A&M Tax Policy Quarterly Outlook: Q4 2025

Background

The OECD’s negotiations on Amount A of Pillar One[1], which aims to reallocate taxing rights to market jurisdictions for the largest and most profitable multinational enterprises (MNEs), have reached an impasse. While foundational principles such as the scope of Covered Groups, segmentation by business lines, and mechanisms to avoid double taxation have been broadly agreed upon, the technical complexity of the rules and divergent political priorities among Inclusive Framework members have stalled progress. The framework’s reliance on intricate scoping rules, segmentation thresholds, and multilayered tax certainty mechanisms has made implementation burdensome for both tax administrations and taxpayers. Despite efforts to streamline the model, the sheer volume of unresolved issues has left many jurisdictions hesitant to commit. Reform proposals have emerged to simplify the architecture of Amount A. These include eliminating over-engineered scoping rules, which currently require extensive financial data and adjustments, and harmonizing revenue thresholds and nexus tests to reduce compliance costs and improve consistency across jurisdictions. There is also growing consensus that the rules for segmenting profit by business lines need to be more practical and aligned with how companies report financial results. However, even with these proposals on the table, the political appetite for compromise has been limited. Some countries remain concerned about the impact on their domestic tax bases, while others question whether the benefits of Amount A justify the administrative complexity and potential revenue trade-offs compared to Digital Services Taxes (DSTs). In 2025, Amount A did not achieve any progress. The deadlines for signature and ratification have passed, and while some jurisdictions have expressed continued interest in finalizing the Multilateral Convention (MLC), others have raised reservations or shifted focus to alternative measures such as DSTs. Meanwhile, new tensions and disputes emerged on taxing digitalized models. However, the discussions on finding a solution to the taxation of digitalized businesses have regained momentum. The G7 statement of late June 2025 and the G20 communiqués of July, October and November 2025 have brought back to the table the need to engage in constructive dialogue to find a solution that achieves fairness, simplification, and certainty[2].

Recent Disputes: Nexus and Profit Attribution

In the absence of a multilateral solution to address the challenges of digitalized economy disputes emerge as jurisdictions try to rely on existing rules, both in terms of assertion of taxing rights, and profit attribution. Recent cases in India illustrate these issues. Notably, the Clifford Chance case involved a dispute over the interpretation of the Permanent Establishment (PE) definition in the context of the Double Tax Agreement (DTA), concluded between Singapore, and India[3]. Specifically, the question concerned the 90-day requirement of the services PE under the applicable DTA, in a scenario where the taxpayer provided services in India for only 44 days. The Indian Revenue took a view that a PE existed, as the services PE provision does not mention the word “physical presence” of employees for constitution of PE under the relevant Article of DTA. It merely states that the furnishing of services within the contracting state should continue for 90 days or more.  As the services were provided on a continuous basis even without the physical presence of employees in India, there would be a PE. In addition, the Indian Revenue considered that, because of rapid digitization, companies can now continue to provide services even without the physical presence of employees in the contracting state. Thus, it considered that the taxpayer had a taxable PE in India in the form of a “virtual service PE of the taxpayer”. The High Court of Delhi issued its decision in favor of the taxpayer stressing that the DTA wording expressly requires the furnishing of services within the contracting state through employees or other personnel. The following paragraph of the Commentary to the OECD MTC was particularly persuasive[4]:

“152. Also, the provision only applies to services that are performed in a State by a foreign enterprise. Whether or not the relevant services are furnished to a resident of the State does not matter; what matters is that the services are performed in the State through an individual present in that State.”

It further added that, despite the concept of SEP, which was brought into India’s domestic tax law in 2018, reflecting a deliberate policy to capture digital or virtual economic participation outside the traditional PE framework, changes to the DTA provisions are still required. In the absence of such changes, it is not possible to change the PE requirements to address virtual or digital services provided from abroad. This is the correct outcome in this case, supported by sound reasoning by the High Court of Delhi, but it also illustrates the tendency of local tax authorities to stretch the interpretation of existing rules as to address the new realities posed by virtual/digitalized transactions. While one of the key aspects of digitalized transactions is certainly the nexus requirement, the other aspect is the profit allocation.  A recent landmark ruling by the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) placed the spotlight on the on the taxation of digital business models, ultimately rejecting a transfer pricing adjustment of approximately USD 55 million against Netflix India[5]. The dispute centered on whether Netflix India, a limited-risk distributor (LRD) for the global Netflix streaming service, could instead be recharacterized by the Indian tax authorities as a full-fledged content and technology enterprise conducting business in the Indian market. The Indian Revenue alleged that Netflix India’s local activities, including marketing, subscriber acquisition, and the deployment of Open Connect Appliances to reduce streaming latency, demonstrated economic ownership of intangibles, thereby justifying an attribution of residual profits to India. Based on this theory, the Indian Revenue recharacterized the transaction as an implicit license of content and platform technology, allocating 57.12% of Indian subscription revenues to the Indian entity as a blended royalty return. The ITAT rejected this approach considering that, based on an accurate delineation of the transaction, Netflix India remained a routine distributor without any rights to exploit intellectual property or control value-driving risks. Of particular relevance in the decision, is the acknowledgment by the ITAT that the profit allocation by the Indian Revenue, departing from the functions, assets, and risks profile, asset composition, risk insulation, and contractual obligations constituted an arbitrary transfer pricing adjustment without any support on the arm’s length principle. Ultimately the ITAT confirmed the characterization of Netflix India as an LRD and the Transactional Net Margin Method (TNMM) as the appropriate method for determining the transfer pricing remuneration.

In the meantime, and apart from litigation, digital taxation also continues to trigger trade tensions. Recently, the US Trade Representative issued a statement where it raised the possibility of the US imposing additional taxes/tariffs against European Union (EU) companies based on the perceived discriminatory taxation of US MNEs in the form of DSTs which are imposed in EU Member States[6].

Looking Beyond Amount A: SEP Model and the UN Tax Framework

In the wake of stalled consensus around Amount A and the growing resistance to unilateral DSTs, particularly from the United States[7], countries keep exploring alternative frameworks to tax the digital economy. One such proposal gaining renewed attention is the SEP model, originally advanced by the G24 in 2019[8]. Unlike DSTs, which are often criticized for being discriminatory or trade-distorting, SEP builds on existing international tax norms, specifically the PE concept under Article 5 of the OECD and UN MTCs. SEP redefines nexus by focusing on sustained digital engagement and user participation, allowing countries to assert taxing rights even in the absence of physical presence[9].

The SEP model introduces a nexus threshold based on economic activity, such as revenue generated from a jurisdiction, volume of digital content collected, or the size of a local user base. Once nexus is established, profits could be allocated using formulary methods that consider customer location, web traffic, and user data. This approach reflects the reality that digital businesses derive substantial value from user interactions and market engagement, even without boots on the ground. By attributing profits to jurisdictions where economic value is created, SEP aligns more closely with the principle of taxing profits where value is generated, a core tenet of international tax fairness.

Among its key benefits, SEP offers a more equitable distribution of taxing rights, especially for developing countries that host large user bases but currently receive minimal tax revenue from global tech platforms. It also preserves national sovereignty, as countries can implement SEP within their domestic laws and negotiate treaty updates without relying on complex multilateral instruments. Compared to Amount A, SEP is less administratively burdensome, avoids the need for centralized profit reallocation, and allows for dispute resolution through existing Mutual Agreement Procedures (MAP). Countries like Colombia, India, Israel, Italy, and Nigeria have already adopted SEP-like rules, demonstrating its feasibility and appeal [10]. However, SEP is not without challenges. Its reliance on digital metrics and user data makes it highly data-dependent, raising concerns about access, accuracy, and privacy. In the absence of a tax treaty, implementing SEP may also trigger unintended PEs, especially in jurisdictions with broad interpretations of economic presence, leading to compliance burdens for businesses and potential double taxation. The lack of uniform standards across countries could result in fragmented rules, undermining the goal of simplicity, and increasing the risk of disputes. In addition, as countries typically have not yet amended their DTAs to accommodate SEP, tax collection remains a hurdle. In such cases, unilateral measures may be challenged under existing treaty provisions, and enforcement could be limited. One workaround is to negotiate bilateral treaty updates or adopt domestic SEP rules that apply in the absence of a treaty. While this may not guarantee full compliance or revenue collection, it signals intent, and strengthens the negotiating position of source countries. Importantly, SEP does not require a new global treaty, it can be layered onto existing frameworks, making it a pragmatic interim solution. Ultimately, SEP deserves serious consideration as a viable alternative to Amount A, particularly for developing countries seeking greater taxing rights over digital multinationals. This has been acknowledged by the African Tax Administration Forum (ATAF) which in 2025 published the Suggested Approach to Drafting Significant Economic Presence Legislation[11]. The ATAF approach allows to overcome possible tensions raised by DSTs while ensuring compatibility with the Amount A framework. The ATAF suggests that if Amount A and the MLC are implemented, then the SEP would be switched off for the countries covered by Amount A. Also, recently the G24 urged for the inclusion of the SEP concept in the UN tax framework[12]. The most contentious matter however in the SEP context is that, under an SEP-based nexus, applying the arm’s length principle to attribute profit becomes speculative. Since no personnel or assets are physically present, allocating profit requires proxies, raising the question of whether transfer pricing is even the right tool in such cases. This is perfectly illustrated in the recent discussions on the proposed draft of the UN Framework Convention Template where Article 4 provides that[13]:

“The States Parties agree that every jurisdiction where a taxpayer conducts business activities, including jurisdictions where value is created, markets are located and revenues are generated, have a right to tax the income generated from such business activities.”

Several businesses as well as countries have already raised concerns and public comments on the wording of this provision stressing the need for clarification on the meaning of value creation, the expansion of the allocation criteria and the need for clarity and legal certainty[14].

Still, the SEP model appears to be a viable alternative. Overall, its conceptual simplicity, compatibility with existing tax norms, and demonstrated success in early adopters could make it a promising path forward. But to avoid a patchwork of unilateral rules, multilateral coordination is essential, supported by clear rules, and widely accepted criteria for profit allocation. Also, the European Commission, in September 2025, reaffirmed its commitment (and expectations) to a multilateral solution possibly based on the revival of Amount A discussions and putting aside any plans of submitting a proposal for an EU Digital Tax at this stage[15].

Conclusions

Overall, the developments throughout 2025 indicate a new appetite and momentum to resume discussions on a multilateral approach for taxing the digitalized economy. Therefore, 2026 may bring new developments, either through SEP or a revised Amount A framework. A solution that is simple, easily administrable by businesses and tax administrations and that relies on widely accepted principles would be a welcome and much waited solution for taxation of digitalized businesses.

Background

Transfer pricing remains one of the most complex and contested areas of international taxation. As MNEs restructure, digitize, and decentralize, traditional pricing methods face increasing scrutiny. During 2025, there were certain relevant and landmark
cases that dealt with some of the critical areas of contention in transfer pricing. This editorial explores three of such critical areas of contention which will likely remain controversial in 2026: (i) royalty payments and entity characterization,
(ii) the application of the TNMM and (iii) emerging priorities with a particular focus on business restructurings.

Royalty Payments and Entity Characterization

As per the OECD Transfer Pricing Guidelines (2022)[16], the characterization of royalty payments in transfer pricing hinges on the economic substance of the transaction and the functional profile of the entities involved.
Routine or limited-risk entities, such as low-function distributors or contract manufacturers, are typically remunerated using methods like cost-plus or the TNMM, which yield fixed returns at the lower end or midpoint of the arm’s length range. These
entities do not bear significant risks, nor do they contribute materially to the development or exploitation of intangible assets. As such, they are not entitled to entrepreneurial profits, which are instead captured by the licensor or principal entity
that owns and controls the relevant intangibles.

Overall, tax administrations appear to be increasingly skeptical of royalty payments made by routine entities that result in below median or closer to lower-end of the range or loss-making outcomes. Such arrangements may be challenged on the grounds that
they lack economic substance and violate the arm’s length principle. The OECD’s DEMPE framework (Development, Enhancement, Maintenance, Protection, and Exploitation) further reinforces the need to allocate returns based on actual contributions to
intangible value.[17] If a routine entity performs none of the DEMPE functions and does not benefit from the intangible (for example, the ‘brand’ does not materially derive revenue or the relevant intangible does not
provide significant commercial benefit, then royalty payments, especially those that depress its profitability, are unlikely to be accepted. This calls for a more disciplined approach to royalty characterization, ensuring that payments reflect genuine
value transfer and not artificial profit shifting.

The OECD Transfer Pricing Guidelines (2022) emphasize that royalty payments should only be made for access to intangible property that provides a clear commercial advantage, such as trademarks, trade names, or proprietary technology that enables the licensee
to earn above-market returns. If a licensee is not in a position to generate such super profits, the economic rationale for paying royalties becomes questionable. A routine distributor earning modest margins, for example, is unlikely to benefit from
brand-related intangibles in a way that justifies royalty payments. In such cases, the licensor retains the value of the intangible, and the distributor’s role is limited to execution rather than value creation.[18]

This principle was examined in the landmark Canada v. GlaxoSmithKline Inc. case[19], where the Supreme Court of Canada examined whether the price paid by Glaxo Canada for ranitidine, combined with royalty payments
for the Zantac trademark, was reasonable under the arm’s length conditions. The Court ultimately ruled that the licensing arrangement had to be considered in its entirety, recognizing that the brand value justified a premium. However, the case also
highlighted the need to ensure that royalty payments do not erode the routine entity’s margin below arm’s length thresholds, especially when the licensee does not derive exceptional market benefits from the intangible.

Also, in the PepsiCo v. Commissioner of Taxation case[20] in Australia, the Federal Court scrutinized payments made under exclusive bottling agreements. Although the agreements did not explicitly stipulate royalty
payments, the Court found that a portion of the payments constituted “embedded royalties” for the use of PepsiCo’s trademarks and IP. The ruling emphasized that even implied rights to use intangibles must be economically justified. If the bottler
– Schweppes Australia was not earning super profits attributable to the brand, then the royalty component should be limited accordingly.[21] Subsequently, the High Court of Australia found in favor of PepsiCo, considering
that there were no embedded royalties for which Australian royalty withholding taxes were due[22]. The High Court, in its decision, emphasized that the correct test to characterize consideration as a “royalty” lies in
assessing whether a payment is truly paid “as consideration for” the grant of IP rights, rather than for a commercial arrangement as a whole. Despite the decision being favorable to PepsiCo, the majority judgment emphasized the singularity of the
facts of the case, notably that the transactions were concluded between non-related parties and based on longstanding commercial agreements. Therefore, in related party transactions conducted without formal agreements over extended periods, controversy
may still arise. Overall and irrespective of the outcome, this case underscores the importance of aligning royalty characterization with the actual benefit derived by the licensee.

