Midweek Tax News

As Pillar Two moves beyond Year 1 compliance, businesses face new complexities: lingering FY24 filings, additional effective jurisdictions, Undertaxed Profit Rule, evolving GloBE Information Return requirements and continued filing challenges.

Our webcast at 15.00 to 16.00 on 14 September will help participants understand lessons learned from FY24 Pillar Two compliance and what is changing for FY25 Pillar Two compliance as well as identifying practical steps to support Year 2 compliance readiness.

You can register for the webcast here.

We have responded to the consultation of 13 July 2026 on simplifying the process to obtain treaty relief in relation to withholding tax (WHT) obligations when making payments of interest overseas.

We welcome the UK Government's review of the operation of treaty relief from WHT on cross-border interest payments. The current regime frequently imposes administrative burdens and commercial friction even where entitlement to treaty relief is clear and undisputed. The requirement to obtain HMRC directions can create delays, uncertainty and additional compliance costs for both taxpayers and HMRC, as well as being frequently misunderstood by taxpayers.

We support reform aimed at providing easier access to treaty relief. In our view, reform could allow treaty relief to be applied without a separate loan-by-loan direction, supported by an appropriate combination of self-assessment and lender verification. This could include borrower self-assessment where the borrower has sufficient access to the relevant information, together with an expanded DTTP-style framework for third-party lending. A new regime could:

• Reduce dependency on advance HMRC clearances
• Allow routes for taxpayers to achieve certainty
• Maintain appropriate reporting obligations
• Distinguish between genuine administrative failures and substantive abuse
• Avoid disproportionate sanctions where treaty entitlement exists in substance

While we note that the proposal focuses on the administrative requirements to obtain treaty relief, we also stress it is important that the effectiveness and accessibility of existing domestic exemptions from withholding tax are preserved.

If you would like to discuss our response, please get in touch with your usual EY contact or one the contacts listed below.

On 7 September 2026, the Government launched a new consultation on modernising corporate reporting. The consultation explores how reporting obligations could be simplified and made more proportionate by clarifying the purpose of corporate reporting, rationalising thresholds and exemptions and reducing unnecessary or duplicative requirements.

Proposals include changes to the corporate reporting framework, financial reporting, non‑financial reporting, corporate governance and remuneration reporting. The consultation also includes reforms to support greater use of digital reporting and communications.

Among the detail of the consultation, the Government notes that it is considering moving from the current dividend regime to a solvency-based regime. It recognises that such a shift would be a fundamental change to the Companies Act 2006.

The Government suggests that a solvency-based regime would remove the requirement for extensive and complex calculations and guidance. The proposal would be to require companies to state that the payment of the dividend will not affect the company’s ability to continue as a going concern. The proposals would not affect the additional prudential requirements relating to payment of dividends that banks and insurers are subject to and which are designed to protect depositors and insurance policy holders.

The consultation closes on 30 November.

As a reminder, in the morning of 22 September (09.00-13.00), EY and ServiceNow will be holding a workshop exploring how AI, automation and connected workflows are reshaping the future of tax.

During the workshop we will explore:

• What is changing across the tax compliance landscape and why it matters now
• How high-quality data can become the foundation for faster, more effective tax operations
• How EY and ServiceNow are combining tax insight and workflow technology to bring AI-powered transformation to life
• How to build a compelling business case for tax transformation

The session will feature live demonstrations of tax-focused agents, emerging use cases and practical applications as well as peer discussion on current pain points, investment priorities and future opportunities.

Spaces are limited. You can register for the workshop here.

On 7 September 2026, the Chancellor of the Exchequer, the First Secretary of State, and the Attorney General wrote to all ministers to set out the Government’s approach to reducing administrative frictions and increasing the agency of the state. The letter says that consultation should no longer be treated as the default step in policy development and reaffirm that there is no general duty to consult before the Government acts.

Under the new approach, formal consultations will be used only in limited circumstances: where there is a statutory requirement, where fairness clearly demands consultation, or where ministers judge that a formal consultation is the most appropriate way to obtain external input. The letter favours more targeted and participatory forms of engagement, involving stakeholders earlier and more directly. Departments are also instructed to reconsider any expectation to consult on a case-by-case basis, even where consultation has historically been undertaken or previously promised.

The implications for tax policymaking and HM Treasury and HMRC consultation processes are not yet clear. Tax policy has traditionally relied heavily on formal consultation and stakeholder engagement, and it remains to be seen how the Government’s revised approach will be applied in practice in this area.

In The executors of Paul Hunt & Ors, the Upper Tribunal has considered whether consideration received by the taxpayers following a reduction of capital in a close company was excluded from the scope of the transaction in securities rules by section 685(6) ITA 2007.

