Tax: How Reform And Compliance Are Reshaping Deals

Corporate tax remains a key consideration in cross-border investment in 2026, as governments balance competitiveness, revenue protection and alignment with global minimum tax standards.

In this article we consider the key trends and forthcoming developments in the global corporate tax landscape. 

UK

Stability, certainty and predictability

On coming to power in 2024, the Labour Party's stated UK corporate tax strategy was to focus on the promotion of stability, certainty and predictability for businesses while creating the conditions for growth.

These ambitions have played out in elements of Budget 2025 and, more recently, Finance Bill 2026. In particular, the main rate of corporation tax remains capped at 25% and key investment allowances, including full expensing, are to be maintained. 

Additionally, for 'major projects' (involving qualifying UK expenditure of at least £1 billion), a new HMRC advance tax clearance service will be introduced this year, aimed at providing binding, up-front certainty regarding the application of various UK taxes.

Encouraging investment and growth

Policies aimed at encouraging investment and corporate growth were also announced at Budget 2025, with the Government stating that its focus was on "making the UK the most attractive place in the world for founders to start and scale their businesses to success". Eligibility requirements for the Enterprise Investment Scheme, Venture Capital Trusts (VCT) and Enterprise Management Investment Scheme are set to increase, expanding the availability of these regimes to 'scale up' as well as 'start up' companies. 

Conversely, the Government also announced a reduction in VCT income tax relief, from 30% to 20%, leading to industry concerns of a potentially significant decline in investment for entities within the scheme. Similarly, whilst there was a welcome introduction of a new first year allowance for main rate expenditure, this was offset somewhat by an unwelcome reduction in the main rate of writing down allowance. 

Promotion of the UK's international competitiveness was also evident at Budget 2025, with the introduction of support for the UK's listing regime in the form of a three-year exemption from the 0.5% SDRT charge on the transfer of securities of newly listed companies, ahead of more wholesale reform of the UK stamp regime.

Changes ahead

Despite stability being a key aim of the Government, this year will see businesses grappling with significant reforms to a number of areas. These include private equity, where carried interest will (broadly) become subject to income tax (plus NICs) as the profits of a deemed trade, rather than capital gains tax. The UK's transfer pricing and permanent establishment rules will also be subject to a major overhaul, largely to bring closer alignment with international standards. 

Germany

General tax legislation

The newly elected coalition of the centre-right Christian Democrats and the centre-left Social Democrats intends to incentivise investments in Germany as a business location. To this end, a new rule was introduced that allows businesses to depreciate certain assets on a declining balance basis, starting with 30% in the year of the investment. 

Further, starting in 2028, the German corporate income tax rate will decrease 1% each year from the current 15% to 10% in 2032 bringing the total tax burden for businesses down to about 25% including German trade tax. The Government reduced the electricity tax to the EU-minimum and intends to keep it that way long-term.

Where individuals or partnerships realise gains from the disposal of shares in corporations, the latent reserves arising from such transactions may under certain conditions be allocated to specified reinvestment assets on a tax-neutral basis. Under the new rule adopted by the German Federal Parliament on 19 December 2025, the applicable ceiling of €500,000 will be increased to €2 million. The legislative procedure is not yet concluded and the rule remains subject to approval by the German Federal Council (Bundesrat). 

Transaction and M&A tax: RETT

A significant shift in German M&A practice is expected to follow the cabinet’s approval of changes to the Real Estate Transfer Tax (RETT) regime on 14 January 2026. The reform tackles a long‑standing signing-closing problem that created the risk of RETT being levied twice on a single transaction. Under the previous interpretation applied by the tax authorities and parts of the fiscal courts, both signing and closing could independently trigger RETT in share deals involving property‑holding companies if they did not occur at the same time. This could only be avoided by meeting very strict and timely notification requirements for both steps. Any deviation, even if minor or procedural, could lead to a second RETT charge, creating uncertainty and additional cost for buyers and sellers.