Another landmark dispute is Coca‑Cola Co. v. Commissioner (U.S. Tax Court, 2020). The Court reallocated more than USD 9 billion of income from foreign bottling affiliates to the U.S. parent after finding their longstanding
profit‑ split formula (10-50-50) understated the arm’s‑length royalty for Coca‑Cola’s trademarks and secret formulas. The decision underscores that legal ownership plus control of intangibles entitles the owner to residual returns, and outdated intercompany
pricing will be challenged when it no longer reflects DEMPE reality[23]. Meanwhile, Coca-Cola appealed against this decision in August 2025 contending that the IRS’s actions are arbitrary and capricious and questioning
the adoption of the Comparable Profits Method (CPM) (which corresponds to the OECD TNMM) followed by the IRS[24]. The appeal may try to leverage on the 3M decision where the US Court of Appeals reversed
a decision in favor of 3M rejecting the IRS reallocation of unpaid royalties that Brazilian law prevented 3M Brasil from paying to the US entity. At the time, Brazilian law capped the amount a subsidiary could pay in royalties to a non-Brazilian controlling
company like 3M. The IRS reallocated nearly $23.7 million in extra royalty income to reflect what, in its view, 3M should have received from its Brazilian subsidiary. Despite the agreement by both sides that this would be the
amount that would reflect the compensation of that an unrelated entity would have paid to use 3M’s intellectual property, the dispute was whether the IRS can reallocate unpaid royalties that Brazilian law prevented 3M Brazil from paying. Fundamentally
the 8^th Circuit of the US Court of Appeals limited the possibility to reallocate profits under IRC Sec. 482, considering that the statute does not permit the attribution of income that the taxpayer could not legally receive[25]. Other US cases involving IP disputes in the context of valuation in cross-border transfers refer to Airbnb and Meta case where decisions on the Appeals may land in 2026.

The challenges surrounding royalty payments are truly a worldwide problem. Also, in late September 2025 the Portuguese Supreme Court admitted an exceptional appeal to a controversy involving royalty payments by two Portuguese entities to their Swiss related
party[26]. While this decision is not on the merits but merely admits an exceptional review of the case (with a decision likely coming in the near future), – the facts illustrate the issues surrounding economic substance
of the transaction and the functional profile of the entities involved. The Portuguese tax authorities considered that the royalty payments made from the use of the two trademarks were not ALP compliant. For the tax authorities, despite the Swiss
entity was the legal ownership of those brands much of the DEMPE functions were undertaken by the Portuguese entity. The tax authorities decided to apply the Profit Split Method (based on the absence of any comparables in the market), ultimately concluding
that the royalty amount to be paid for the use of those trademarks should be 0. The question at stake is then whether, despite significant DEMPE functions performed by the Portuguese entities, it is possible, rather than reducing the amount of the
royalty payments, simply considering that there should be no royalties to be paid at all, despite the argument by the Portuguese entities that those trademarks are vital for their economic activity.

In another recent decision concerning Netflix Entertainment Services India LLP[27] vs. Deputy Commissioner of Income Tax (Mumbai), the Indian Tax Tribunal examined whether the Indian entity’s role
was limited to that of a distributor of the Netflix platform/subscription or in effect a principal service provider of the Netflix content and platform in India. The Revenue authorities contended that Netflix India functioned as the primary commercial
operator of the platform in India, collecting subscription fees exclusively from local users. Based on this premise, the tax authorities alleged that the entity’s payments to its Associated Enterprises (AEs) should be recharacterized as royalties
for the use of licensed content and technology rather than routine distribution fees, asserting that the ‘limited-risk distributor’ classification was a deliberate structuring device used to minimize local tax exposure. Using the RoyaltyStat database,
the tax officer identified comparable agreements and derived an ad-hoc royalty rate of 57.12% of revenue.

After a detailed evaluation of the functional profile, the Tribunal rejected this approach observing that Netflix India’s operations were confined to routine activities such as marketing, subscriber acquisition, and customer support, while all critical
DEMPE functions relating to content and technology were exercised and controlled by the foreign affiliates. The Indian entity neither owned nor economically exploited the underlying content or platform technology, and mere presence of hosting or caching
infrastructure was held to not confer any value creation status by itself or justify entrepreneurial-level returns. The Tribunal specifically ruled that attributing 43% of subscription revenue to an entity that neither develops nor controls the relevant
intangibles was inconsistent with the FAR profile. Unless an entity controls, develops, or exploits the underlying intangible assets, its remuneration cannot exceed a routine distributor’s return.

Accordingly, the Tribunal treated the grant of access to digital content as functionally similar to distribution, not as a license/transfer of copyright and rejected the recharacterization of Netflix India as an entrepreneurial provider of content and
technology. The ruling reinforces that royalty attribution must be grounded in actual DEMPE contributions and demonstrable control over, or exploitation of, intangibles. Mere contractual access to global content or technology, without corresponding
control or economic ownership, cannot justify non-routine remuneration, and compensation must remain aligned with the entity’s limited-risk functional profile.

The controversy surrounding these issues appears to call for the need for further guidance on this topic. The OECD’s Working Party No. 6, which leads the development of international guidance on transfer pricing and profit attribution, typically builds
revision to the OECD Transfer Pricing Guidelines based on insights from recent case law, taxpayer experience, and feedback from multilateral forums. Therefore, it would not be surprising if additional clarification would be considered to address the
issue of royalty payments in the context of limited risk and routine entities. This may include how tax administrations should evaluate royalty payments that result in below-range or loss-making outcomes for low-function entities.

While formal consensus is often difficult to achieve, particularly given divergent views on method selection and functional characterization, there is broad recognition that existing practice lacks coherence and administrability. A forthcoming OECD guidance
on this could serve as a meaningful step toward curbing inappropriate royalty deductions and improving consistency in royalty treatment across jurisdictions.

From a dispute-prevention perspective, any royalty must be tied to the group’s DEMPE functions and a demonstrable benefit to the payer. Where a limited risk distributor is charged a royalty, taxpayers should evidence value creation beyond routine returns.
Many MNEs now seek Advance Pricing Agreements (APAs) to obtain certainty, and they routinely update intercompany agreements to ensure the terms mirror economic reality. Above all, contemporaneous documentation must articulate how the royalty satisfies
the arm’s length principle and delivers genuine commercial value and tangible benefits.

TNMM: Transactional vs. Combined Approach

Another critical issue within the transfer pricing landscape refers to the circumstances under which the TNMM should be applied on a transactional basis versus a whole-of-entity basis. This inquiry reflects growing concern among tax administrations about
the granularity and precision of transfer pricing analysis, particularly in cases where aggregated TNMM applications may obscure the arm’s length nature of individual transactions. Nonetheless, the TNMM has long been considered a method of last resort,
typically used when reliable data for traditional methods such as the Comparable Uncontrolled Price (CUP) or Resale Price Method (RPM) is unavailable. Applying TNMM on a whole-of-entity basis has become common practice, especially for routine entities,
because it offers a pragmatic solution when transaction-level comparables are scarce.

The push toward transactional TNMM raises significant practical challenges. Most notably, reliable data for benchmarking individual transactions is often unavailable, especially in industries with bundled services, integrated supply chains, or centralized
procurement. Even when data exists, allocating indirect costs such as depreciation, amortization, and shared service expenses across multiple transaction streams is inherently complex and subjective. This undermines the reliability of the analysis
and risks inconsistent outcomes across jurisdictions. The OECD Transfer Pricing Guidelines (2022)[28] acknowledge these limitations, noting that TNMM is best suited for situations where gross margin data is unreliable,
but net profit indicators are available and meaningful.

From a compliance perspective, a transactional TNMM approach would dramatically increase the burden on taxpayers. Companies would need to segment financial data at a granular level, develop multiple sets of comparables, and justify cost allocations across
transactions, often without sufficient internal or external data. This would not only inflate compliance costs but also increase the risk of audit disputes and double taxation. If the OECD proceeds in this direction, it must consider implementing
de minimis safe harbours or exemptions for low-value transactions, industries with limited comparables, or entities operating in low-capacity jurisdictions. Without such relief, the administrative complexity could outweigh any theoretical gains in
precision.

This tension is particularly stark when viewed alongside the OECD’s concurrent efforts to implement Amount B – a simplified and streamlined approach (SSA) to pricing baseline marketing and distribution activities. Amount B is designed to reduce
controversy and compliance burdens by offering fixed returns for routine functions. Yet, the transactional TNMM initiative seems to move in the opposite direction, introducing more complexity and subjectivity. The lack of coherence between these two
policy tracks is troubling, especially for taxpayers seeking clarity and consistency in their transfer pricing obligations.

Ultimately, the OECD must reconcile its goals of simplification and precision. If the objective is to reduce disputes and promote tax certainty, then expanding Amount B and similar safe harbour regimes may be more effective than mandating transactional
TNMM analyses. The Working Party 6’s deliberations should be informed by stakeholder feedback, including the practical realities faced by MNEs. A balanced approach, grounded in economic substance, administrative feasibility, and global consistency
is essential to ensure that transfer pricing rules remain fit for purpose in an increasingly complex international tax landscape.

Echoing this concern, business coalitions such as Business at OECD and the International Chamber of Commerce have urged the OECD to keep Amount B a simple, elective safe-harbour, and the OECD’s February 2024 consultation summary even hailed Amount B as
a ‘game-changer’ for African and other developing jurisdictions because a clear safe-harbour could eliminate most routine-distribution disputes.[29] With Amount B already included in the OECD Transfer Pricing Guidelines
since January 2025, there is still a lack of widespread adoption of the SSA. Recently, Singapore has adopted Amount B on a three-year pilot basis (January 1, 2026 to December 31, 2028)[30], it would be a welcome move
if more jurisdictions would follow identical steps into implementing the SSA or, at least, expressly recognize its acceptance to prevent possible double taxation issues.

Special Considerations for Intra-Group Services (OECD Chapter VII)

In the meantime, the OECD is expected to release a discussion draft on potential updates to Chapter VII of the OECD Transfer Pricing Guidelines pertaining to Intra-Group Services, by spring 2026. The proposed draft may provide further clarity on high‑value‑added
services, the meaning, and application of the benefits test, which both businesses and tax authorities have sought to clarify and additional guidance on applying relevant transfer pricing methods.

Emerging Priorities: Business Restructurings (OECD Chapter IX)

Chapter IX of the OECD Transfer Pricing Guidelines (2022) focuses on the transfer pricing implications of business restructurings, which may include mergers, centralizations, and outsourcing. These organizational changes often lead to significant shifts
in the functions, assets, and risks of affiliated entities, necessitating a closer look at how value is redistributed across jurisdictions. The chapter outlines that where a restructuring involves a transfer of something of value – such as intangibles,
strategic functions, or future profit potential, exit or conversion charges may be required to reflect arm’s-length conditions. Moreover, businesses must evaluate the options realistically available to both parties to ensure that the compensation
mirrors what independent entities would have agreed to under similar circumstances.

Despite its foundational framework, Chapter IX has come under growing scrutiny, prompting OECD Working Party 6 to include it on its agenda for redrafting. One of the thorniest issues is the Options Realistically Available section, which remains conceptually
complex and difficult to apply consistently. Tax authorities and taxpayers alike struggle with interpreting how alternative options should be assessed and documented, leading to uncertainty and compliance challenges. Compounding this, countries diverge
widely in how they interpret a “transfer of something of value”, with some focusing on legal ownership, others on economic substance, or even implicit synergies, creating an uneven and subjective application of the guidance across jurisdictions.

Valuation approaches in practice also differ substantially among jurisdictions, adding another layer of complexity. The lack of harmonized methodology for exit and conversion valuations has led to inconsistent outcomes in tax audits[31].
MNEs have voiced the need for practical, jurisdiction-neutral guidance to address how to measure transferred value during restructurings and how to determine adequate compensation under varying local rules. Enhanced clarity in these areas, particularly
tailored examples and administrative simplifications or safe harbours, would be warmly welcomed by businesses navigating increasingly sophisticated cross-border reorganizations.

In November 2025, the OECD released the 2025 Update to the Model Tax Convention (OECD MTC). The most relevant amendment is the revised version of the Commentary to Article 5 of the OECD MTC which clarifies the circumstances according to which remote and cross-border work arrangements may give rise to a PE. The revised commentary introduces a new analytical framework incorporating a working-time benchmark (50% threshold) and a commercial-purpose test to assess when home or remote working could trigger a PE. These developments are especially relevant for MNEs managing globally mobile workforces and signal a shift toward more nuanced interpretations of nexus in a post-pandemic, digitally enabled economy. See A&M Tax Alert for additional insights together with the analysis of the overall amendments to the OECD MTC.

As part of the project to address the tax implications of global mobility, the OECD also initiated a consultation process requesting inputs from the business community and with a view to define the scope of the next phase of its global mobility work. The OECD convened a public meeting on January 20, 2026, to discuss the stakeholder feedback on the broader tax challenges associated with global mobility. The discussions covered a wide range of issues, including the impact of remote work on individual and corporate tax residence, the complexity of tracking employee movements, the misalignment between income tax and social security obligations, and the compliance burdens arising from short-term business travel.

A&M Tax submitted detailed comments to the OECD as part of this consultation, which are publicly available on the OECD website[32]. The submission emphasized the need for internationally coordinated safe harbours to reduce compliance burdens for low-risk cross-border work, highlighted the operational challenges of real-time tracking and withholding, and advocated for greater alignment between tax, and social security rules. The submission also called for clearer guidance on the attribution of profits to PEs arising from mobile workforces and stressed the importance of tax certainty through advance rulings and published MAP outcomes.

These developments mark a significant step in the OECD’s broader global mobility agenda, and further guidance is expected in due course. MNEs are encouraged to review their global mobility policies, reassess PE risk frameworks, and monitor the evolving international consensus on taxing cross-border work arrangements.

The United States closed 2025 with significant tax reforms aimed at clarity, efficiency, and global alignment. U.S. measures focused on simplifying Corporate Alternative Minimum Tax (CAMT) rules, clarifying the 1% stock buyback excise tax, and advancing international tax reforms under the One Big Beautiful Bill Act (OBBBA). Additional guidance on digital assets, Base Erosion and Anti-Abuse Tax (BEAT) and Foreign Investment in Real Property Tax Act (FIRPTA) provisions and sovereign investment taxation further signaled the government’s intent to streamline compliance and reduce uncertainty. Canada’s Minister of Finance tabled its 2025 budget, which was followed by draft legislation for both new and previously announced tax measures. Budget 2025 focused on spending over broader tax measures. These developments reflect a broader shift toward simplification, transparency, and predictability in North American tax policy, with implications for cross-border investment, compliance planning, and dispute resolution.

