Midweek Tax News

On 5 January, the OECD published details of the Inclusive Framework’s agreed Pillar Two ‘side-by-side package’. The package, in the form of Administrative Guidance, includes a new Simplified Effective Tax Rate (ETR) Safe Harbour, a one-year extension of the Transitional Country-by-Country Reporting (CbCR) Safe Harbour, a new Substance-based Tax Incentive Safe Harbour and two Safe Harbours related to a Side-by-Side System. This Administrative Guidance will in due course be incorporated into the Commentary to the Global Anti-Base Erosion (GloBE) Model Rules.

A ‘first impressions’ global tax alert is available which provides a summary overview of the package and its implications.

On 7 January, the UK Government confirmed that the rules will apply in the UK for accounting periods beginning on or after 1 January 2026. However, the legislation will be included in a future Finance Bill following technical consultation – i.e. it will not be included in the Bill currently going through Parliament.

On 12 January, the Official Journal of the European Union published a Notice acknowledging the OECD package and confirming its application within the context of the EU Minimum Taxation Directive. It also confirmed all Member States consented to the four safe-harbour measures included in the package.

Our next Indirect Tax Perspectives event will take place on Wednesday, 11 February. The event will take place in person at our 1 More London Place office, London, SE1 2AF, from 9.45, with networking and refreshments available from 8.45.

During the event, we will cover:

• A round-up of the latest indirect tax topical issues
• E-invoicing update, including guest speaker, HMRC’s Rachel Stirrat
• Trade Policy updates for UK businesses to monitor in 2026
• Gen AI update and indirect tax developments

At the end of the main session, there will also be an optional deep-dive session (from 11:15 to 12:15) in which we will showcase indirect tax Gen AI use cases.

You can register here for the event and optional Gen AI session.

As previously highlighted, the UK’s new treaties with Portugal, Romania, Peru and Andorra were ratified in December 2025. The UK Government has now updated its website to confirm that the Portugal, Romania and Andorra treaties have entered into force.

The new UK-Portugal tax treaty entered into force on 29 December and is effective in the UK from 1 January 2026 for taxes withheld at source, 6 April 2026 for income tax and capital gains tax and 1 April 2026 for corporation tax. The new treaty will replace the existing treaty, which has been in force since 1969. There have been some changes to provisions relating to withholding tax for dividends, interest and royalties, which businesses with operations in Portugal may wish to review. The provisions relating to permanent establishment and dispute resolution have updated in line with current international best practice. A global tax alert is available which provides further details on the terms of the new treaty.

The new UK-Romania tax treaty entered into force on 22 December and is effective in the UK from 6 April 2026 for income tax and capital gains tax and 1 April 2026 for corporation tax. Businesses with operations in Romania may wish to review the new treaty in detail, as it includes a number of changes to withholding tax rates compared to the previous treaty.

The UK-Andorra treaty entered into force on 22 December. The convention takes effect in the United Kingdom from 1 February 2026 for taxes withheld at source, from 6 April 2026 for income tax and capital gains tax, and from 1 April 2026 for corporation tax.

Finally, the new tax treaty between the UK and Peru will enter into force on 21 January 2026, 30 days following the last notification of ratification which was made on 22 December. On this basis, the treaty will be effective in the UK from 1 January 2027 for withholding tax, from 6 April 2026 for income tax and capital gains tax, and from 1 April 2026 for corporation tax. As of 13 January the relevant UK Government webpage has not yet been updated to confirm the entry into force of the treaty and its effective dates. Our global alert has more details.

The Committee of the whole House was due to conclude its consideration of the Finance (No.2) Bill yesterday, 13 January. The measures that were to be considered by this Committee included the changes to Agricultural and Business Property IHT reliefs – as previously reported, an amendment was tabled by the Government on 5 January to increase the level of the threshold for these reliefs from £1m to £2.5m.

The clauses not considered by the Committee of the whole House will be considered by a Public Bill Committee, which is scheduled to conclude by 26 February. After this point, report stage and third reading will be scheduled. Third reading constitutes substantive enactment for UK GAAP and IFRS; for US GAAP, the key date is enactment. It is not yet known when the Finance Bill will be enacted.

In the case of O’Neil & Ors, the Upper Tribunal has considered the tax treatment of a redress payment made to three individual partners in a Scottish partnership which had carried on a travel agency and hotel business. In 2007, as a condition of obtaining loans from RBS, the partnership entered into an interest rate swap. However by 2009, it had been identified that the swap had potentially been mis-sold to the partnership. In 2012, the partnership transferred its business (including the swap) to a related company and subsequently ceased trading. No notification was given to RBS of the transfer of the swap. In 2014, RBS offered the partnership a redress payment as compensation for the mis-sold swap, and the payment was made to a joint account of two of the taxpayers.

One of the key issues considered by the Tribunal was whether the redress payment made to the taxpayers was taxable in their hands as post-cessation receipts. Section 242 ITTOIA imposes a charge on “...post-cessation receipts arising from a trade” with section 245 providing that the person liable to the charge is “...the person receiving or entitled to the receipts”.

The taxpayers had not included the receipt of the redress payment in their personal tax returns. They argued it should be taxed in the hands of the company, because the business (including all rights in relation to the swap) had been transferred to the company in 2012. They claimed the agreement for the transfer of the business had established a trust in favour of the company in respect of the redress payment, meaning that it was the company which was “entitled” to receive the payment.

However, the Tribunal accepted HMRC’s argument that it was the taxpayers who were entitled to the payment. It found that there had been no effective assignation of the swap or claim right under Scots law, because there had been no intimation to RBS regarding the transfer. Moreover, the transfer agreement did not create a trust in favour of the company, but only contractual obligations. The Tribunal concluded that the taxpayers were liable to tax on the redress payment under the post-cessation receipts regime.