The new draft law aims to eliminate this double taxation risk by redefining the taxable event. Under the revised approach, it is expected that closing will no longer trigger RETT when the transfer of shares occurs in fulfilment of the share purchase agreement. Instead, RETT will arise solely at signing, which will become the triggering event for tax purposes. Further, the property holding company will be added as another taxpayer (in addition to the seller and the buyer under the SPA). The RETT notification deadline will be extended to one month (instead of the general two-week period under current law) which will somewhat reduce the pressure on taxpayers in deals involving large amounts of real estate properties. 

If the draft law is adopted, the change will provide greater clarity and reduce the administrative burden on market participants, but it will also shift responsibility to the purchaser. If a transaction fails after signing, the buyer will need to initiate the process to obtain a RETT refund, adding a new practical consideration for deal planning and documentation. Further, the RETT will become due earlier in the transaction process and will need to be pre-financed which could trigger discussions between the seller and the purchaser with regard to the sharing of the costs for such pre-financing. 

Luxembourg

In 2025, Luxembourg continued to modernise its tax framework to support growth and competitiveness, with further measures in 2026 aimed at sustaining investment and reinforcing the financial centre.

A flagship development for the funds industry is the overhauled carried interest tax regime. Parliament approved the Bill on 22 January 2026, creating two tracks: (i) contractual carried interest taxed at one quarter of the global rate (capped at ~11.45%), and (ii) participation‑linked carried interest fully exempt where the participation is held for more than six months and does not exceed 10% of fund capital. The regime applies to Luxembourg‑resident individuals, including investment management professionals (employees, partners, managers and directors) and certain alternative investment fund (AIF) service providers operating under services or advisory agreements, directly or via intermediaries. The regime applies from the 2026 tax year.

Luxembourg also strengthened certainty around reverse hybrid rules. A tax circular clarified the collective investment vehicle (CIV) carve‑out. It confirmed that regulated or supervised partnership vehicles, such as undertakings for collective investment and undertakings for collective investment in transferable securities (UCIs/UCITS), specialised investment funds (SIFs) and reserved alternative investment funds (RAIFs), should qualify. It also provided interpretative guidance for other structures.

At the EU level, the proposed “Unshell” directive (ATAD 3), aimed at addressing the perceived misuse of shell entities, was abandoned in June 2025 due to a lack of consensus.

Luxembourg also transposed the Directive on Administrative Cooperation 8 (DAC8), extending reporting obligations and automatic exchange of information to crypto‑assets and related categories, with application intended from 1 January 2026.

Aside from Luxembourg’s DAC9 implementation (covering GloBE Information Return filing and exchange and alignment with OECD guidance), the key international development was the OECD Inclusive Framework’s Pillar Two “Side‑by‑Side” package released on 5 January 2026. It seeks to preserve the global minimum tax while allowing coexistence with the US tax system. To achieve this, it introduces safe harbours that may neutralise Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) outcomes for US‑parented groups in defined cases, while maintaining the core Pillar Two framework. The implementation of the package will be effected through an amendment to the Law of 22 December 2023 on effective minimum taxation (Pillar Two law). 

Looking ahead, a dedicated real estate investment trust (REIT) regime is not currently a priority, though it has not been ruled out. Plans have also been announced for a special tax regime for stock options for start‑up employees. Corporate tax policy remains competitiveness‑driven, with a 1% corporate income tax (CIT) rate cut implemented for 2025 and a further 1% cut announced for 2027.

France

France’s corporate tax landscape is undergoing rapid change as the Government tries to reduce its deficit, stabilise public debt and align with evolving EU and OECD standards. Recent reforms, including measures in the 2025 Finance Act, reflect a clear shift towards tighter compliance, increased transparency and targeted rules for large multinational groups.