US

Key Policy Update in Q4:

• Corporate Taxes:
  • During 2025, Treasury and the IRS released four notices regarding the CAMT. These notices provide interim guidance and preview of proposed regulations designed to simplify and clarify earlier rules. Key areas addressed include: (1) higher safe harbour threshold, allowing more companies to avoid CAMT under the simplified method, (2) simplification of partnership rules, (3) closer alignment with regular tax rules for domestic corporate transactions, troubled companies, and consolidated groups, (4) additional adjustments for unrealized financial statement gains and losses, and (5) no retroactivity and providing ability to selectively adopt sections of proposed regulations. The CAMT guidance is welcome news, but gaps remain, and more guidance is expected early in 2026.
  • Treasury and the IRS issued final regulations on the 1% excise tax on corporate stock repurchases, narrowing the scope of covered transactions and providing much-needed clarity for public companies, private equity firms, and multinational groups. 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. These regulations apply retroactively, so taxpayers should review transaction models, policies, and plans for refund opportunities and compliance requirements. See A&M Tax Alert for additional insights.
  • Treasury and the IRS released four notices outlining forthcoming proposed international tax regulations under the OBBBA. The guidance addresses (1) foreign tax credit calculations when a controlled foreign corporation (CFC) must conform its taxable year to that of its majority US shareholder, (2) a retroactive change to how US shareholders determine their pro rata share of subpart F income and global intangible low-taxed income (GILTI), (3) a new limit on foreign tax credits for taxes attributable to distributions of previously taxed earnings and profits (PTEP), and (4) a change to “deduction eligible income” for certain sales by domestic corporations to foreign persons. The notices generally apply to the 2025 taxable year and beyond. See A&M Tax Alert for additional insights.
  • Treasury and the IRS issued final and temporary regulations clarifying when income from US investments of foreign governments—including sovereign wealth funds, foreign government pension funds, and certain international organizations—is exempt from US taxation. Income is generally exempt if not derived from commercial activity or a controlled commercial entity (CCE). Separately, proposed rules would treat the acquisition of debt as a commercial activity unless certain conditions are met and would broadly define when a foreign government effectively controls a CCE, potentially triggering US tax on certain investments.
  • Treasury and the IRS have proposed removing the “domestic corporation look-through rule” for determining domestic control of Qualified Investment Entities (QIEs) under the FIRPTA. This rule required tracing foreign ownership through certain domestic C corporations, causing legal uncertainty and operational challenges. The proposal treats all domestic C corporations as non-look-through persons, simplifying compliance and aligning with statutory language. The proposed changes, once published as final regulations, would apply to transactions occurring on or after October 20, 2025, with optional retroactive application from April 25, 2024.
  • The IRS has provided a safe harbour for fixed investment trusts to stake digital assets without losing their tax status as investment or grantor trusts. The guidance outlines 14 conditions, including limits on trust activities, asset custody requirements, and quarterly distribution of staking rewards. The safe harbour applies to tax years ending on or after November 10, 2025, with a nine-month window for existing trusts to amend agreements.
  • Treasury and the IRS finalized regulations requiring taxpayers to capitalize interest for improvements that constitute the production of designated property, removing the “associated property rule” and similar rules. The associated property rule—which required including the adjusted basis of temporarily removed property in capitalization calculations—was invalidated by the Federal Circuit’s decision in Dominion Resources Inc. v. United States (2012). The regulations also update the definition of “improvement” for determining capitalizable costs.
  • 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 substitute payments or other payments to a foreign related party are included in QDP calculations. QDPs are not considered base erosion payments if taxpayers meet certain reporting requirements. The final rules apply to taxable years beginning on or after December 18, 2025, with an elective early application for taxable years beginning on or after January 10, 2025. The QDP reporting requirements take effect for taxable years beginning on or after January 01, 2027.
  • The United States opposed the United Nations International Maritime Organization’s (IMO) proposed global carbon tax, known as the Net-Zero Framework (NZF). IMO’s NZF is intended to mark the first global tax targeting carbon emissions from international shipping. The US has raised concerns over unfair costs to American consumers, shipping companies, and energy providers, and warned retaliatory measures against countries supporting the tax, including port restrictions, visa limitations, and sanctions. Following opposition from the US, the IMO postponed adoption of the tax for at least one year, with talks resuming in 2026.
• Personal Taxes:
  • The IRS has issued some guidance regarding no tax on tips and overtime compensation under the OBBBA, including an interim approach for taxpayers for tax year 2025 when employer or payor reporting is unavailable. This guidance also provides transition relief regarding the requirement that qualified tips are received in the course of a specified service trade or business, Additionally, the IRS has granted penalty relief for employers and payors regarding new information reporting requirements and payee statements.
  • The IRS is phasing out paper tax refunds for individuals as part of a shift to electronic federal payments under President Trump’s Executive Order 14247. For taxpayers without a bank account, limited exceptions will be available (not yet specified), as well as other options (e.g., prepaid debit cards and digital wallets). While most refunds are by direct deposit, the IRS does not currently allow direct deposits to a foreign bank account, and it is unclear if paper checks will remain available for those taxpayers. Further guidance for 2025 tax returns is expected before the 2026 filing season; until then, existing forms, and procedures should be used.
• Indirect Taxes:
  • California now generally conforms to federal personal income and corporate tax laws enacted as of January 01, 2025, replacing the previous 2015 conformity date. The state will adopt most provisions of the Tax Cuts and Jobs Act of 2017, except where it continues to selectively not conform, and will not conform to OBBBA provisions unless the new legislation specifically provides for it.
  • California enacted legislation requiring private equity firms and management services organizations to report certain agreements or transactions in the health care sector. The law addresses state concerns about “friendly doctor” arrangements, which allow non-physicians to indirectly invest in physician practices.
  • Texas now requires taxable entities, starting with the 2026 franchise tax report, to compute franchise tax based on federal income tax rules in effect at the time, replacing the previous reference to 2007 rules. Consistent with the OBBBA, state taxpayers may elect to fully deduct qualifying fixed assets acquired after January 19, 2025, beginning with 2026 reports. Taxpayers must report gains on sales of depreciable assets (as reported on their federal tax returns) when depreciation was included in their cost of goods sold but may make a one-time net depreciation adjustment to address federal-state differences for these assets.

Key Controversy Issues in Q4:

• The recent 3M appellate ruling dated October 1, 2025 (3M Company and Subsidiaries v. Commissioner of Internal Revenue, No. 23-3772) underscores a pivotal shift in transfer pricing enforcement, reinforcing statutory boundaries over agency discretion. By limiting the IRS’s authority under IRC section 482 to income a taxpayer can actually control, the decision curtails attempts to override foreign legal restrictions and signals a stricter adherence to the Loper Bright standard. This outcome highlights the growing judicial emphasis on legal certainty in cross-border transactions, shaping future interpretations of allocation rules and compliance strategies for MNEs.

Canada

Key Policy Update in Q4:

• Corporate Taxes:
  • On November 04, 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, (i) development of critical resources and minerals, and dual use of infrastructure within a broader defense strategy; (ii) 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”; and (iii) a smaller focus on domestic affordability and home development concerns. Budget 2025 passed first and second readings in the House of Commons and is currently before the Senate as Bill C-15 (as of January 27, 2026).
  • 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. Clean Economy Investment Tax Credits
  • 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, (i) expanding eligibility for the Clean Technology Investment Tax Credit for systems that produce electricity, heat, or both electricity and heat from waste biomass; (ii) 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; (iii) expanding eligibility for the Clean Hydrogen Investment Tax Credit to include hydrogen produced from methane pyrolysis; (iv) 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; and (v) extending the availability of full credit rates for the Carbon Capture Utilization and Storage Investment Tax Credit from 2031 to 2035.
  • 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 Organization for Economic Co-operation and Development’s Transfer Pricing Guidelines. Budget 2025 provided rules that will, (i) 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; (ii) 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, (i) streamlined documentation rules providing for simplified documentation requirements when prescribed conditions are met; (ii) 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; and (iii) 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.
• Indirect Taxes:
  • Proposal To Introduce a New Reverse Charge Mechanism: To address the carousel fraud schemes exploiting Goods and Services Tax/Harmonized Sales Tax (GST/HST), Budget 2025 proposes to introduce a new Reverse Charge Mechanism (RCM) beginning with specified telecommunication services. The proposed new RCM would apply to supplies of specified telecommunication services, which would be telecommunication services that enable, (i) speech communication that is instant or with only a negligible delay between the transmission and the receipt of signals; or (ii) the transmission of writing, images, and sounds or information of any nature when provided in connection with services that enable such speech communication. For example, this would include supplies of voice-over internet protocol (VoIP) minutes. An example of such specified telecommunication services is supplies of voice-over internet protocol (VoIP) minutes. Although Budget 2025 mentions only certain telecommunication services, the Federal Government has proposed that the new rules would include a new legal authority that would allow the Federal Government to make other supplies subject to an RCM. Accordingly, we may see other supplies being brought under the scope of an RCM in the future by means of regulations.
  • Repeal of the DST and Other Indirect Tax Measures: Consistent with earlier announcements, Budget 2025 includes draft legislation that would repeal the DST in anticipation of a mutually beneficial comprehensive trade arrangement with the United States. Budget 2025 also proposes to eliminate (i) Luxury tax on subject aircraft and subject vessels starting November 5, 2025; (ii) the underused housing tax as of the 2025 calendar year; and (iii) GST for first-time home buyers on homes up to $1 million (and reduced GST for homes between $1 million and $1.5 million).

Across the UK and Europe, Q4 2025 marked a period of accelerated legislative and administrative activity, with governments advancing Pillar Two implementation, enhancing transparency, and refining tax regimes to support economic competitiveness. The UK introduced a suite of reforms through Budget 2025, including updates to transfer pricing, PE, and diverted profits rules, while also progressing sector-specific measures such as the Aggregates Tax and crypto asset investment guidance. Meanwhile, EU member states including Germany, France, Italy, the Netherlands, and Belgium issued detailed guidance and legislative updates to operationalize the Pillar Two rules, with a strong emphasis on minimum tax enforcement, digital reporting, and anti-avoidance. Denmark, Finland, Norway, and Sweden paired Pillar Two alignment with domestic relief measures, and countries like Luxembourg and Poland introduced targeted incentives to support innovation, sustainability, and long-term savings. Collectively, these developments reflect a regional shift toward harmonized tax governance, digitalized compliance, and strategic policy recalibration requiring MNEs to adapt systems, reassess structures, and prepare for a more complex and coordinated regulatory environment.

United Kingdom

Key Policy Update in Q4:

• Corporate Taxes:
  • The Chancellor presented Budget 2025 on November 26, 2025. The Budget proposes changes in business taxes, personal taxes, capital gains tax, inheritance tax, and property taxes, among other things. See A&M Tax Alert for additional insights.
  • Scotland’s final rules for the new Aggregates Tax, effective April 1, 2026, provide detailed guidance on tax calculation, registration and notification requirements, obligations for non‑resident businesses—including the need to appoint a representative—and available credits such as those for bad debts and certain processing activities. The clarity offered by these rules signals that Scotland is moving firmly toward a more structured resource‑tax regime, and businesses operating in the sector will need to begin adapting systems, validating supply‑chain data, and tightening compliance processes well ahead of the April rollout to avoid operational or reporting disruptions.
  • HMRC’s update to the Capital Gains Manual integrates the anti‑avoidance changes introduced in Budget 2025, expanding guidance on share exchanges, corporate reconstructions, and cross‑border mergers. Importantly, the revised manual affirms that sections 135–136 TCGA can apply to complex multi‑step international mergers, but such transactions will now face heightened scrutiny under strengthened section 137 rules. The refresh underscores HMRC’s increasing focus on commercial substance, and groups contemplating reorganizations may need to reassess their clearance strategy and ensure robust documentation as the UK pivots toward more stringent oversight.
  • On November 10, 2025, HMRC updated its International Manual with further guidance on identifying arm’s length prices using comparable uncontrolled transactions, emphasizing the primacy of arm’s length outcomes. The guidance focuses on assessing the reliability of comparables, the appropriate use of statistical tools where data permits, and adjusting when results fall outside the arm’s length range. In response, businesses should review their transfer pricing policies, benchmarking analyses and governance to ensure outcomes are robust, well supported and aligned with HMRC’s compliance and audit expectations.
  • In December 2025, the UK government published Finance (No. 2) Bill 2024–26, introducing significant reforms to transfer pricing, PE and diverted profits rules, largely effective from January 1, 2026, and aligning UK law more closely with OECD principles. Key measures include a broad UK‑UK transfer pricing exemption, updated financial transactions rules, modernized PE provisions, and the replacement of diverted profits tax with corporation‑tax‑based on unassessed transfer pricing profits. The Bill also enables a new International Controlled Transactions Schedule (ICTS) for large businesses, with further consultation due in 2026, requiring businesses to keep their tax positions, governance and compliance frameworks under review.
• Personal Taxes:
  • On October 9, 2025, HMRC announced through a policy paper that crypto-asset exchange traded notes (CETNs) are now considered qualifying investments for individual savings accounts (ISAs) and pension schemes. CETNs, which are debt securities tracking the value of specific crypto assets, were previously accessible only to professional investors. Following updated Financial Conduct Authority rules effective October 8, 2025, retail investors can now include CETNs in their investment portfolios. CETNs are eligible for inclusion in stocks and shares of ISAs until April 6, 2026, after which they will be reclassified as qualifying investments for innovative finance ISAs (IFISAs). HMRC has emphasized that ISA managers must seek approval to offer CETNs under IFISAs. This policy aims to diversify long-term savings options and provide tax-advantaged exposure to crypto assets.
  • HMRC published its Loan Charge Review policy paper on November 26, 2025, setting out a proposed new settlement opportunity for employees impacted by the loan charge on disguised remuneration schemes, which would take effect retrospectively from April 5, 2019. This would allow liabilities to be recalculated using the income tax rates that applied when loans were originally made, rather than applying a single 2019 charge, with further reductions for historic promoter fees (capped at GBP 10,000 per year) and a flat GBP 5,000 allowance. Late payment interest would be waived, any related inheritance tax would be reduced to nil, and remaining amounts could be paid over five years without affordability discussions. Overall relief would be capped at GBP 70,000 per individual, promoters would be excluded, and HMRC expects most affected individuals to see at least a 50% reduction in liabilities, with around 30% able to settle without making a payment.
• Indirect Taxes:
  • In the Budget, the UK Government confirmed its intention to make e-invoicing mandatory for B2B and B2G transactions from April 2029.
  • In the Budget, the UK Government announced significant increases in betting and gaming duty for online gambling. The rate for remote gaming duty increases from 21% to 40% from April 2026 and the rate for general betting duty increases from 15% to 25% from April 2027 (excluding horseracing).

Key Controversy Issues in Q4:

• No key controversy update.