In the case of Ripe Limited, the First-tier Tribunal has considered whether a company had correctly claimed a deduction under the intangible fixed asset regime (Part 8 CTA 2009) for the amortisation of a sum paid to acquire the right to use a client list. Upon retiring from an accounting partnership, Glazers Chartered Accountants, Robert Glazer made a payment for the right to use a client list and related data. Mr Glazer then transferred this asset to Ripe Limited, a company which he jointly owned with his wife. Ripe Limited then allowed a related entity, Ripe LLP, to use the asset in return for a fee.

Ripe Limited considered that it had acquired a licence to use the client list from Mr Glazer; it recognised the asset as goodwill in its accounts, amortising it over 10 years, and claiming a corporation tax deduction under Part 8 for the amortisation expense. However, HMRC argued that Ripe Limited had not acquired an intangible fixed asset (IFA). It argued that the payment that Mr Glazer made to Glazers Chartered Accountants was compensation for release from a restrictive covenant, rather than being for the acquisition of an IFA. They contended there was no evidence of a licence being granted to Mr Glazer, and even if such a licence existed, the taxpayer lacked the necessary ‘control’ over the expected future benefit for the asset to qualify as an IFA.

Rejecting HMRC’s arguments, the Tribunal concluded that Ripe Limited had acquired an IFA, comprising a licence to use the client list and related data. It accepted that a licence can be created without the need for written documentation. It found that Ripe Limited had sufficient control over the asset for it to be recognised as an IFA, on the basis that the company was able to exploit the asset by allowing Ripe LLP to use it in return for payment.

The Tribunal considered that the accounts of Ripe Limited, although incorrectly describing the asset as goodwill, were prepared in accordance with GAAP, and the amortisation deductions were therefore found to be allowable under CTA 2009.

On 13 January, the Scottish Finance Secretary, Shona Robison, announced changes to the basic and intermediate rate income tax thresholds and confirmed there would be no changes to rates or the number of tax bands in the coming financial year.

The income tax policy choices available to the Scottish Parliament include: the number of tax bands; the tax rates that apply to these bands; and the thresholds where bands begin and end. However, the tax-free personal allowance, as well as income tax on savings and dividends, is reserved to the UK Parliament.

Assuming the Scottish Budget is passed, the basic and intermediate rate thresholds will increase by 7.4% to £16,537 and £29,526 respectively. The higher, advanced and top rate thresholds will remain at £43,662, £75,000 and £125,140 respectively.

The Scottish Government will continue to maintain residential and non-residential rates and bands at their current level for land and buildings transaction tax (LBTT). However, the Budget document reiterated that a comprehensive review of LBTT is underway.

In addition, Ms Robison announced the introduction by April 2028 of two new council tax bands for the most expensive properties in Scotland, those worth more than £1 million, on an up-to-date valuation. The Scottish Government will continue to align Scottish landfill tax rates with equivalent UK rates and confirmed that the rate of the new Scottish aggregates tax in its first year will match that of the UK aggregates levy.

Finally, the Budget document noted that the introduction of air departure tax in April 2027 and the building safety levy in April 2028, will complete the delivery of new taxes under the Scotland Act.

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

Cyprus: Cyprus has enacted significant tax reform measures, with most changes effective from 1 January 2026. Measures include an increase in the corporate income tax rate from 12.5% to 15%, the abolition of the deemed distributions rules and new dividend withholding tax rates.

Italy: On 30 December 2025, the Italian Parliament approved the 2026 Budget Law, which included significant tax measures for banks, other financial intermediaries and insurance companies, such as increases to the financial transaction tax rates, a new 95% exemption from IRAP on intra-EU/EEA dividends, temporary increases to the IRAP rates for selected financial intermediaries and new thresholds for the 95% exemption from corporate income tax on dividends and capital gains. The new measures are generally effective from 1 January 2026.

Hungary: Hungary has introduced a new, comprehensive transfer pricing (TP) decree, to be applied from the 2026 tax year, which significantly increases the complexity of TP compliance requirements in Hungary.

Argentina: Argentina has increased the transfer pricing and CbCR penalties for non-compliance, effective from 2 January 2026.

Colombia: Colombia's Executive Branch has issued a decree introducing temporary tax measures amid a State of Economic Emergency, including an increased 15% surtax on corporate income for financial institutions and increased value-added tax rates on various goods.

Türkiye: On 26 December, Türkiye published the final version of the General Communiqué outlining the application of Local Minimum Top-up Corporation Tax and the GloBE Information Return requirements. The finalised rules impact compliance obligations and tax considerations for affected MNE groups with fiscal years beginning on or after 1 January 2024.

Türkiye: As reported previously, Türkiye reduced its digital services tax rate from 7.5% to 5% from 1 January 2026, and it will further reduce to 2.5% from 1 January 2027.

UAE: The UAE has released guidance on Advance Pricing Agreements (APAs), providing a framework for unilateral APAs. Currently, only UAPAs are available, but bilateral and multilateral APAs will be introduced as the UAE APA programme develops.

South Korea: South Korea has enacted the 2026 Tax Reform Bill introducing a number of changes, many of which take effect from 1 January 2026. This includes the introduction of a Qualified Domestic Minimum Top-up Tax (QDMTT), a one percentage point tax rate increase for corporate income tax, and procedural changes regarding applications for reduced treaty rates.

The latest edition of IFRS Quarterly Tax Developments is now available. This EY publication provides a quarterly overview of enacted and substantively enacted tax legislation and IFRS accounting developments, as well as regulatory developments and other items.