, payments are treated as royalties and subject to a 15% WHT rate under Article 68 of the Income Tax Law. However, if a relevant tax treaty specifies a lower WHT rate, that rate applies subject to ZATCA compliance requirements.

For technical and consultancy services, the WHT rate depends on the applicable tax treaty provisions, which may vary as follows:

• If the treaty has no separate article for technical and consultancy services, no WHT applies.
• If the treaty includes a separate article, the lower of the treaty rate or 5% WHT under domestic law applies.
• If technical services are included in the royalty definition, the treaty rate applies if less than 5%; otherwise, 5% WHT under domestic law applies.

Nonresidents With a PE in KSA

For nonresidents having a PE in KSA, income generated from the transfer of know-how, knowledge, or provision of technical or consultancy services, after deducting related expenses, is considered business income. This income is subject to corporate tax under domestic law, following the same rules as resident taxpayers.

A&M TAS Says:

The ZATCA bulletin clarifies the important tax distinction between ‘transfer of know-how’ and ‘technical or consultancy services’ and confirms that these categories attract different tax treatments in KSA. Businesses are advised to carefully review contracts, especially composite contracts, to allocate consideration separately for know-how transfer and technical services and assess eligibility for tax treaty relief.

Companies making payments to nonresidents involving technology, IP, or technical services should consider whether existing ASC 740 conclusions, withholding tax accruals, uncertain tax positions, or related disclosures warrant reassessment in light of this guidance.

New Ultimate Beneficial Owner Rules Issued by Saudi Arabian Ministry of Commerce

Ministry of Commerce (MOC) in Saudi Arabia issued new Ultimate Beneficial Owner Rules (UBOR), effective 30 days after publication on December 5, 2025. The rules aim to enhance transparency and align with international standards related to anti-money laundering (AML), counter-financing of terrorism (CFT), and combatting the financing of proliferation (CPF). They establish a centralized Beneficial Owner Register as part of the Kingdom’s regulatory framework.

Definition of Ultimate Beneficial Owner (UBO)

The regulations define an Ultimate Beneficial Owner as a natural person who meets any of the following conditions:

• Directly or indirectly owns at least 25% of the company’s share capital
• Exercises actual and ultimate control over the company
• If ownership criteria are not met and the ultimate controlling person cannot be identified, then the company’s manager, a board member, or the chairperson is deemed the UBO.

Scope and Applicability

UBOR applies to all companies governed by Companies Law except listed joint stock companies. This includes limited liability companies (LLCs), partnerships, non-listed joint stock companies, and foreign branches. Both taxpayers and zakat payers fall under these rules.

Key Compliance Requirements

Companies must adhere to several obligations:

• Disclosure: Collect and maintain accurate UBO information including identity details, address, passport copies for nonresidents, ownership/control criteria, qualification dates, and reasons for updates.
• Annual Confirmation: Confirm UBO information annually during Commercial Registration renewal.
• Timely Updates: Report any changes within 15 days.
• Record-Keeping: Maintain a dedicated internal UBO register at the company’s head office.
• Cooperation: Provide UBO information to the Ministry, financial institutions, and Designated Non-Financial Businesses and Professions (DNFBPs) upon request.

Exemptions

Subsidiaries of listed joint stock companies are exempt from these rules if the parent company is already subject to UBO disclosure requirements.

Penalties for Noncompliance

Failure to comply with disclosure, update, confirmation, record maintenance, or cooperation requirements may lead to penalties under Articles 262 and 264 of the Companies Law.

Implications for Taxpayers and Zakat Payers

These UBOR increase transparency expectations, especially for companies with complex or international operations. The rules may intersect with Zakat, Tax and Customs Authority (ZATCA), requirements concerning beneficial ownership, economic substance, and governance. Companies must ensure consistent reflection of UBO information across all regulatory filings.

Recommended Actions for Companies

A&M TAS Says:

To comply effectively, companies should review their ownership and control structures to identify all Ultimate Beneficial Owners (UBOs). They are also required to prepare and maintain a compliant UBO register and put in place procedures to monitor and report any changes within 15 days. Additionally, it is important to train governance, compliance, and tax teams on the new requirements to ensure everyone is aware of their responsibilities. Advisory and support services are available to help with the identification of UBOs, reviewing ownership structures from a Saudi tax perspective and addressing related compliance matters.

Companies operating in Saudi Arabia should consider whether enhanced ownership disclosure obligations have any implications for existing ASC 740 positions, uncertain tax positions, documentation support, or related disclosures.