A central development is the exceptional corporate income tax surcharge targeting large companies. This temporary measure applies to corporates or consolidated groups with French turnover above €1 billion (20.6%) and €3 billion (41.2%), resulting in effective corporate tax rates of roughly 31% and 36% respectively, compared to the standard 25% CIT rate. The measure applies to financial years ending on or after 31 December 2025 and is non‑deductible for CIT purposes. 

In parallel, France has introduced a series of transaction‑related taxes, notably an 8% tax on share buybacks carried out by companies with turnover above €1 billion. This measure covers capital reductions following repurchase and cancellation of shares applying from 2025. 

Another major trend concerns the continued postponement of the abolition of the CVAE (Contribution on Added Value). Initially set to disappear by 2027, its repeal has now been deferred to 2030, with transitional adjustments and a supplementary contribution introduced to offset unintended rate reductions in 2025. 

France has also been actively implementing OECD Pillar Two (Global Minimum Tax). Adjustments made in 2024–2025 integrate the latest OECD guidance, including substance‑based exclusions, transitional safe harbours, and the French Qualified Domestic Minimum Top‑Up Tax (QDMTT). These rules apply to multinational and large domestic groups with consolidated turnover exceeding €750 million. 

Looking ahead, France plans to mandate electronic invoicing for all companies established in France starting 1 September 2026, marking another step toward digitised tax administration. 

Together, these reforms illustrate France’s dual objective: enhancing transparency and fairness in corporate taxation while reinforcing revenue collection and aligning with international tax standards.

Spain

For a third consecutive year, it seems more likely than not that Spain will not have a Budget Law for the year 2026 and, in the absence of such law, no relevant changes in tax legislation are expected either. It was on 20 December 2022 when the last Budget Law was approved (for the year 2023) – since then the Government has been unable to approve the Budget for 2024 and 2025. In fact, no Draft Budget Law was even submitted to the Spanish Parliament for 2024 and 2025 and, though the Government still claims that they are in negotiations with other political parties to approve the Draft Budget Law for 2026, it seems likely that no Budget will be finally approved (and probably not even submitted to the Spanish Parliament) for 2026.

The parliamentary weakness of the Government has led to a significant reduction in the number of laws discussed and subsequently approved in Spain. Those laws which have been approved are, in many cases, a mere transposition or development of EU Directives or Regulations.

In fact, many of the laws approved during this Government term have been enacted under the form of Royal Decree-Laws. This is a type of legal instrument that should only be used in situations of extraordinary and urgent need and, once approved by the Government, enters into force with immediate effect, though the Spanish Parliament must subsequently validate it. Royal Decree-Laws have traditionally been used by Governments in situations of parliamentary weakness. More than once, the Spanish Constitutional Court has subsequently ruled that the Government has abusively used a Royal Decree-Law in situations where no such extraordinary and urgent need existed. This invalidated the measures approved through the relevant Royal Decree-Law and forced the Government to approve laws with those measures (thus subject to parliamentary discussions and timings). 

Therefore, in a context where the Government seems to be unable to approve the Budget Law, and has not even started the process by submitting a draft law to the Spanish Parliament, and where no elections are called, no relevant legal changes are expected in the Spanish tax system in the near future. Instead, it seems likely that key Spanish tax developments will be restricted to court precedents upholding or reversing the position taken by the Spanish Tax Authorities. 

US

On July 4, 2025, President Trump signed into law a major tax bill that is commonly known as the One Big Beautiful Bill Act (the OBBBA). The following summarises some of the key changes for multinational businesses.

Business interest expense limitation

Net business interest expense deductions are generally capped at 30% of “adjusted taxable income.” The OBBBA adds back depreciation and amortisation and excludes certain international items in computing “adjusted taxable income”, thereby increasing interest deductibility, beginning in 2025.

GILTI and FDII changes

A controlled foreign corporation (a CFC) is a non-US corporation that is more than 50% owned by US persons that each own, directly, indirectly or through attribution, at least 10% of the corporation’s stock (10% US shareholders). 