Belgium

Key Policy Update in Q4:

• Corporate Taxes:
  • The government of Belgium proposed Bill DOC 56 1070/001, on October 9, 2025, to amend the Law on the Introduction of Minimum Tax, reinforcing the 15% minimum effective tax rate for large multinational groups with combined revenues above EUR 750 million, operating in the EU. By shifting to joint filings, refining definitions for joint ventures and reporting group entities, introducing application of joint assessments where multiple entities are in scope, and broadening the scope of the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR), the draft signals a move toward greater alignment with global tax standards. If passed, these changes will not only reshape compliance frameworks but also push businesses to proactively adapt their structures and reporting strategies, positioning themselves for a future where transparency and coordinated tax governance become the norm.
  • On October 17, 2025, the Chamber of Representatives adopted Bill DOC 56 0654 expanding the tax-neutral merger regime to cover sister mergers. The measure, retroactive to June 16, 2023, applies to a domestic as well as a cross-border sister merger, where all assets are transferred, the acquired entity is dissolved without liquidation, shareholding proportions remain identical, and no new shares are issued by the acquirer. This development signals a more flexible approach to corporate reorganizations, enabling businesses to optimize group structures with greater tax efficiency. Companies considering intra-group mergers should evaluate opportunities under this broadened regime, as it could unlock strategic restructuring options in both domestic and cross-border contexts.
  • Belgium published Circular 2025/C/68, on October 22, 2025, providing comprehensive guidance on implementing the EU Minimum Taxation Directive and OECD GloBE rules, including QDMTT, IIR, and UTPR. The circular clarifies scope, key definitions, calculation of GloBE income and adjusted covered taxes, effective tax rate and top-up tax mechanics, as well as treatment of R&D credits and transitional Controlled Foreign Corporation (CFC) issues. This detailed framework marks a critical step toward operationalizing Pillar Two in Belgium, and businesses should begin aligning systems and data processes to meet these new standards effectively.
• Personal Taxes:
  • On December 12, 2025, Belgium’s Council of Ministers approved, in second reading, a major individual income tax reform. It introduced a gradual increase in the tax‑free amount, a higher allowance for the first dependent child, and phased changes to the marriage quotient advantage. The reform further provides a EUR 2,000 de minimis exemption for occasional income, introduces an entrepreneur’s deduction for self‑employed individuals, and removes the tax increase for insufficient advance payments. Additional measures include extending the copyright tax regime to digital professions, reducing the special social security contribution for single persons, increasing the work bonus from 2026, and applying a 33% tax rate to pensioners who continue working after retirement. The reform bill was subsequently submitted to the Parliament on January 13, 2026.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Spain

Key Policy Update in Q4:

• Corporate Taxes: No significant update.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • The Spanish Tax Agency launched a consultation on amendments to Law 37/1992 to implement parts of EU Directive 2025/516 (ViDA). The draft narrows the application of the EUR 10,000 origin threshold to the Member State of establishment, restricts the option to tax at destination to that Member State, expands the EU external and import one-stop-shop schemes (allowing certain non-EU suppliers to use the external scheme for supplies to final consumers in the Union) and preserves the requirement for non-EU suppliers to appoint a tax representative. Phased implementation dates are proposed (minor changes from January 1, 2027; principal changes from July 1, 2028, and July 1, 2030), transitional rules cover consignment-stock, and certain energy deliveries. The consultation closed on December 23, 2025, and no further updates have been issued since that date.

Key Controversy Issues in Q4:

• No key controversy update.

Netherlands

Key Policy Update in Q4:

• Corporate Taxes:
  • On December 15, 2025, the Netherlands Tax Administration issued guidance on calculating top-up tax when a Dutch parent transfers a low-taxed entity to another group parent during the fiscal year. Under Article 4.2(1) of the Minimum Taxation Act 2024, the top-up tax applies if a parent holds an interest at any point during the year, with pro rata calculations for internal transfers to avoid double taxation. External transfers require no pro-rate adjustment, as consolidated accounts capture the impact. This clarification provides certainty for intra-group restructurings, and businesses should review ownership timelines to ensure accurate compliance under Pillar Two rules.
  • Netherlands finalized amendments to the Minimum Tax Act and advanced the DAC9 implementation bill, on December 23, 2025, setting the stage for a more robust and transparent compliance environment. Key changes to the Minimum Tax Act include updating the definition of flow-through and hybrid entities for Pillar Two purposes, excluding pre-transition deferred tax assets from Effective Tax Rate (ETR) calculations, and adding anti-avoidance measures addressing hybrid intra-group payments. The updates also clarify joint venture treatment under domestic top-up tax rules, refine rules for calculating GloBE income, covered taxes, and deferred tax adjustments and adjust turnover thresholds for group mergers. With DAC9 introducing mandatory reporting and cross-border data exchange, businesses should anticipate increased scrutiny, accelerated digitalization of tax processes, and a need for proactive restructuring to stay ahead of evolving global standards. Early preparation will be critical to avoid compliance risks and leverage opportunities in this new regulatory landscape.
  • The State Secretary for Finance issued a year-end decree, on December 23, 2025, introducing wide-ranging tax law amendments following the approval of the 2026 Tax Plan. Changes include fair market valuation for rented second homes, revised pension calculations for employees moving to part-time work within ten years of retirement, enabling phased digital access to fiscal data, and technical adjustments to minimum tax provisions to align with OECD and EU standards. These updates reflect a continued push toward modernization and global alignment, and taxpayers should anticipate greater digital integration and evolving compliance requirements in the coming year.
• Personal Taxes:
  • In an amending bill to the 2026 Tax Plan, submitted to the Lower House of Parliament on October 17, 2025, the government proposes targeted changes to personal income tax rates and thresholds aimed at supporting lower‑income earners. The changes include basing the indexation of the first two employment tax credit thresholds on the full table correction factor for 2025 and 2026 rather than on the minimum wage, resulting in lower thresholds and a higher credit for lower‑income taxpayers. At the same time, the modest increases in the employment tax credit previously planned for income earners in the second and third brackets have been cancelled. In addition, the reduction in the first income tax bracket rate will be limited to 0.07% instead of 0.12%, with small annual increases scheduled from 2031 onwards, and the threshold for the top income tax rate in 2026 will be set slightly lower than initially proposed. These measures were enacted as a part of the 2026 Tax Plan, on December 23, 2025.
  • The Netherlands updated the minimum taxable salary thresholds for applying the 30% ruling for expatriates, effective January 1, 2026. The new annual amounts are EUR 36,497 for individuals under 30 years of age with a Ph.D. or master’s degree (previously EUR 35,468) and EUR 48,013 for other expatriates (previously EUR 46,660). The maximum salary eligible for the 30% ruling remains capped at EUR 262,000. The measure was published in the Official Gazette on December 24, 2025.
  • The Netherlands released the 2026 individual income tax parameters following the adoption of the Tax Plan 2026, confirming progressive rates of 35.75%, 37.56% and 49.50%, with reduced rates for retired individuals. Key updates include revised levy rebates, an imputed income rate of 0.35% for owner‑occupied dwellings, and a 24.5%/31% rate structure for substantial shareholdings. For savings and investment income, the exempt amount is set at EUR 59,357, with deemed yields of 1.28% for savings and 6.00% for other assets taxed at 36%, and a reduced green fund exemption of EUR 26,715. The mortgage interest deduction remains available at 37.56%.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• On October 30, 2025, the Court of Justice of the EU in the case of Fugro NV v Council of the EU (Case C-146/24 P), dismissed Fugro NV’s appeal, affirming the General Court’s earlier finding that the company lacked standing to challenge Council Directive (EU) 2022/2523 on Pillar Two minimum taxation. The case centered on Article 17’s shipping-income exclusion and whether tonnage-tax beneficiaries constituted a limited class. The Court ruled Fugro failed to demonstrate individual concern or membership in such a class, rejecting claims of impaired rights under national tax regimes. The decision confirms that most companies cannot directly challenge EU-wide tax rules like Pillar Two, unless they are uniquely and specifically affected by the measure.

Italy

Key Policy Update in Q4:

• Corporate Taxes:
  • Italy issued a legislative decree on October 29, 2025, detailing the procedure for filing the GloBE Information Return (GIR) for in-scope taxpayers. Under the rules, constituent entities must submit their GIR within 15 months after the fiscal year-end, or 18 months for the transitional year, but not before June 30, 2026. The decree aligns with OECD Pillar Two guidance, incorporates earlier administrative clarifications, and implements DAC9 provisions. This move signals Italy’s readiness for full Pillar Two compliance, and businesses should start preparing systems and data processes now to meet these tight timelines.
  • On October 31, 2025, the Finance Department published detailed instructions for completing the GIR, as outlined in Annex 1 of the Ministerial Decree dated October 16, 2025. The guidance provides step-by-step directions for entering group and jurisdictional data, applying safe harbours and exclusions, and computing top-up tax in line with OECD Administrative Guidance. These instructions underscore the complexity of reporting under Pillar Two, and companies should anticipate significant operational adjustments to ensure accurate and timely filings.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • The European Commission published a report under Article 105a(6) of Council Directive 2006/112/EC that maps use of reduced, super-reduced and zero VAT rates across the EU. It finds that derogations are unevenly distributed, within a small group of Member countries (including Italy, Ireland and Luxembourg), accounting for many of the existing measures. The report highlights three particular areas of concern: derogations falling outside Annex III, long-running measures for housing that go beyond social-policy exceptions, and historical derogations that add complexity and risk of market distortions. It concludes that while many derogations support legitimate social or sectoral objectives, their extensive use continues to undermine harmonization efforts.

Key Controversy Issues in Q4:

• No key controversy update.

Finland

Key Policy Update in Q4:

• Corporate Taxes:
  • Finnish Tax Administration released updated guidance on Pillar Two allocation rules on November 25, 2025, clarifying how profits, losses, and taxes should be distributed among group entities, including PEs, controlled foreign corporations, and hybrid or transparent entities. The guidance includes practical examples to support application, signaling that Finland is moving toward stricter compliance expectations. MNEs should review their structures and allocation methods now to ensure accurate reporting under the evolving global minimum tax framework.
  • On December 11, 2025, Finland enacted Law 1141/2025, introducing major income tax reforms effective January 1, 2026. Key changes include abolishing deductions for labor union membership fees, home office expenses, and the general bicycle benefit (with limited grandfathering for agreements made before April 23, 2025), while allowing employer-paid legal fees to be tax-exempt under strict conditions. The surtax on large pensions remains at 5.85% but applies only to income above EUR 60,000. Other adjustments include an increase in earned income credit to EUR 3,430, higher child deductions, and expanded small-income relief. These reforms reflect a shift toward simplifying deductions and enhancing targeted relief, and taxpayers should reassess their planning strategies to optimize benefits under the new regime.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

France

Key Policy Update in Q4:

• Corporate Taxes:
  • The French tax authorities released their first guidance on implementing Pillar Two under Articles 223 VJ et seq. of the General Tax Code, on October 8, 2025. The guidance clarifies key definitions, scope, and territoriality rules, while signaling that more detailed instructions are on the way covering safe harbours, effective tax rate calculations, top-up tax mechanics, filing and payment requirements, and audit procedures. This initial step marks the beginning of a complex compliance journey, and businesses should start preparing for significant operational changes as France moves toward full implementation of global minimum tax standards.
  • On December 15, 2025, the Senate approved a heavily amended Finance Bill for 2026 at first reading, but negotiations later collapsed, leaving the Budget unresolved before year-end. To maintain continuity, the government introduced a special law on December 22, 2025, rolling over 2025 tax rules into 2026 until a final Finance Act is agreed. The uncertainty around timing and content of the 2026 Budget means companies should remain agile and monitor developments closely, as future changes could reshape tax planning and compliance strategies in 2026.
  • France published Decree No. 2025-1276, on December 24, 2025, setting out DAC8 reporting obligations for crypto-asset service providers, effective January 01, 2026, with first reporting due in 2027. The rules define covered providers and assets, outline due diligence and registration requirements, and mandate electronic filing by June 15 following the reporting year. A related decree also introduced obligations for financial institutions under the amended Common Reporting Standard (CRS 2.0). These measures reflect France’s commitment to tightening oversight of digital assets and financial transparency, and businesses in these sectors should act now to build robust compliance systems ahead of the new reporting regime.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Germany

Key Policy Update in Q4:

• Corporate Taxes:
  • On December 29, 2025, Germany published the regulation implementing its minimum taxation law in the Official Gazette, which came into effect on December 30, 2025. The regulation sets out procedural and reporting requirements for filing the GloBE Information Return under the OECD Pillar Two Global Minimum Tax framework. Businesses operating in Germany should prepare to meet these new compliance obligations as part of their 2026 reporting processes.
  • Germany’s Tax Amendment Act 2025 was published on December 23, 2025, and entered into force on December 24, 2025. The legislation introduces tax relief measures for individuals and makes several technical amendments to existing tax laws. While individual relief offers incremental support, businesses should monitor technical changes for implications on ongoing tax positions and planning.
  • On December 23, 2025, Germany enacted legislation amending its domestic Pillar Two rules, effective December 24, 2025. The Act introduces targeted changes to the Minimum Tax Act and incorporates measures to align with DAC9 requirements. Multinational businesses should update their compliance frameworks to reflect these adjustments and maintain alignment with evolving international standards.
• Personal Taxes:
  • Germany introduced an ‘active pension’ regime allowing individuals who have reached the statutory retirement age to continue working voluntarily while earning additional income on a tax‑free basis. Under this measure, eligible employees may earn up to EUR 2,000 per month free of income tax, although health and long‑term care insurance contributions remain payable and amounts exceeding the threshold are taxable. The regime applies to employees subject to social security contributions who have reached standard retirement age, regardless of whether pension benefits are already being drawn, and excludes self‑employed persons, civil servants and certain other categories. The legislation was published in the Official Gazette and entered into force on December 23, 2025, with the objective of encouraging longer workforce participation and easing labor shortages.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Poland

Key Policy Update in Q4:

• Corporate Taxes:
  • On December 5, 2025, Poland enacted the 2026 Budget Law, introducing measures that will reshape tax compliance and business planning in the coming year. Key changes include a higher corporate tax rate for banks, a new Personal Investment Account under personal income tax, and an expanded VAT exemption threshold alongside mandatory e-invoicing for B2B and B2G transactions. With higher excise duties on alcohol and cigarettes, businesses should anticipate tighter fiscal controls and prepare for digitalization-driven compliance under the National E-Invoicing System.
• Personal Taxes:
  • Following parliamentary approval of the Budget Law for 2026 on December 5, 2025, Poland introduced the Personal Investment Account (OKI) as a new tax‑advantaged vehicle to promote long‑term individual investing. Assets held in an OKI are exempt from tax up to PLN 100,000, including a PLN 25,000 sub‑limit for savings‑type assets (such as deposits and savings bonds), with the remaining exemption applicable to investments including shares and bonds. Amounts exceeding the threshold are subject to a low annual asset tax linked to the National Bank of Poland’s reference rate, set at 0.85% for 2026, calculated as 19% of the NBP rate of 4.5% as of October 31, 2025.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Denmark

Key Policy Update in Q4:

• Corporate Taxes: No significant update.
• Personal Taxes:
  • On October 24, 2025, the Danish government announced plans to expand the additional employment tax deduction for seniors, encouraging them to remain in the workforce until retirement. ​ Under the proposal, seniors will receive an annual tax deduction of up to DKK 9,500 during the last five years before reaching retirement age. ​This initiative, part of the 2026 budget agreement, extends the deduction period from two to five years and increases the deduction amount. ​The government aims to support seniors who wish to continue working, recognizing their valuable contributions to businesses and the economy. The public retirement age in Denmark is currently 67 and will gradually increase to 68 by 2030. The proposal has been agreed under the 2026 Budget Agreement but has not yet been formally enacted into law.
  • On November 20, 2025, Denmark’s Tax Council increased travel deduction rates for employees commuting over 24 km daily, effective 2026. The rate for travel between 25–120 km will rise to DKK 2.28 per km, while travel exceeding 120 km will be deductible at DKK 1.14 per km. Employees covered by the special rules for peripheral municipalities and students in these areas can claim the higher travel deduction rate for the entire distance. Tax-free mileage allowance rates for business-related driving will also increase to DKK 3.94 per km for the first 20,000 km and DKK 2.28 per km for travel exceeding 20,000 km.
  • Denmark’s Tax Agency introduced targeted guidance on November 3, 2025, to help influencers, content creators, YouTubers, gamers, and streamers comply with tax regulations.  The guidance explains how to assess tax liability on income, gifts, products, and discounts received for creating content, as well as VAT registration requirements. The initiative follows audits revealing widespread tax errors among content creators, with 9 out of 10 reviewed cases showing discrepancies. The campaign aims to raise awareness and ensure proper tax compliance among existing and new creators.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Russia

Key Policy Update in Q4:

• Corporate Taxes: No significant update.
• Personal Taxes:
  • The Russian government has broadened the list of awards exempt from individual income tax. Resolution No. 1620, published on October 21, 2025, adds the Union State Prize for Young Scientists to the list. This prestigious award, worth RUB 3 million, is granted biennially to scientists under 35 for exceptional achievements in natural, technical, and human sciences, as well as contributions to national defense. The updated list now includes additional international, foreign, and Russian awards for outstanding achievements in various fields that qualify for tax exemption.
  • On October 20, 2025, the Russian government proposed amendments to Article 217 of the Tax Code to increase the annual limit on tax-exempt gifts and financial assistance from RUB 4,000 to RUB 10,000. This exemption applies to gifts from organizations or individual entrepreneurs, contest prizes, and employer-provided financial aid. ​The current limit, unchanged since 2005, will be updated to reflect inflation and economic changes. If adopted, the new limit will take effect from January 1, 2026, providing greater tax relief for individuals receiving such income.
  • Russia implemented tax measures to encourage long-term savings and private pension accounts. Key incentives include individual income tax deductions for life insurance premiums, tax exemptions for payments under long-term savings agreements, and deductions for contributions to pension, life insurance, and individual investment accounts. Employers can also benefit from exemptions on social security contributions for employee contributions to long-term savings accounts. The measures entered into force on November 17, 2025, with certain provisions effective from January 1, 2026.
• Indirect Taxes:
  • The Russian Ministry of Finance published draft amendments to Articles 174.4 and 174.5 of the Tax Code that would require electronic trading platforms (foreign or domestic) to act as tax agents and remit VAT monthly on goods bought by individuals when the consignment value is at or below the EAEU duty-free threshold. Imports exceeding that threshold would remain subject to VAT paid by the buyer prior to customs declaration. The proposal foresees a staged VAT rate: 5% in 2027, 10% in 2028, 15% in 2029, and 20% from 2030. The consultation closed on October 23, 2025, and no further updates have been issued.

Key Controversy Issues in Q4:

• No key controversy update.

Sweden

Key Policy Update in Q4:

• Corporate Taxes:
  • On December 10, 2025, Sweden announced revisions to its Pillar Two framework to align with OECD guidance, refining income and tax allocation across cross-border structures including PEs, controlled foreign companies, and flow-through and hybrid entities, and updating deferred tax calculations to reflect top-up tax values where they differ from accounting figures. The changes also clarify treatment of cross-border losses, foreign tax credits, and provide clearer definitions for hybrid and flow-through entities, signaling a push for uniform reporting and accurate computations. Businesses should expect greater complexity in compliance and begin adjusting systems to meet these enhanced standards.
• Personal Taxes:
  • The Swedish government introduced significant labor tax reductions under its 2026 Budget Bill, targeting full‑time workers with low and medium incomes. The ordinary earned income tax deduction was increased, resulting in an average annual tax reduction of SEK 3,800 for individuals under 66 years of age. For individuals aged 66 and older, the enhanced basic deduction resulted in an average annual tax reduction of SEK 2,300, continuing the government’s efforts to support seniors. In addition, tax reductions were introduced for individuals receiving sickness or activity compensation, with an average annual tax reduction of SEK 1,800 for those earning over SEK 54,000. These measures entered into force on January 1, 2026, following their adoption as part of the Swedish Government’s 2026 Budget Bill presented in September 2025.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Norway

Key Policy Update in Q4:

• Corporate Taxes:
  • Norway’s Parliament approved the 2026 Budget on December 5, 2025, maintaining the corporate tax rate at 22% while adjusting individual thresholds and marginal rates. The personal allowance and pension standard deduction have been increased, and travel-deduction thresholds have been revised. The wealth tax basic allowance has been raised, alongside an increase in the municipal wealth tax rate. While VAT rates remain unchanged, the electricity tax reduction signals a push toward cost relief and sustainability. These adjustments will influence household spending and employer benefit strategies, and businesses should reassess compensation models and energy cost forecasts to stay competitive in a shifting fiscal landscape.
  • On December 22, 2025, Norway updated its Pillar Two rules through amendments to the Supplementary Tax Act, aligning domestic law with OECD guidance. The changes clarify deferred tax treatment, transition-year adjustments, the five-year deferred tax liability recapture rule profit allocation for flow-through entities, and the tax treatment of hybrid and reverse hybrid entities, and securitization structures under QDMTT. While the substance of the regime remains unchanged, these refinements sharpen its application and align Norwegian law with OECD administrative guidance, including guidance issued in June 2024. These refinements raise the compliance bar for MNEs, making accurate data capture and robust documentation critical to avoid top-up tax exposures and recapture risks. Companies should prioritize system updates and scenario modelling now to ensure readiness for stricter enforcement.

Luxembourg

Key Policy Update in Q4:

• Corporate Taxes:
  • On December 17, 2025, Luxembourg approved its 2026 Budget with material tax including movement toward a single tax class, stronger pension incentives, a tax allowance for those deferring early retirement, a new credit to back innovative startups, updates to tax treatment of carried interest, and sectoral support across agriculture, wine growing, and crafts. Environmental initiatives feature a EUR 5 increase in carbon tax per tonne of CO2, lifting the CO2 tax credit to EUR 216 from January 1, 2026, alongside higher tobacco duties. With Pillar Two implementation still a strategic priority, the mix of innovation incentives and sustainability pricing is expected to shape business strategies and market dynamics in the coming year.
• Personal Taxes:
  • Following approval of the 2026 Budget on December 17, 2025, Luxembourg introduced a series of measures aimed at supporting families and single parents and encouraging private pension savings. The government will continue the income tax exemption for single parents earning up to EUR 52,400 and will introduce a tax credit of EUR 922 per child for parents who share the family allowance. In addition, the maximum tax‑deductible contribution to private pension plans will be increased from EUR 3,200 to EUR 4,500, promoting greater retirement savings. The budget also provides for a monthly allowance of EUR 750 (EUR 9,000 annually) for individuals who voluntarily continue working beyond retirement age. Furthermore, independent professionals earning up to EUR 40,000 will benefit from an enhanced tax credit of up to EUR 216 per year. These measures reflect the government’s focus on strengthening financial support for families and enhancing long‑term financial security.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

In Q4 2025, APAC jurisdictions continued to advance toward more structured, transparent, and globally aligned tax systems. Several countries introduced reforms aimed at tightening cross-border oversight, enhancing digital reporting, and refining incentive regimes to remain competitive in a shifting global landscape. Malaysia and Singapore led with data-driven compliance frameworks and targeted business incentives, while China and Hong Kong focused on VAT modernization and crypto asset transparency, respectively. India’s judiciary reinforced treaty-based interpretations of PE and TP, offering greater clarity for cross-border service models. Meanwhile, Korea and Thailand progressed on minimum tax implementation, and Vietnam and the Philippines introduced personal tax reforms and extended e-invoicing mandates. Collectively, these developments signal rising compliance expectations for MNEs operating in the region, underscoring the need for proactive planning, digital readiness, and jurisdiction specific risk assessments.

Malaysia

Key Policy Update in Q4:

• Corporate Taxes:
  • Malaysia gazetted several exemption orders on October 3, 2025, for single family offices operating in Pulau 1 of the Forest City Special Financial Zone, creating a highly preferential tax environment. The framework offers a 0% income tax rate for up to 20 years for qualifying entities as well as one-off exemptions on stamp duty and capital gains tax on transfer of unlisted Malaysian companies to the qualifying entity upon establishment. The package is intended to position Forest City as a competitive wealth‑management hub in Asia and is likely to attract ultra‑high‑net‑worth families seeking diversified regional bases and long‑term tax certainty.
  • Malaysia has gazetted the Finance Act 2025 on December 31, 2025. Some of the key updates include an expanded definition of “disposal” for capital gains tax purposes, updated rules for nominee-held assets, a 10‑year limit on real property loss carry‑forwards, amendments catered for the implementation of the stamp duty self-assessment system (SDSAS), as well as higher stamp duty penalties to reflect the Malaysian government’s commitment to enhance enforcement for stamp duty collections under the SDSAS. These measures point toward more rigorous oversight of real estate transactions, and capital‑intensive structures, and are likely to influence how taxpayers approach restructuring, asset holding, and compliance planning in the coming years.
  • The Inland Revenue Board’s new E‑Invoicing Compliance Review Framework released on December 15, 2025, reflects Malaysia’s shift toward data‑driven enforcement. Reviews may cover up to two years of assessment and include business interviews and on-site or agreed-location checks of e-invoicing records. The framework applies under the Income Tax Act 1967 and the Petroleum (Income Tax) Act 1967. While reviews are capped at two years, offenses may be prosecuted up to 12 years from occurrence. Cases are selected based on risk and system-driven analysis. Taxpayers may make voluntary disclosures before or after filing, but only complete and accurate disclosures qualify. Accepted disclosures are formally closed; non-compliance may trigger transaction-based penalties and prosecution if compounds are unpaid. The framework marks a significant shift toward more proactive, data‑driven enforcement, and taxpayers should expect detailed scrutiny of e‑invoicing behavior as Malaysia moves into a more digitally monitored compliance environment.
• Personal Taxes:
  • Pursuant to the Finance Act 2025 gazetted on December 31, 2025, several enhancements to personal income tax reliefs have been introduced to support sustainable and inclusive lifestyles. One of the key updates is the introduction of a 2% tax on distributions made by limited liability partnerships (LLPs) to individual partners in excess of MYR 100,000, effective from the year of assessment 2026.
• Indirect Taxes:
  • The Royal Malaysian Customs Department (RMCD) has updated Service Tax policies following the expansion of the SST framework effective July 1, 2025. Under the new policy regime, rental and leasing services under Group K are subject to Service Tax, but transitional and conditional exemptions have been introduced, including group relief for rental/leasing between related companies and a short-term B2B exemption for newly registered providers who meet certain conditions. RMCD has also clarified expanded exemptions in other sectors, such as exemptions on certain financial services (e.g., acquisition of re-insurance or re-takaful were used to provide specified insurance/takaful services) and other sector-specific relief. Additional exemptions are provided for public authorities (e.g., federal and state governments and local authorities for limited periods) and certain long-standing contracts that meet prescribed conditions. Several earlier service tax policy documents have been amended or replaced as part of this updated guidance

Key Controversy Issues in Q4:

• No key controversy update.

China

Key Policy Update in Q4:

• Corporate Taxes:
  • There were no major statutory changes in corporate income tax rates during the quarter. Tax authorities continue to emphasize compliance and risk management in cross-border transactions, including more active use of information reporting to identify undeclared offshore income. China’s broader participation in global tax transparency frameworks increases focus on disclosure of multinational enterprise structures and digital economy tax risks.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • China has issued the VAT Implementation Regulations to support consistent application of the new VAT Law from January 1, 2026.  Key features include: clearer definitions of taxable transactions, covering the sale of goods, services, intangible assets and immovable property under the updated VAT regime; a refined place-of-consumption principle for cross-border services and intangibles, aligning VAT liability with where the service/intangible is consumed within China; detailed rules on zero-rating for export goods and export-oriented cross-border services, with structured criteria for eligibility and refund processes; and expanded guidance on input VAT deduction and recapture, including clearer documentation and methods for crediting input VAT and handling long-term and mixed-use assets. Loan-related interest and advisory fees remain non-creditable against output VAT pending further operational guidance expected during 2026.

Key Controversy Issues in Q4:

• China’s tax authorities are continuing to strengthen enforcement of offshore income reporting, leveraging global transparency frameworks and automatic exchange of information data. This trend is particularly relevant for high-net-worth individuals and cross-border service providers whose tax residency and reporting obligations may be impacted by evolving interpretations of tax residency and foreign income disclosure. Taxpayers should proactively assess positions and documentation ahead of heightened scrutiny.