Featured Experts

Faisal Tanvir

Thailand Tax Audit Outlook: FY26 Considerations

Entering fiscal year 2026, the Thai Revenue Department (TRD) is continuing to accelerate AI-driven audit strategies to address persistent revenue shortfalls. With the changing audit posture, businesses should expect more sophisticated, data-driven audits and heightened scrutiny in high-risk areas. Key highlights are noted below:

• AI Integration: Under the IT Development Plan (2025–2027), AI will support risk analysis, audit selection, and compliance monitoring, enabling targeted reviews of high-risk taxpayers and industries.
• Cross-Agency Data Matching: Formalized data-sharing between TRD and Customs enhances the Risk-Based Audit system, increasing visibility on cross-border transactions and discrepancies.
• New Measures: Implementation of the Emergency Decree on Top-up Tax (Pillar Two) introduces global minimum tax obligations for large multinational groups.
• Industry-Specific Audit Focus: Businesses with digital or cash-based operations are highly scrutinized. These include digital economy and e-commerce, influencer marketing, restaurants and nightlife businesses, cash-based trading, and pharmacies.

Emerging Risk Areas

• Related Party Transactions: With access to information such as transfer pricing (TP) disclosure forms and CbCR reports, and the adoption of AI-driven tools to identify high-risk taxpayers, the TRD can now conduct more targeted and data-informed audits. Significant related-party transactions remain a key area of focus and are likely to be flagged by AI tools. 
• Profit Declines and Tax Losses: Macro-economic trends remain challenging due to weak domestic demand, rising costs, and global uncertainty. Many companies (domestic and multinationals) are expected to undergo significant changes in business structures, such as restructurings, group reorganizations, or business model transformations. Such upfront costs (e.g., restructuring costs, relocation, and facility costs) during the initial stages, could lead to companies suffering losses or declined profitability. As a result, the TRD could raise questions and scrutinize the transactions more closely, especially when such change takes place at the time Board of Investment (BOI) tax holiday expires. Businesses need to be able to document and explain the reasons behind the losses or profit declines. Clear business plans and realistic financial forecasts are essential to support the company’s position. 
• Tax Refunds: Following consecutive losses or declining profits, especially in the service sector, companies may seek tax refunds for prepaid withholding tax, which typically triggers a tax audit. The complexity of the audit is influenced by many factors, including the TRD’s risk-based assessment, the refund amount, the company’s compliance history, and the consistency of its tax filings. Interestingly, choosing not to request a refund does not automatically exempt companies from audits, as excess tax submissions without claims can still trigger a review.

A&M TAS Says:

Based on the above, we recommend that companies address the emerging risk areas by maintaining documentation on defensible positions taken on the tax returns and financial statement reporting. The potential impact of uncertain tax position accruals and movement in DTA recognition analysis need to be substantiated for external audit review. Such judgmental areas continue to be a focal point for external auditors in Thailand in light of the changing tax audit spectrum from the authorities. 

Featured Experts

Korneeka Koonachoak

Amornphan Oopachodsuwan 

On December 9, 2022, the United Arab Emirates’ (UAE) Ministry of Finance issued Federal Decree Law No. 47 of 2022 (the UAE Corporate Tax Law). The Corporate Tax (CT) Law applies to Taxable Persons operating in the UAE and is effective for financial years commencing on or after June 1, 2023. Under the UAE CT Law, businesses are required to prepare their financial statements under the International Financial Reporting Standards (IFRS) or IFRS for SMEs.[13] With this introduction, UAE businesses will now need to consider the full application of IAS 12 for their financial statement reporting. For many Middle East-centric businesses, this would be their first time scrutiny is applied to their current tax and deferred tax calculations as part of their audit proceedings and year-end compliance obligations.

A&M TAS Says:

With the introduction of the new tax regime, UAE businesses were required, for the first time, to prepare tax provision calculations for inclusion in their financial statements. From a UAE perspective, the tax treatment largely follows the accounting treatment, with only limited items giving rise to timing differences, for example (but not limited to):

• Tax losses 
• Interest restrictions
• Unrealized gains and losses 

These timing differences now result in the recognition of deferred tax assets and liabilities (DTAs/DTLs).

Furthermore, due to the absence of an advanced corporate tax payment regime, alongside the corporate tax payment deadline being aligned to the return submission deadline, there is also limited complexity under current legislation around the recording of corporate tax liability balances within the financial statements. 