In an effort to incentivise multinationals to keep intangibles in the US, beginning in 2018:

• 10% US shareholders were required to annually include in income their share of a CFC’s global intangible low-taxed income (GILTI) (in addition to other CFC income that such shareholders must include in income); and 
• US persons could deduct a percentage of foreign-derived intangible income (FDII). 

The OBBBA expands the scope of GILTI and FDII by eliminating a 10% threshold return on depreciable asset basis that was previously not subject to GILTI inclusion by CFC 10% US shareholders or eligible for the FDII deduction. It also permanently sets the corporate tax rate on GILTI at 12.6% (such rate was previously 10.5% and scheduled to increase to 13.125% in 2026) and the effective tax rate on FDII at 14% (it was previously 13.125% and scheduled to increase to 16.4% in 2026). The OBBBA also relaxes certain limitations on foreign tax credits in calculating GILTI and generally eliminates a controversial attribution rule enacted in 2017 that expanded the scope of entities classified as CFCs.

BEAT changes

The 2017 tax act also introduced a minimum base erosion and anti-abuse tax (BEAT) on C corporations (other than RICs and REITs) with average gross receipts of at least US$500 million whose “base erosion percentage” exceeds 3% (or 2% for certain taxpayers). The OBBBA increases the tax rate on BEAT to 10.5% (it was previously 10% and scheduled to increase to 12.5% in 2026).

Retaliatory tax omitted

The as-passed version of the OBBBA omits a controversial proposed retaliatory tax on residents of jurisdictions that apply global minimum taxes (and certain other taxes) on entities controlled by US persons.

Australia

The Australian corporate tax landscape is undergoing significant transformation, driven by international tax reform commitments and domestic integrity measures.

Pillar Two global minimum tax

Australia's implementation of the OECD Pillar Two global minimum tax represents the most significant international tax reform in decades. The rules are fully operative and apply to multinational enterprise groups with consolidated annual revenue of at least €750 million. In-scope groups must ensure their Australian operations are subject to an effective tax rate of at least 15%, with top-up tax payable where this threshold is not met. It is unclear how or when the ‘Side-by-Side’ proposal to enable Pillar Two to sit alongside the US regime will be implemented. 

Thin capitalisation reforms

Substantial reforms to Australia's thin capitalisation rules are now fully operative. The default fixed ratio test limits net debt deductions to 30% of tax EBITDA, with elective group ratio and third-party debt tests available. Additionally, the debt deduction creation rules target related-party debt used to fund asset acquisitions or dividends and returns of capital. The ATO has signalled that restructures undertaken in response to these rules will be a compliance priority in 2025.

Foreign resident CGT changes

The Australian Government has announced changes to broaden the types of assets subject to CGT for foreign residents, including assets with a 'close economic connection' to Australian land – such as energy and transport infrastructure and mining equipment. The principal asset test will shift from a point-in-time test to a 365-day lookback period, and foreign residents disposing of membership interests exceeding A$20 million will be required to notify the ATO before settlement. This is likely to be a major hindrance in attracting foreign capital to invest in Australia. The start date has been deferred pending release of legislation.

Public country-by-country reporting

Large multinational groups with an Australian presence must now comply with public country-by-country reporting requirements, effective for financial years commencing on or after 1 July 2024. Affected groups must submit detailed tax and financial information to the ATO, which will be published on an Australian Government website.

Looking ahead

The Productivity Commission has released its final report proposing longer-term reforms to the corporate tax system, including reducing the company tax rate from 30% to 20% for companies with revenue below A$1 billion and to 28% for companies with revenue above A$1 billion. It also introduces a new 5% 'Net Cashflow Tax' designed to ‘encourage’ capital investment. 

There is also expected to be a steady stream of cases on transfer pricing and anti-avoidance issues, which will be of interest to multinationals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.