Hong Kong

Key Policy Update in Q4:

• Corporate Taxes:
  • On December 9, 2025, Hong Kong initiated a public consultation on proposed adoption of the OECD’s Crypto‑Asset Reporting Framework (CARF) and the enhanced Common Reporting Standard (CRS 2.0) to strengthen international tax transparency. The proposals would amend the Inland Revenue Ordinance to enable automatic exchange of crypto‑asset tax data from 2028, with implementation of the updated CRS planned for 2029. Additional measures include compulsory registration for relevant financial institutions, tougher penalties, and expanded enforcement powers to meet OECD peer‑review standards and support Hong Kong’s role as a leading global financial hub. The consultation remains open for comments until February 6, 2026.
  • The Hong Kong Inland Revenue Department (IRD) began contacting entities potentially affected by the newly enacted GloBE Rules and Hong Kong Minimum Top-Up Tax (HKMTT). Entities receiving the IRD letter are asked to: confirm whether they are in-scope for the GloBE Rules and HKMTT; apply for MNE and JV codes using Form IR1485; submit a list of Hong Kong entities required to e-file profits tax returns; respond to the IRD within the prescribed timeline. See A&M Tax Alert for additional insights,
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Singapore

Key Policy Update in Q4:

• Corporate Taxes:
  • In Q4 2025, Singapore advanced a broad legislative package through the Finance (Income Taxes) Bill 2025 (Bill No. 16/2025), which was introduced in Parliament on October 14, 2025 to implement Budget 2025 measures and update certain administrative and technical aspects of Singapore’s Pillar Two framework via amendments to the Multinational Enterprise (Minimum Tax) Act 2024, consistent with OECD administrative guidance. The Bill legislates a YA 2025 corporate income tax remission (50% of tax payable, capped at S$40,000) together with a S$2,000 cash grant for qualifying companies with at least one local employee for whom CPF contributions were made (subject to prescribed conditions), strengthening near-term business cashflow while maintaining targeted eligibility conditions. Beyond the remission and cash grant, the Bill introduces structural measures with forward impact into 2026 and beyond, including enhancements to section 13W to extend upfront certainty of non-taxation of disposal gains to qualifying preference shares that are treated as equity and meet prescribed conditions, and to allow group-based satisfaction of the 20% threshold (subject to specified exclusions), which will be relevant for groups planning exits and reorganizations.
  • The Bill also introduces or refines deductions relevant to corporate structuring and investment behavior, including (i) new and expanded deductions relating to employee equity-based remuneration (including new share issuance scenarios), (ii) a deduction framework for approved innovation cost-sharing arrangements (new Section 14EB), and (iii) a deduction for expenditure on prescribed green certificates/green credits upon surrender/retirement (new Section 14ZJ), signaling a continued policy intent to support innovation and sustainability-linked activity, subject to prescribed qualifying conditions.
  • Separately, IRAS released the Transfer Pricing Guidelines (Eighth Edition) (TPG8) on November 19, 2025, which includes material compliance and controversy-reduction measures for related-party financing and introduces a Simplified and Streamlined Approach (SSA) for baseline marketing and distribution activities on a pilot basis for financial years beginning January 01, 2026, to December 31, 2028. A key Singapore-specific development in TPG8 is the clarification that, for certain domestic related-party loans entered into or renewed on or after January 01, 2025, where both borrower and lender are Singapore entities and neither is in the business of borrowing or lending, IRAS will not make transfer pricing adjustments in respect of the arm’s length pricing of such loans and will not request transfer pricing documentation, including interest-free scenarios within the defined domestic scope, thereby reducing compliance burden and potential surcharge exposure. At the same time, taxpayers should expect practical focus to shift to the income tax deductibility of any funding costs (including interest expense) and to governance and characterization of financing arrangements, particularly where treasury or fund-finance platforms remain outside the simplified domestic loan treatment.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • In Q4 2025, IRAS updated its consumer-facing guidance on the GST treatment of remote services purchased from overseas providers, clarifying the scope of “remote services,” providing illustrative examples, confirming that services requiring physical presence are excluded, and adding a “who can charge GST” section directing consumers to the GST-registered Business Search tool and steps to take if GST is incorrectly charged. In addition, IRAS introduced and refined sector-specific GST guidance during the quarter, including updates on invoicing treatment for Beverage Container Return Scheme (BCRS) deposits, which may affect invoicing and point-of-sale processes for impacted businesses.

Key Controversy issues in Q4:

• In Q4 2025, controversy developments in Singapore were characterized less by headline dispute outcomes and more by controversy prevention and dispute-risk management, particularly through IRAS’ issuance of TPG8, which narrows transfer pricing adjustment risk for qualifying domestic related-party loan arrangements while heightening the practical importance of robust governance around loan characterization and interest deductibility. Taxpayers should continue to monitor evolving judicial interpretations and administrative guidance, as both can materially influence risk assessments, audit posture and dispute outcomes.

India

Key Policy Update in Q4:

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

Key Controversy Issues in Q4:

• The Supreme Court of India, in its ruling dated October 17, 2025, in Pride Foramer S.A. v. Commissioner of Income Tax & Anr. (2025 INSC 1247), held that a French non‑resident drilling company was entitled to claim business expenditure and carry forward depreciation even during years in which it did not have an active contract in India. The Court adopted a commercially realistic interpretation of the concept of “continuity of business,” affirming that a temporary suspension of operations does not amount to cessation of business. It further clarified that the existence of a PE is not a precondition for recognizing ongoing business activity for this purpose. This ruling strengthens the ability of project‑based or contract‑driven foreign companies to preserve tax attributes during periods of inactivity. Looking ahead, the decision is likely to influence tax assessments in sectors prone to operational gaps, providing greater certainty to taxpayers with intermittent exposure to India.
• In CIT v. Clifford Chance Pte Ltd (ITA 353-354/2025), the Delhi High Court on December 9, 2025, ruled that a service PE under the India–Singapore tax treaty arises only through physical presence, rejecting the notion that remote or digital service delivery can trigger a “virtual service PE.” By holding that the taxpayer’s employees were present in India for only 44 days, below the treaty’s 90‑day threshold in AY 2020-2021 and entirely absent in the following year, the Court reinforced the primacy of explicit treaty language over interpretive expansion. This ruling provides welcome clarity for cross‑border service providers and suggests that absent formal treaty amendments, remote work models will continue to fall outside India’s PE net, shaping how businesses structure offshore service delivery going forward.
• On October 17, 2025, the Mumbai ITAT, in Netflix Entertainment Services India LLP v DCIT (ITA No.6857/Mum/2024), ruled that Netflix India was a limited‑risk distributor and could not be re‑characterized as a full‑fledged entrepreneur or content provider, upholding TNMM as the most appropriate method for benchmarking its intercompany payments. The Tribunal rejected the tax authority’s attempt to apply the “Other Method” and impute a royalty, holding that Netflix India performed routine distribution and marketing functions, owned no valuable intangibles, undertook no DEMPE activities, and bore limited risks. This emphasized that the mere presence of servers, caches, or support personnel does not, by itself, amount to value creation or justify non‑routine returns.
• The Supreme Court of India, in its ruling dated December 15, 2025, in the case of American Express Limited and Oman International Bank (Civil Appeal Nos. 8291 of 2015 and 4451 of 2016), has laid down guiding principles on the deductibility of executive and general administrative expenses allocated to Indian branches by overseas head offices under Section 44C of the Income Tax Act, 1961. The Court has overturned the High Court’s order after examining the factual matrix and distinguishing earlier judicial precedents. The Court held that Section 44C does not differentiate between “exclusive” and “common” head office expenses, and that all expenses falling within the defined category must be brought within its ambit. This stricter interpretation of head office expense deductibility is expected to have a significant impact on non-resident entities operating in India through branch structures, requiring them to reassess their tax positions and allocation practices.
• The Telangana High Court in its ruling in the case of BirlaNu Ltd. vs Union of India (dated December 30, 2025), struck down Rule 39(1)(a) of the CGST Rules for the period prior to April 2025, holding it as ultra vires to the statute. The said Rule provides that input tax credit (ITC) is required to be distributed by an input service distributor (ISD) registration, in the same month in which it becomes available for distribution. The Court observed that Section 20 empowered prescription only of the manner of distribution of credit, which is procedural in nature and did not authorize imposition of a time limit for distribution, this being a substantive restriction which could extinguish a vested right to ITC. The Court also observed that such restriction would result in discrimination and violation of Articles 14 and 300-A of the Constitution of India since non-ISD registrations had longer time limits for availment of credit. It is pertinent to note that with effect from April 1, 2025, Section 20 of the CGST Act was amended to allow prescription of timelines for distribution of ISD credits. Hence, the requirement to distribute credit within the same month as available for distribution may persist post April 2025. Therefore, industry should re-examine the process and periodicity followed for distribution of ITC by ISD to mitigate potential litigation risk as the issue may continue to invite litigation and divergent interpretations post-amendment.

Korea

Key Policy Update in Q4:

• Corporate Taxes:
  • Korea’s National Assembly approval of the 2025 tax reforms on December 2, 2025, marks a shift in the taxation of high‑value dividend income. The move replaces the previously proposed flat 35% rate with a progressive structure of 14% to 30%, with the top rate applying only to dividends above KRW five billion and effective for dividends paid on or after January 1, 2026. This more calibrated approach is expected to influence investor behavior, corporate payout strategies, and broader capital‑market dynamics as the reforms proceed toward final enactment.
• Personal Taxes:
  • On December 24, 2025, Korea’s Ministry of Economy and Finance rolled out tax incentives to boost domestic investment and ease foreign exchange pressures. Individuals who sell overseas equities, convert the proceeds into Korean won, and reinvest in domestic shares through Reshoring Investment Accounts may qualify for a temporary capital gains tax exemption, depending on the timing of reinvestment. Capital gains tax deductions will also be available for investors hedging foreign exchange risks through newly introduced forward‑selling products. These measures aim to strengthen domestic investment activity and alleviate structural pressures in the foreign exchange market.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Thailand

Key Policy Update in Q4:

• Corporate Taxes:
  • In Q4 2025, as international consensus continued to evolve, the Ministry of Finance and the Thai Revenue Department issued a series of secondary regulations to set out detailed implementation rules and provide taxpayers with greater operational clarity on key matters, including the introduction of transitional Substance-Based Income Exclusion (SBIE) rates, the definition of acceptable accounting standards, clarification on refundable dividend taxes, the definition of flow-through entities and applicable jurisdictional location rules, as well as exchange rate requirements. These measures are broadly aligned with OECD guidance and publications.
  • In addition, further legislative instruments issued pursuant to the Emergency Decree were approved in draft form by the Thai Cabinet on December 30, 2025. These draft instruments address scope criteria, exclusion lists, allocation methodologies where no Thai group entity has GloBE income, adjustments to income, expenses, and covered taxes for the purpose of computing the domestic top-up tax and are intended to provide the technical foundation for implementation.
  • With the upcoming roll-out of these additional rules to complement the main regulations, the regulatory framework is expected to progressively enhance certainty, support compliance readiness, and assist multinational groups operating in Thailand in assessing and preparing for the new regime.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • Thailand will levy import duty on all imported goods valued at THB 1 or more from January 1, 2026, ending the exemption for consignments valuing THB 1,500 or less. Thai government cited concerns over under-declaration, tax leakage and unfair competition from unusually low-priced imports. Authorities expect the measure to raise over THB 3 billion annually and stated that existing collection systems are in place, with no anticipated delays to customs clearance.

Key Controversy Issues in Q4:

• Entering fiscal year 2026 (beginning October 1, 2025), the Thai Revenue Department (“TRD”) is seeking to strengthen revenue collection following last year’s performance. In response, the TRD is accelerating the use of AI-driven, risk-based audit strategies, supported by enhanced data analytics and cross-agency information sharing.  Audit activity is expected to become increasingly targeted and data-driven, with heightened scrutiny on higher-risk taxpayers that exhibit patterns of non-compliance or financial irregularities, and the implementation of new measures such as the Pillar Two Top-up Tax.  Businesses should therefore anticipate a more proactive enforcement environment and take steps to ensure readiness and robust compliance.

Vietnam

Key Policy Update in Q4:

• Corporate Taxes:
  • The Government of Vietnam officially passed the new corporate income tax (CIT) decree dated December 15, 2025, i.e., Decree No. 320/2025/ND-CP (Decree 320). This new CIT decree is set to take effect from December 15, 2025, and is applicable from the CIT year 2025 (with exceptions).
  • Businesses may choose to apply the regulations on revenue, expenses, tax incentives, tax exemptions, tax reductions, and losses carry forward in this Decree from the beginning of the 2025 tax year, or from the effective date of the new CIT Law (October 1, 2025), or from the effective date of Decree 320 (December 15, 2025). However, if the 2025 tax year of the business begins after the effective date of the new CIT Law (October 1, 2025), they shall be applied from the effective date of the new CIT Law (October 1, 2025) or from the effective date of Decree 320 (December 15, 2025).
  • There are some critical points e.g., stricter requirement on non-cash payment evidence for all types of purchases with a value of VND 5 million (~USD180) or more (the threshold is VND 20 million previously). In addition, expenses that are not in accordance with or exceed the spending limits stipulated by specialized laws/regulations are now specially stipulated as non-deductible under the decree.
  • Having said that, there appears more relaxing deductibility opportunities for some kinds of business-related expenses that have not corresponded to taxable revenue (subject to conditions) and the introduction of the tax deductibility up to a maximum of 200% of the actual costs for the qualified research and development (R&D) activities incurred during the tax period (subject to conditions).
  • For tax incentives, the key notable change is the removal of industrial zones from the list of incentivized locations. For expansion investment projects, if a currently operating project is still entitled to a tax incentive, an additional income from a qualified expansion investment project shall enjoy the same tax incentive as applicable to the currently operating project for the remaining period. If the currently operating project no longer has any tax incentive and incurs an additional income from a qualified expansion investment project, such additional income can be entitled to the CIT holiday scheme (tax exemption years followed by tax reduction years).
  • In relation to capital transfers made by foreign corporate sellers, from the Decree’s effective date, i.e., December 15, 2025, the new Decree formalizes the flat tax rate of 2% on the gross proceeds for direct and indirect capital transfers by foreign corporate sellers. The new Decree does not provide guidance on the methodology required to determine the “gross proceeds attributable to Vietnam” in relation to complex, multi-jurisdictional indirect share transfers. Internal restructuring within foreign groups is not subject to capital transfer tax if the transaction meets the following conditions: (i) does not lead to a change in the ultimate parent entity; and (ii) does not generate taxable income.
• Personal Taxes:
  • On October 17, 2025, Vietnam’s National Assembly Standing Committee approved higher deduction thresholds for taxpayers and their dependents under the personal income tax regime, with the updated amounts taking effect from the 2026 tax year. Under the new rules, resident individuals will be entitled to a personal deduction of VND 15.5 million per month (or VND 186 million annually), while the deduction for each dependent will increase to VND 6.2 million per month. These enhanced thresholds are intended to reflect current economic conditions and provide additional financial relief to taxpayers.
  • Vietnam introduced a new personal income tax law, effective from July 1, 2026 (with exceptions e.g., provisions relating to business income and employment income (salaries and wages) of resident individuals shall apply from the 2026 tax year), bringing several substantive changes to modernize the tax framework. Key changes include an expanded taxable income base to include transfers of digital assets, carbon credits, Vietnamese national domain names, etc. and broader exemptions to support green finance, qualified high-quality digital technology industry professionals, qualified science and technology professionals, etc. Key thresholds have been increased, including a VND 20 million limit for taxable winnings, inheritance, gifts, and a VND 500 million annual threshold for resident business individuals. A revised personal income tax regime introduces updated bases and progressive tax rates basis on wages and salaries. The law additionally allows deductions for medical and education expenses for taxation of employment income and standardizes capital transfer taxation for residents and non-residents.
• Indirect Taxes:
  • The National Assembly has passed Law No. 149/2025/QH15, effective from January 1, 2026 (the newly amended VAT Law).
  • In summary, the statutory condition requiring sellers to have fully declared and paid their tax before a buyer can claim a VAT refund is abolished. The tax-exempt revenue threshold for household businesses has been raised to VND 500 million. In addition, the VAT treatment for commercial trading of unprocessed agricultural products (B2B) shifts from a 5% rate to a “Not required to declare and pay” mechanism. The newly amended VAT Law also clarifies that scraps and by-products recovered from production are taxed based on their own classification, not the tax rate of the main product.