Tax Depreciation for Investment Properties

For financial years commencing on or after January 1, 2025, businesses that have elected to apply the realization basis may also elect to claim tax depreciation on investment properties measured at fair value under IFRS or IFRS for SMEs.[14] 

The annual deduction available is the lower of:

1. Four percent of the original cost of the investment property, (prorated where the tax period is longer or shorter than 12 months, or where the asset was held for only part of the tax period) 
2. The tax written down value (TWDV) of the investment property at the start of the relevant tax period

The election is irrevocable and applies to all the business’ investment properties held at fair value under IFRS or IFRS for SMEs.

A&M TAS Says:

This election will create a timing difference as the net book value of the investment property differs from its TWDV, resulting in a DTL. Therefore, businesses should consider the related deferred tax implications before making the election. This application is a deviation from the status quo on the basis that tax depreciation in the UAE normally aligns to the accounting depreciation as long as the depreciation policy is aligned to IFRS standards. 

Pillar Two – UAE DMTT Tax Accounting Considerations

On February 6, 2025, the UAE Ministry of Finance issued Cabinet Decision No.142 of 2024, introducing the imposition of Top-up Tax on Multination Enterprises. This law applies from January 1, 2025, and impacts UAE corporate entities that form part of a multinational consolidated group with revenues of EUR 750 million or greater. As part of these regulations, in scope UAE companies will be subject to a Qualified Domestic Minimum Top-up Tax of 15%, which will be applied after the consideration of the local corporate tax of 9% or 0% (for qualifying Free Zone entities). 

As part of the UAE’s implementation of these rules, alongside the broader global role out of Pillar Two legislation, the IASB has amended the IAS 12 requirements to include tax accounting requirements for Pillar Two to ensure the impact of these new rules are considered. Therefore, impacted UAE companies will be required to provide tax disclosures with respect to their local Pillar Two exposure, within the financial statements for accounting periods starting January 1, 2025.

A&M TAS Says:

With the updated obligations to IAS 12, UAE entities will need to consider the following Pillar Two interactions within their IFRS statements:

• Ensuring the election to defer Deferred Tax recognition for top-up tax has been applied within the UAE financial statements 
• Identifying the Current Tax impact of the increase in tax paid for the period by virtue of the application of top-up tax within the UAE 
• Re-measurement of Deferred Tax recognition for Pillar Two purposes. This could include:
  • Re-measurement of the applicable deferred tax rate to the global minimum rate of 15%
  • Recapture of deferred tax liabilities that are due to reverse within a five-year period
  • Consideration of deferred tax recognition on Pillar Two GloBE losses and interactions with available elections
• Finally, consideration will need to be given for any recognition for pre-January 1, 2025, UAE tax attributes, along with the impact of any M&A and restructuring that has taken place as this may impact the tax carrying values and deferred tax recognition for certain shares/assets going forward. 

Therefore, due to the additional complexity that Pillar Two brings to the tax accounting process, it is imperative that affected UAE entities include such reporting as part of their local provisioning obligations.

[13] UAE Ministry of Finance PDF: “Ministerial Decision No. 114 of 2023 on the Accounting Standards and Methods for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses,” September 5, 2023.

[14] UAE Ministry of Finance, Ministerial Decision No. 173 of 2025 on Depreciation Adjustments for Investment Properties Held at Fair Value (official PDF), July 17, 2025. 

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Alexandra Nwanze 

The UK’s latest major fiscal event was the Autumn Budget 2025, delivered by the Chancellor of the Exchequer on November 26, 2025.

This budget mainly introduced changes to personal income taxes, employment taxes, and indirect taxes and duties. However, there were key updates to corporate taxes that businesses should be aware of, some of which are expected to be effective from January 1, 2026, noting that the relevant legislation, Finance (No. 2) Bill 2024-26, has not yet been substantively enacted.

Transfer Pricing Reforms

The following reforms to UK transfer pricing rules were confirmed during the Budget, some of which were discussed in our Q2 2025 update:[15]

• UK-to-UK transactions – Exemption from the requirement to apply transfer pricing rules on UK-to-UK transactions where there is no overall risk of UK tax loss
• Retention of SME exemption – It was previously proposed that medium sized enterprises would no longer be exempt from transfer pricing requirements. This exemption will now be retained.
• Intangible fixed assets – Cross-border transfers between related parties within the scope of transfer pricing will now take place at the arm’s length price as a single valuation standard. (Previously, two valuation standards applied, arm’s length price and market value, with complexity on which would take priority.)