In reaching the conclusion that the section did not exclude the transaction from the rules, the Tribunal concluded:

• The provision did not contain an obvious drafting error capable of judicial correction (as HMRC had argued). The Tribunal agreed with the First-tier Tribunal that this was not a “plain case of a drafting mistake”. Accordingly, section 685(6) had to be interpreted according to its actual wording.
• The provision was intended to prevent assets that represented subscribed capital being treated as available for distribution for the purposes of section 689(3) ITA (as enacted) where such assets could be distributed by way of dividend under the law of the country of incorporation of the relevant company. As the company here was a UK limited company, whose share capital could not lawfully be distributed as a dividend, section 685(6) did not apply. The capital reduction therefore remained capable of falling within the TIS regime.

We have responded to HMRC with our comments on the draft legislation published on 13 July covering the replacement of stamp duty and stamp duty reserve tax with a single tax on transfers of securities. The securities transfer tax is to be introduced in 2027.

Our comments often focus on the detailed wording of the legislation, but among the areas covered are key points on administration and accountability as well as the scope of the draft legislation, including how current reliefs will be brought forward into the new tax. We also look at matters particular to the depositary receipts and clearance services when dealing with the higher rates charge and the main charge as well as matters particular to capital markets and financial services.

If you would like to discuss our response, please get in touch with your usual EY contact or Georgina West in our Stamp Taxes team.

The OECD will host a public consultation meeting on 9 November in Paris to discuss proposed revisions to the OECD Transfer Pricing Guidelines (TPG) for intra-group services. This follows a public consultation document released in June 2026.

The work aims to ensure alignment between the guidance on intra-group services and the foundational principles in Chapters I, II and III of the OECD TPG. The proposed revisions seek to enhance clarity and provide practical illustrations through the inclusion of new examples. The revisions are not intended to change the general principles underlying the transfer pricing analysis of intra-group services.

One of the main points in the consultation response we submitted in July was that where a service has been performed, the existence of a benefit should generally be presumed. Where costs are allocated through a reasonable indirect allocation methodology, taxpayers should not be required to demonstrate benefit on an entity-by-entity basis, as this would create a disproportionate compliance burden that is inconsistent with the arm’s length principle and sound tax administration.

We also point out that the mere fact that a service provider has senior people, expertise, tools, know-how or strategic importance should not lead to the conclusion a profit split should be applied. The contractual risk allocation should also be taken into consideration.

The registration details for the meeting will be published later this month.

We have included links to a selection of our tax alerts below. Additional articles are available in our global tax alert library.

Curaçao: Curaçao has passed the Minimum Tax Ordinance implementing the Pillar Two framework. The legislation introduces an Income Inclusion Rule (but not a Qualifying Domestic Top-up Tax or Undertaxed Profits Rule) and is expected to apply for fiscal years beginning on or after 1 January 2025. A Side-by-Side Safe Harbor applies for fiscal years beginning on or after 1 January 2026.

Qatar: Qatar has published the first package of implementing decisions supporting the country's Global and Domestic Minimum Tax framework. The decisions provide operational guidance covering: currency conversion rules; transitional simplified reporting procedures; the transitional Country-by-Country Reporting Safe Harbour; simplified calculations for nonmaterial constituent entities; the Designated Local Entity framework; and registration requirements.

Saudi Arabia: The Zakat, Tax and Customs Authority has issued a procedural guide clarifying the tax and customs treatment in Special Economic Zones (SEZs). The guide provides detailed guidance on SEZ incentives, including a 5% corporate income tax rate for qualifying activities, and withholding tax exemptions for certain payments to non-residents.

Uruguay: Uruguay has issued a decree introducing a mechanism to compensate taxpayers covered by stability clauses for an amount equivalent to the Uruguayan Qualifying Domestic Minimum Top-up Tax (QDMTT) minus the reduction of foreign taxes due to the payment of the Uruguayan QDMTT.

Tax authorities no longer need to wait for an audit to see how a business operates. Digital reporting gives them transaction data, and AI helps find inconsistencies, accelerating scrutiny. A simple mismatch can draw attention long before a company expects questions. In a new podcast, three EY tax leaders share their perspectives on how connected data and robust governance can strengthen tax readiness as authorities increasingly begin discussions with an informed position already in mind.

Tax accounting for a separation of a part of a business (i.e. carve-outs/ divestments) is often highly complex and can directly impact valuations, deal economics and the separation and ‘day-one’ tax profiles. A new EY article discusses the important role tax accounting can play and some practical steps companies can take by addressing tax considerations early.