Philippines

Key Policy Update in Q4:

• Corporate Taxes: No significant update.
• Personal Taxes:
  • The Philippines has updated the thresholds for non‑taxable de minimis employee benefits, effective January 6, 2026. The amendments raise the tax‑exempt limits for several common allowances including monetized leave credits, medical and rice allowances, uniform and clothing allowance, medical assistance etc. The annual cap for benefits granted under collective bargaining agreement and productivity incentive schemes has also increased to PHP 12,000 per employee per tax year. These changes expand the scope of tax‑free employee benefits and allow employers to provide higher‑value allowances without triggering income tax or fringe benefits tax.
• Indirect Taxes:
  • The tax authorities have extended the deadline for covered taxpayers to comply with mandatory e-invoicing under Republic Act 12066 and its implementing rules. Under Revenue Regulations (RR) 26-2025, taxpayers (other than micro taxpayers) engaged in e-commerce or internet transactions, those under the Large Taxpayers Service, large taxpayers as defined in RA 11976, and taxpayers using computerized accounting systems/books or invoicing software now have until December 31, 2026, to comply (was March 14, 2026, previously).

The Middle East is moving into a focused phase of tax policy implementation, marked by strengthened minimum tax regimes, enhanced transparency, and broader fiscal reform. The UAE continued to lead on transparency and certainty, launching its APA program and adopting enhanced CRS 2.0, while also tightening VAT group reporting and excise tax procedures. Bahrain refined its Pillar Two framework alongside a broader fiscal reform package, including a proposed corporate profit tax. Israel and Türkiye also advanced their Pillar Two frameworks, signaling readiness for 2026 compliance. Meanwhile, Oman and Egypt focused on real-time VAT enforcement and indirect tax modernization. These developments reflect a regional shift toward more structured tax governance and increased scrutiny requiring multinational groups to reassess their operating models, documentation standards, and cross-border tax strategies.

Israel

Key Policy Update in Q4:

• Corporate Taxes:
  • Israel’s approval of a Qualified Domestic Minimum Top‑Up Tax (QDMTT) on December 29, 2025, (effective January 1, 2026) introduces a 15% minimum tax aligned with OECD Pillar Two for multinational groups with revenues above EUR 750 million, ensuring Israeli entities pay their share of any top‑up tax attributable to domestic operations. By aligning with OECD GloBE rules and introducing new compliance requirements, such as a 15‑month top‑up tax return and a 90‑day notification, Israel aims to protect its taxing rights and limit foreign top‑up tax exposure, paving the way for coordinated Pillar Two administration from 2026.
• Personal Taxes:
  • On November 6, 2025, Israel’s Ministry of Finance, in coordination with the Ministry of Aliyah and Integration, introduced a new tax framework aimed at encouraging new immigrants and returning residents to relocate to Israel from 2026. The reform provides a temporary reduced‑rate tax regime on Israeli‑sourced income, beginning with a full exemption in the initial years and gradually increasing to standard rates by 2030, subject to an annual income cap of ILS 1 million. These incentives supplement the long-standing 10‑year exemption for foreign‑sourced income and existing tax credit entitlements, while placing greater emphasis on attracting skilled workers and entrepreneurs through streamlined compliance requirements. The reform has been announced but is not yet in force and remains subject to legislative approval.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

UAE

Key Policy Update in Q4:

• Corporate Taxes:
  • The UAE’s November 8, 2025, announcement confirming the country’s adoption of the enhanced CRS 2.0 from January 1, 2027, signals a major expansion of financial transparency requirements, extending reporting to electronic money, central bank digital currencies, and defined crypto‑asset activities. With the first automatic exchange of information scheduled for 2028 and additional auditing and reporting obligations introduced, UAE financial institutions and digital‑asset intermediaries will need to begin operational and systems planning well ahead of the effective date to maintain compliance in an increasingly data‑intensive reporting environment.
  • The UAE’s December 30, 2025, rollout of its APA program marks a significant development in the country’s corporate tax architecture, offering unilateral APAs for both domestic and cross‑border-controlled transactions exceeding AED 100 million per tax period, effective for tax years beginning January 1, 2024. With APAs generally covering three to five years and excluding transactions eligible for safe harbour treatment, the program provides MNEs with much‑needed certainty on transfer pricing outcomes and is expected to support investment planning and audit‑risk management as transfer pricing enforcement deepens in the UAE.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • During Q4 2025, the UAE Ministry of Finance and the Federal Tax Authority (FTA) issued a series of legislative amendments and clarificatory guidance impacting the indirect tax framework, with a focus on penalties, VAT compliance procedures, and input tax recovery.
  • Decision No. 11 of 2025 adds two deductible cases under Article 16(1)(d) of Federal Decree-Law No. 7/2017 and takes effect January 01, 2026. First, excise tax paid on goods removed from a designated zone for official inspection may be deducted where samples are damaged or irrecoverable, subject to independent documentary evidence of removal, inspection purpose and destruction. Second, excess excise paid on beverages initially declared in the High-Sugar category may be reclaimed where an accredited laboratory subsequently reclassifies the product to a lower tax band or exemption; that relief applies for tax periods January 01, 2026, to June 30, 2026, and only if the goods were not sold before the deduction arose. All claims must be supported by the prescribed laboratory reports, original declarations and related proof. See A&M Tax Alert for additional insights.
  • The FTA issued updated input tax apportionment guidance (VATGIT1) in October 2025, introducing the Specified Recovery Percentage (SRP). The SRP allows eligible taxpayers to apply a fixed input VAT recovery rate based on the prior year, with approvals valid for four years, subject to a two‑year lock‑in period and defined procedural timelines. See A&M Tax Alert for detailed insights.
  • Cabinet Decision No. 129 of 2025 introduces a comprehensive overhaul of the VAT and Excise Tax administrative penalties framework, effective April 14, 2026. The revised regime significantly reduces penalties for administrative non‑compliance and replaces the former compounding late‑payment structure with a flat annualised penalty applied monthly, aligning indirect tax penalties with the broader UAE tax framework. The revised framework reduces key administrative penalties (including record‑keeping, Arabic documentation, tax registration updates, and legal representative notifications). The late payment penalty regime has been simplified, replacing compounding penalties with a flat 14% annualised penalty applied monthly, providing a significant relief. Incorrect return penalties have been lowered, with no penalty applying where errors are corrected before the filing deadline or where a disclosure does not result in additional tax payable. The voluntary disclosure (VD) penalty regime has been revised, replacing the previous tiered penalties of 5%–40% of the tax difference with a flat monthly penalty of 1% of the tax difference for each month or part thereof. While simpler, this change may result in higher penalties for most cases. See A&M Tax Alert for detailed insights.
  • The UAE Ministry of Finance issued Federal Decree‑Law No. 16 of 2025 (VAT Law) and Federal Decree‑Law No. 17 of 2025 (Tax Procedures Law) on November 25, 2025, introducing targeted VAT amendments and broader procedural reforms, effective from January 1, 2026. From January 1, 2026, the VAT Law removes the requirement to issue self‑invoices under the reverse charge mechanism, simplifying VAT compliance for imports. A five‑year time limit now applies to the carry forward, offset, or refund of excess input VAT, after which unused balances expire, subject to transitional relief. The tax authority’s audit timeframe may be extended where refund claims are submitted in the final year of the limitation period, allowing additional time to review and assess such claims. Enhanced anti‑evasion rules allow the Federal Tax Authority to deny input VAT recovery where taxpayers knew or should have known of tax evasion within the supply chain. Effective January 1, 2026, Tax Procedures Law revises refund processes, credit utilisation rules, voluntary disclosure requirements and audit timelines. The scope of mandatory voluntary disclosures has been narrowed, with disclosures now required only for specific error types identified by the tax authority; other errors may be corrected directly through amended tax returns. See A&M Tax Alert for detailed insights.
  • The FTA has further updated the turnover declaration requirements for VAT groups, introducing enhanced disclosure and supporting-documentation obligations. The revised template is intended to enhance transparency when VAT groups apply for registration or notify changes to their composition.

Key Controversy Issues in Q4:

• No key controversy update.

Egypt

Key Policy Update in Q4:

• Corporate Taxes: No significant update
• Personal Taxes:
  • Egypt announced proposed tax reforms aimed at easing financial pressures on households and supporting small and micro‑enterprises. Key measures under review include increasing personal income tax exemption thresholds by 25% to 50%, revising real estate transaction tax rules, and extending incentives for small businesses to stimulate entrepreneurship and economic growth. These proposals, officially published in November 2025, are subject to final approval and reflect Egypt’s commitment to fostering sustainable development. The proposals are currently under government review and remain subject to final approval.
• Indirect Taxes:
  • Ministerial Decision No. 515 of 2025 confirms that manpower supply services provided to third parties (typically provided by recruitment and contracting firms) are taxable supplies and, unless a specific exemption applies, subject to the standard rate of VAT. The measure addresses inconsistent market practice and reinforces the principle that services supplied for consideration are taxable unless specifically exempted. The decision provides greater legal certainty for recruitment and contracting companies in relation to their contractual arrangements, invoicing practices, and VAT compliance obligations.
  • Egypt has reworked the VAT treatment for construction services by amending Law No. 157/2025, introducing a two-track regime distinguishing new contracts from pre-existing contracts. Under new contracts, VAT is charged at 14% on the full invoice value and contractors (including subcontractors) may reclaim input VAT on direct and indirect project costs (materials, equipment, transport, etc.). Excess VAT credits may be refunded if they remain unutilized for six consecutive tax periods; subcontractors must issue 14% e-invoices to main contractors. By contrast, existing contracts remain subject to 14% VAT but only on 36% of the invoice value, and input-VAT recovery is disallowed for costs related to those contracts. Any renewal or scope increase converts an old contract into a new contract, restoring full VAT deduction rights. The amendment also limits inventory input-VAT recovery to items used on new contracts, preserves the non-taxable treatment of advance payments, and introduces special on-account remittance rules where government entities are the contracting party.
  • Ministerial Decision No. 417 of 2025 amends the Executive Regulations of VAT Law No. 67 of 2016 to refine the scope of indirect inputs (now expressly including administrative, financial and general operating costs) and to permit registered taxpayers to claim VAT input on stock either at registration or before their first taxable sale, subject to supporting accounting records, customs documents, and valid invoices. The decision provides a clearer definition of continuous services (e.g., telecoms, transport, cleaning, security and long-term infrastructure contracts), clarifies VAT-triggering events for machinery/equipment imported in batches (customs release or completion of import), and revises the transitional VAT-rate timetable – 5% from July 2025, reducing gradually to 2% by January 1, 2029.

Türkiye

Key Policy Update in Q4:

• Corporate Taxes:
  • Türkiye’s December 26, 2025, General Communiqué finalized the implementation framework for its Domestic and Global Minimum Top‑Up Tax regime, confirming Pillar Two applicability for MNEs meeting the EUR 750 million threshold and establishing a priority order of Domestic Minimum Top-Up Tax (DMTT), followed by Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR). Türkiye has tightened key technical definitions, formalized calculation mechanics, and preserved substance‑based income exclusions. It has also introduced transitional reliefs, including de minimis rules, simplified Effective Tax Rate (ETR) safe harbours through 2026, and a routine profits test, applying to accounting periods beginning on or before December 31, 2025, and ending no later than December 31, 2026. Together, these measures provide clarity for the 2026 compliance cycle and signal Türkiye’s readiness to administer complex top‑up tax rules with coordinated domestic and global safeguards.
• Personal Taxes:
  • In November 2025, Türkiye’s Tax Administration issued guidance on copyright income exemptions for self-employed individuals.​ Authors, translators, artists, computer programmers, inventors, and their legal heirs can benefit from tax exemptions on income from qualifying works, provided their annual income does not exceed TRY 4.3 million for 2025. The guidance mandates a 17% withholding on qualifying copyright payments throughout the year, irrespective of exemption eligibility. Where the income tax exemption applies and the prescribed income threshold is not exceeded, such withholding constitutes final tax, and no income tax return is required. The guidance also sets out the applicable VAT treatment, record‑keeping obligations, and tax implications for cross‑border transactions.
  • Under General Communiqué No. 332, effective from January 1, 2026, Türkiye updated the 2026 individual income tax brackets and thresholds by applying the 25.49% revaluation rate for 2025. The communiqué revises the progressive tax tables for employment and non‑employment income (15%–40%) and updates key exemption limits, allowances, and deductions. It also increases the income and turnover thresholds for the “simple method” taxation regime, under which qualifying business income is exempt from individual income tax, and revises limits applicable to rental income, capital gains, small traders, service providers, online sellers, and compliant taxpayer incentives. In addition, income earned in 2025 from certain pre‑2006 bonds and treasury bills remains reportable after applying a 64.91% discount.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Saudi Arabia

• Corporate Taxes:
  • On December 25, 2025, Saudi Arabia’s Zakat, Tax and Customs Authority published an explanatory guidance clarifying the withholding tax implications of payments made to non‑resident providers of technical and consultancy services. The guidance confirms that such payments are subject to a 5% withholding tax, provided the services are not carried out through a PE in the Kingdom. It also highlights that arrangements involving the transfer of know‑how are treated differently, as they are classified as royalty payments and therefore subject to a higher 15% withholding tax. The guidance clarifies that tax treaty provisions may prevail over domestic law. Where a treaty does not specifically address technical or consultancy services, such payments would ordinarily be subject to tax in Saudi Arabia only if the non‑resident maintains a PE.
• Personal Taxes: No significant update.
• Indirect Taxes:
  • In December 2025, the Zakat, Tax and Customs Authority issued substantial amendments to the Excise Tax Implementing Regulations, updating the tax base methodology, reclassifying certain excise goods and strengthening compliance requirements. The amendments introduce sugar content tiers for sweetened beverages with per liter rates, remove carbonated beverages from scope, and refine retail selling price validation mechanics through Reference and Unified GCC Standard pricing. Businesses should reassess product classification, pricing and systems readiness and ensure timely registrations and documentation to support compliant application of the revised excise framework.
  • The Zakat, Tax and Customs Authority published an interpretative bulletin setting out when an electronic marketplace will be treated as the VAT “deemed supplier” under Article 47 of the Implementing Regulations and Article 9 of the VAT Law — principally where the platform exercises control over pricing, payment collection, contractual terms, fulfilment or customer interactions. When deemed the supplier, the platform must register (where required), issue VAT-compliant invoices, maintain records and account for VAT; the bulletin also addresses the VAT treatment of commissions, fees, discounts and refunds. Platforms whose role is limited (for example, to payment processing, advertising, listing, or customer redirection) are generally outside the deemed-supplier scope. The bulletin is explanatory only and confirms that the expanded deemed-supplier provisions will take effect January 1, 2026.
  • Saudi Arabia issued immediate amendments to the Integrated Tariff published in Umm AlQura Issue 5124 dated November 27, 2025, further aligning the Kingdom with the GCC 12-digit tariff code structure. The changes introduce extensive tariff line revisions and new HS codes and subcategories, with potential landed cost impacts for non-qualifying goods under the National Rules of Origin. Importers should review classifications and update customs documentation and pricing models to reflect the updated tariff schedule.