For most intangible fixed assets, a “two-way street” principle is applied, which allows for downward and upward adjustments to align the tax treatment with the arm’s length price. However, the granting of licenses retains a “one-way street” approach, which only allows transfer pricing adjustments to be made where the absence of such creates a UK tax advantage (reduced profits or increased losses).

For intangible asset acquisitions, this may give rise to deferred tax assets or liabilities from the difference in the accounting basis (market value or actual consideration) and tax basis (arm’s length price or nil for nonqualifying customer-related intangibles).

Capital Allowances

Tax relief for qualifying capital expenditure is given through capital allowances. For qualifying plant and machinery, a 100% deduction (first-year allowance) is available in the year of addition for new and unused assets. For other qualifying plant and machinery where the first-year allowance cannot be claimed (e.g., second-hand assets), an 18% writing down allowance is available on a reducing balance basis. This rate is set to decrease to 14% per annum from April 1, 2026.

Assets that are acquired for a leasing business were previously not entitled to first-year allowances. For additions from January 1, 2026, a new 40% first-year allowance will be available for expenditure incurred on assets for leasing (excluding cars).

The introduction of first-year allowances provides accelerated tax relief for business in the leasing sector for expenditure in excess of the annual investment allowance. Per the draft legislation, there are certain conditions regarding how the lessee uses the leased asset which will need to be met in order for these allowances to be available. The lessee must use the asset “wholly, or almost wholly” for earning income chargeable to UK tax, or the asset must be provided to a lessee who is UK resident and the asset is not for use “to a significant extent” for earning income from a source outside the UK. HMRC is expected to release guidance on this in the near future.

Changes to writing down allowances and the availability of accelerated allowances will impact the initial recognition amount and rate of unwinding of deferred tax assets/liabilities arising from fixed asset timing differences.

A&M TAS Says:

Although some of these changes are effective starting January 1, 2026, Finance (No. 2) Bill 2024-26 has not yet been enacted (ASC 740), nor substantively enacted (IAS 12) and therefore should not be reflected for reporting purposes at this time. Businesses should seek appropriate advice on the upcoming tax and reporting implications of these changes. 

[15] Sayuk et al., “Navigating Q2 2025: Essential Income Tax Accounting Insights.”

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Vietnam Issues New Capital Transfer Tax Rules

Effective December 15, 2025, Decree No. 320/2025/ND-CP has fundamentally changed the Corporate Income Tax (CIT) regime for foreign investors, introducing critical considerations for year-end reporting:

• Unified 2% Tax on Gross Proceeds: The Decree formalizes a flat 2% tax rate on gross proceeds for foreign corporate sellers (direct and indirect transfers). This applies regardless of whether the transaction results in a gain or loss, replacing the previous net gain methodology.
• The "Gap Period" Uncertainty: While the amended CIT Law was effective October 1, 2025, the guiding Decree only applies from December 15, 2025. This creates a regulatory gap for transactions completed between October 1 and December 14, 2025, leading to interpretation risks regarding which tax regime applies.
• Internal Restructuring Exclusion: Internal group restructurings are exempt if there is no change in the ultimate parent entity and no taxable income is generated. However, administrative guidance on applying for this exclusion remains pending.

A&M TAS Says:

• Financial Reporting and Provisions: For transactions occurring in the "gap period" (October–December 2025), companies must assess tax provisions based on the most likely interpretation of local law. If tax exposure exists due to the lack of transitional guidance, disclosure of uncertain tax positions for financial reporting is critical.
• Indirect Transfer Strategy: The Decree lacks specific methodology for attributing "gross proceeds" to Vietnam in multi-jurisdictional indirect transfers. Companies should build robust defense files justifying their apportionment methodology, as this area is expected to face high audit scrutiny and consideration for tax exposures.
• M&A Modeling: Deal models must be updated to reflect the new 2% flat tax on gross proceeds. This structural change impacts valuation of tax liabilities (current and deferred as applicable) for both buyers and sellers, particularly in loss-making or low-margin divestment scenarios.
• Valuation Defense: With tax authorities retaining the right to inspect noncash transactions (e.g., share swaps), maintaining comprehensive documentation is mandatory to prevent the imposition of adjusted deemed values and increase in tax exposures.

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Phung Thi Ngoc Anh 

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