Bahrain

Key Policy Update in Q4:

• Corporate Taxes:
  • Bahrain’s revised Domestic Minimum Top-Up Tax (DMTT) guidelines, released on December 1, 2025, refine registration rules for new entities, including clarifying that the 120‑day registration period begins once the entity becomes subject to the registration requirement under the DMTT guidance and further detail core elements such as MNE group definitions, threshold computations, exclusions, and safe harbours. These refinements strengthen the administrative framework supporting Bahrain’s Pillar Two implementation and ensure that newly established in‑scope entities can align with compliance obligations as the global minimum tax becomes operational across the region. The Bahrain DMTT return is now live on the NBR portal for in-scope MNE groups with Bahrain operations to comply with their first filing obligations, subject to the group’s financial year end.
  • Bahrain’s Cabinet approved a fiscal reform package aimed at strengthening public finances and widening revenue sources on December 29, 2025. A key reform is the draft Corporate Profit Tax Law, introducing a 10% tax on profits of local companies with annual revenues above BHD 1 million or net profits exceeding BHD 200,000, applicable only to profits above that threshold and targeted for implementation in 2027 following legislative approval. The Cabinet has also approved a draft law to raise the selective tax on soft drinks and introduced new fee measures, including sewage service charges from January 2026 with exemptions for citizens’ primary residences. It has also approved phased adjustment to work permit and healthcare fees for foreign nationals and adjustment of prices of natural gas for businesses to reflect actual consumption, with most measures to be rolled out gradually over four years from 2026. These reforms indicate a shift toward a more sustainable fiscal framework and will shape the cost and compliance landscape for businesses in the coming years.
• Personal Taxes: No significant update.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• No key controversy update.

Australia and New Zealand continued to advance their tax policy agendas in Q4 2025, with a strong focus on transparency, system preparedness, and alignment with global standards. Australia made significant progress in refining its minimum tax framework, issuing transitional guidance on Country-by-Country Reporting (CbCR) safe harbours, expanding public disclosure obligations (particularly in relation to public CbCR), and enhancing administrative clarity across transfer pricing, crypto-asset reporting, and superannuation reforms. In parallel, New Zealand focused on modernizing its domestic tax rules, clarifying the treatment of crypto-assets, shareholder loans, and GST on financial services and legal settlements. Together, both jurisdictions are signaling a shift toward more robust governance, digital compliance, and heightened scrutiny requiring multinational enterprises to strengthen documentation, reassess tax positions, and prepare for a more transparent and complex regulatory environment.

Australia

Key Policy Update in Q4:

• Corporate Taxes:
  • On October 22, 2025, the Australian Taxation Office (ATO) released updated guidance on the TSH providing much needed clarity for multinational groups navigating Pillar Two’s early-stage compliance challenges. The guidance provides an overview of the TSH, outlining eligibility conditions, its impact when applied, and the applicable transition period. It explains how to use the three safe harbour tests: de minimis, simplified effective tax rate, and routine profits. Further, it offers details on acceptable data sources, including qualified CbC reports and qualified financial statements, for applying these rules. These simplifications will ease the compliance burden through the transitional period and help taxpayers focus on building long-term GloBE ready systems.
  • The Australian Treasury released a consultation paper on October 27, 2025, proposing targeted amendments to Australia’s global and domestic minimum tax rules to better align the regime with the OECD GloBE standard. The changes include new elections for equity investments, updated treatment of flow-through tax benefits, new rules for regulated mutual insurance companies, and specific provisions for securitization entities. These reforms were subsequently finalized and came into force on January 5, 2026, marking an important step in shaping Australia’s minimum tax framework.
  • The ATO’s Practical Compliance Guideline (PCG 2025/4) released on November 26, 2025, outlines how Australia will manage lodgment obligations and penalties during the transition to the 15% global and domestic minimum tax. With retrospective effect from January 1, 2024, it applies to fiscal years starting on or before December 31, 2026, and ending by June 30, 2028, and will be reviewed continuously. The guideline supplements existing ATO guidance but does not alter legal obligations or interpretations. This transitional approach aims to balance enforcement with practicality, encouraging good faith compliance without undermining the integrity of the new minimum tax framework.
  • The ATO’s guidance on exemptions from public CbCR dated December 8, 2025, sets a more rigorous threshold for relief, clarifying the criteria under which multinational groups may be excused from disclosure, such as legal constraints, commercial sensitivity, or disproportionate compliance burden (with retrospective effect for income years starting on or after July 1, 2024). With exemption requests requiring substantial supporting evidence, the framework reinforces Australia’s commitment to tax transparency while allowing limited room for justified exceptions. MNEs will need to carefully evaluate the viability of exemption applications as reporting obligations approach. In addition, MNEs will need to carefully consider the consistency of information disclosed not only in public CbCR, but also across other related disclosure frameworks, including, for example, non-public CbCR, Pillar Two GIR, corporate tax return disclosures and any voluntary tax transparency reporting, as misalignment may increase scrutiny as reporting obligations take effect.
  • Australia’s draft revisions to its inbound distribution transfer pricing guidelines (PCG 2019/1DC), released on December 10, 2025, update the profit markers for technology and life science distributors, refine the scope of arrangements captured and introduce a new “white zone” for inbound distribution models. The updated approach focuses on B2B intermediaries dealing in goods or digital products with offshore owned intellectual property and allows white zone treatment for transactions supported by Advance Pricing Agreements, settlements, tribunal outcomes, or high assurance ATO reviews. These changes aim to improve risk differentiation and sharpen enforcement focus ahead of finalization, with feedback invited until February 13, 2026.
  • Australia’s reformed thin capitalization regime continued to present practical implementation challenges in Q4, as taxpayers navigated the first year of operation of the new earnings-based rules. In particular, uncertainty remains around the application of the third-party debt test, the debt deduction creation rules, and the interaction between thin capitalization and transfer pricing outcomes. The ATO has signaled a strong integrity focus in this area, with early compliance activity and guidance expected as taxpayers transition to the new framework and refine their funding structures.
  • Australia’s adoption of the OECD Crypto-Asset Reporting Framework (CARF), announced in the 2025–2026 Mid-Year Economic and Fiscal Outlook (MYEFO) released on December 17, 2025, represents a significant expansion of the global automatic exchange of information regime to crypto-asset transactions. Under the new framework, crypto-asset service providers must report to the ATO information on the holdings and transactions of foreign tax residents and certain foreign-controlled entities.  Domestic reporting is expected to commence from 2027, with international exchanges of information from 2028, subject to legislative implementation and alignment with revised CRS 2.0 rules. The regime will materially expand transparency obligations, making early system readiness and data architecture planning critical as Australia positions itself at the forefront of the global crypto tax compliance.
  • The ATO also reaffirmed its corporate tax compliance priorities, with continued focus on profit shifting, related-party financing, intangibles, and the tax risks arising from restructures undertaken in response to Pillar Two. Through its Top 100 and Top 1000 programs, the ATO has emphasized expectations around contemporaneous documentation, transparency, and Pillar Two readiness, indicating that early engagement and demonstrable governance will be critical to achieving lower-risk or justified trust outcomes as new reporting and minimum tax obligations take effect.
• Personal Taxes
  • On November 12, 2025, the ATO issued draft Taxation Ruling TR 2025/D1 to update and clarify the rules for individuals claiming rental property deductions outside a business context, including holiday homes and short-term rentals. The draft replaces the longstanding IT 2167 ruling, withdrawn in November 2025, and provides more detailed guidance on how deductions should be calculated and supported. It introduces tighter apportionment principles for mixed use and periodically vacant properties, reflects current rental practices such as online platforms and casual letting, strengthens recordkeeping expectations, and clarifies how related party arrangements must be evidenced on commercial terms. Submissions on the draft ruling will close on January 30, 2026.
  • The ATO issued Practical Compliance Guideline on November 28, 2025, to clarify when the general anti-avoidance rule (GAAR) may apply to arrangements involving personal services income (PSI) earned through a personal services entity (PSE) operating as a personal services business (PSB). The guideline emphasizes that GAAR can still apply where PSI is retained within the PSE or diverted to associates taxed at lower rates, even if the PSI attribution rules do not apply. It sets out indicators of low-risk arrangements such as paying the individual market rate remuneration and distributing PSI to them and high-risk arrangements, including routing PSI to lower taxed entities or under remunerating the individual. These risk indicators are intended to help taxpayers assess compliance and reduce exposure to GAAR scrutiny.
  • On December 19, 2025, the Australian government released draft legislation implementing its Better Targeted Superannuation Concessions policy, incorporating refinements announced on October 13, 2025. Effective from July 1, 2026, the revised regime will apply additional tax only to realized earnings on total superannuation balances exceeding AUD 3 million, with earnings taxed at 30% for balances between AUD 3 million and AUD 10 million and 40% above AUD 10 million, with indexed thresholds. The draft legislation also confirms the previously announced increase to the low-income superannuation tax offset, raising the maximum offset to AUD 810 and expanding eligibility to individuals earning up to AUD 45,000, effective from July 1, 2027. Public consultation closed on January 16, 2026, with legislation expected to be introduced in 2026.
• Indirect Taxes: No significant update.

Key Controversy Issues in Q4:

• In Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145, the Full Federal Court on October 21, 2025, granted Oracle a stay in its cross-border tax dispute, establishing a strong precedent for prioritizing treaty-based resolution through MAP when double taxation risks arise. By allowing Oracle to pause domestic objection proceedings while engaging the Australia–Ireland treaty process on whether software related payments are taxable “royalties,” the Court underscored the independence and legitimacy of MAP. This outcome is likely to prompt more MNEs to rely on treaty mechanisms early and could reshape how the ATO balances domestic enforcement with international dispute resolution pathways.

New Zealand

Key Policy Update in Q4:

• Corporate Taxes:
  • Inland Revenue issued a non‑binding technical decision summary on October 6, 2025. The summary clarifies that taxable income can arise from disposing of crypto-assets where the dominant purpose is profit‑making through coordinated trading. It also confirms that staking rewards are ordinary income. This is because they are received regularly, are convertible to money, and represent a return on investment. The clarification is expected to guide future compliance practices. Taxpayers are therefore expected to demonstrate clearer intent and maintain stronger evidence regarding the nature of their crypto dealings.
  • Chile confirmed the activation of the Most Favored Nation clause on interest under the Chile–New Zealand tax treaty on December 3, 2025, following the entry into force of Chile’s treaties with Japan and Italy. As a result, a 10% withholding tax rate applies to interest paid to banks, insurers, qualifying bondholders, and certain qualifying enterprises, while a 15% rate applies in other cases for interest paid between January 1, 2017, and December 31, 2018. From January 1, 2019, onward, a uniform 10% rate applies. With formal notifications exchanged, taxpayers that were previously subject to higher withholding rates may now pursue refunds.
  • On December 4, 2025, Inland Revenue opened consultation on reforms to the tax treatment of shareholder loans, proposing that loans over NZD 50,000 outstanding for 12 months be treated as taxable dividends, unpaid loans be taxed on company deregistration, and memorandum accounts be maintained to track capital for tax‑free distributions on winding‑up. The measures would apply retrospectively from the consultation release date, with submissions due by February 5, 2026. The proposal emphasizes the need for stronger loan governance, clear repayment terms, and sound documentation to manage dividend recharacterization risk and support efficient capital returns.
• Personal Taxes:
  • Inland Revenue released for public consultation an exposure draft Interpretation Statement along with an accompanying fact sheet, providing guidance on eligibility for Working for Families tax credits. Issued on October 24, 2025, the draft explains how a taxpayer’s family scheme income is calculated, including required adjustments to net income that reflect the family’s actual financial means. These adjustments may include income from associated trusts and companies, passive income of dependent children exceeding NZD 500, trust payments other than beneficiary income, and other forms of financial support exceeding NZD 5,000. Entitlement to tax credits generally reduces as family scheme income increases. The public consultation closed on December 9, 2025.
  • On November 14, 2025, the Inland Revenue released for public consultation an exposure draft Interpretation Statement setting out its view on the income tax treatment of payments made by employers on the death of an employee. The draft explains when such payments are taxable to executors, estates, or family members, including distinctions between employment‑related and gratuitous payments, and considers the impact of timing on tax outcomes. It also addresses employers’ PAYE (Pay As You Earn) withholding obligations, the deductibility of payments, and executors’ responsibilities to file income tax returns for the deceased and any resulting estate. The consultation process will close on January 30, 2026.
• Indirect Taxes:
  • Inland Revenue issued Interpretation Statement IS 25/21 on what constitutes a “taxable activity” for GST purposes. A taxable activity is defined in Section 6 of the GST Act 1985. Taxable activity is a fundamental concept that underlies the GST regime: it determines the need to register for GST and to charge GST on taxable supplies. The Commissioner discussed this concept in numerous public items, but generally in a specific context such as subdivisions of land, horse racing or horse breeding. This statement is of more general application.
  • On October 20, 2025, Inland Revenue released an exposure draft Interpretation Statement for public consultation on the GST treatment of payment processing and payment facilitation services supplied to merchants. The draft sets out a structured approach to determine when such services qualify as exempt financial services for GST purposes. Under the draft, services involving settlement functions are generally treated as financial services and therefore are exempt from GST. Where a provider supplies payment processing or facilitation without settlement services, the supply would typically be subject to GST. The guidance further explains that services closely connected to settlement, including arranging or agreeing those services and certain necessary or incidental processing activities (such as payment gateways and authorization messaging), may also be treated as financial services. By contrast, administrative, compliance, reporting, marketing or promotional services are unlikely to fall within the exemption and may constitute separate taxable supplies, depending on the facts. The public consultation period closed on December 8, 2025, and no further updates have been issued.
  • On December 19, 2025, Inland Revenue released an exposure draft Interpretation Statement clarifying the GST treatment of court-awarded costs, disbursements, and related out-of-court settlement payments. The draft concludes that such payments are generally compensatory and do not constitute consideration for a supply for GST purposes, unless a specific statutory rule provides otherwise. Accordingly, recipients are not normally required to account for output GST, issue taxable supply information, or trigger input tax deductions for payers. The draft explains how courts commonly factor in the GST status of the successful party when awarding costs. Scale and increased costs are usually granted on a GST exclusive basis, as they do not reflect actual expenses incurred. By contrast, indemnity costs and disbursements may be awarded on a GST-inclusive basis where the successful party cannot recover GST, to prevent them being financially disadvantaged. The statement is limited to costs and disbursements; the GST treatment of damages and other compensation is addressed separately under existing guidance (IS 23/07). Submissions on the exposure draft will close on February 20, 2026.

Key Controversy Issues in Q4:

• No key controversy update.