ASC 740: Q2 2026 provision considerations

The 2026-27 Federal Budget, delivered May 12, 2026, proposed significant tax reforms, including the permanent company loss carry-back for companies with aggregated turnover under AUD one billion and enhanced research and development (R&D) incentives. Several of these items are before parliament as part of the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026. For U.S.-parented groups, a key development is Australia’s alignment of its Pillar Two rules with the OECD ‘side-by-side’ package beginning Jan. 1, 2026. As a result, U.S. multinationals should generally avoid Australian top-up tax, although GloBE registration requirements and country-by-country reporting still apply. Read RSM Australia’s comprehensive report on Federal Budget 2026-27 for more details. 

Aside from the enacted and proposed legislative measures discussed above, recent Australian case law may also affect U.S. MNEs with Australian operations. In Shell Energy Holdings Australia Limited v Commissioner of Taxation [2026] FCA 577, the Federal Court set aside approximately AUD 99 million of Capital Gains Tax assessments, holding that the market-value cost base of a 34.27% Woodside stake included an 18% control premium over the listed price and accepting comparable-transaction evidence. The decision supports the use of control premiums and a broader evidentiary base when valuing substantial Australian shareholdings.

After the High Court’s narrow 4–3 decision in favor of the taxpayer in PepsiCo, Inc v Commissioner of Taxation [2025] HCA 30, which found no embedded royalty or Diverted Profits Tax (DPT) on concentrate payments, the Commissioner’s parallel claim against Coca-Cola, involving approximately AUD 174 million in DPT, is the next key test. A further Federal Court hearing is scheduled for December 2026. U.S. groups with Australian distribution, licensing or supply arrangements should review potential embedded royalty and DPT exposure.

On June 18, the Canadian government enacted Bill C-30, which, among other measures, allows immediate expensing for eligible greenhouse buildings and may provide cost-saving opportunities through reduced payroll obligations and fuel-related expenses. Visit New tax measures in Bill C-30 carry timely implications for Canadian businesses for more information.  

A more significant legislative package, Bill C-31, is not expected to become law before the fall because Parliament has begun its summer recess. The proposed legislation includes new audit powers, including expanded authority to access foreign information and documents, implementation of the Crypto-Asset Reporting Framework and immediate expensing for eligible manufacturing or processing buildings.

Additionally, with the Canada-United States-Mexico Agreement (CUSMA) review scheduled to begin on July 1, Canada is anticipating additional tariff uncertainty, which may affect cross-border planning and supply chain considerations for U.S. multinationals with Canadian operations.

French Law No. 2026-534, which combats social and tax fraud, was published in the Official Journal on June 26, 2026. Two provisions are particularly relevant to U.S. groups holding French real estate. In the absence of transitional provisions, both measures apply to transactions carried out on or after June 27, 2026.

Article 68 introduces new formalities for transfers of shares in French real estate-rich companies, known as sociétés à prépondérance immobilière (‘SPI’). These are entities whose assets consist primarily of French real estate, whether held directly or indirectly. Previously, transfers of SPI shares could generally be completed through a private deed or book-entry transfer between securities accounts. Under the new rules, these transfers must be documented through a notarial deed, a deed countersigned by a lawyer, or where permitted, a private deed prepared by a chartered accountant. If these requirements are not met, the transfer may be refused registration and treated as legally void. The new requirements do not apply to transfers of shares in certain collective investment funds supervised by the French Financial Markets Authority. For U.S. corporations with direct or indirect interests in French real estate holding entities, the change may affect transaction execution, documentation requirements and the legal validity of share transfers in France.

Article 102 strengthens the 3% tax regime applicable to the market value of French real estate held by legal entities. The previous exemption, which was based on an undertaking to provide information upon request, has been replaced by a mandatory annual information return to be filed by May 15 each year. This return must disclose the relevant real estate assets and the identity of shareholders holding, directly or indirectly, more than 1% of the entity’s capital or voting rights. Failure to comply will result in the loss of the exemption and application of the 3% tax. Entities without a permanent establishment in France must appoint a French tax representative authorized to receive communications, procedural documents and notices relating to administration of the tax. This requirement will first apply to filings due by May 15, 2027.

Given the significant legal and tax implications of these measures, including potential nullity of transfers and exposure to the 3% tax, U.S. MNEs should seek advice from both French and U.S. tax advisers before undertaking any transaction involving French real estate or interests in French real estate holding structures.

German withholding tax refund on distributions to hybrid U.S. companies

On March 11, 2026, the German Federal Fiscal Court held that U.S.-resident shareholders of a tax-transparent S corporation generally are entitled to a full refund of German withholding tax on dividends received from a German subsidiary based on the participation exemption provided under the double taxation agreements (DTA). This landmark ruling contrasts with the German Federal Central Tax Office’s (BZSt) prior practice of granting only a limited refund where the tax-transparent S corporation was owned by individuals. Visit Withholding tax refund on distributions to hybrid US companies for more information.

Permanent establishments: Circular of the German Federal Ministry of Finance

On June 18, 2026, the German Federal Ministry of Finance published the final version of its circular on the interpretation and application of permanent establishment criteria under domestic and international tax law. The circular outlines the specific requirements for a permanent establishment (PE) under German tax law and distinguishes the German PE concept from the concept established in DTAs. It also addresses a range of practical scenarios, such as desk sharing, working from third-party premises and influencer activities. Regarding home office arrangements, the circular states that a home office generally does not constitute a permanent establishment. For treaty purposes, the tax authorities adhere to the updated OECD Model Commentary, specifying that use of a home office for less than 50% of working time does not give rise to a permanent establishment. Visit Federal Ministry of Finance: Circular on permanent establishments for more information.

India’s Income-tax Act, 2025 came into force on April 1, 2026, replacing the Income-tax Act, 1961. The new law is intended primarily to simplify and modernize India’s direct tax framework through clearer language, streamlined provisions, revised rules and simplified forms, without changing the underlying tax policy. For U.S. corporations with Indian subsidiaries, permanent establishments or other Indian filing obligations, the change should generally be viewed as a transition and compliance matter rather than a broad corporate income tax rate change or automatic deferred tax remeasurement event. Companies should nevertheless confirm that Indian tax return processes, tax-year references, forms, systems and local documentation have been updated for the new law and related rules.

Pillar Two

Irish Revenue has confirmed that Irish entities may continue to rely on a Top-up Tax Information Return (TIR) filed by a ultimate parent entity (UPE) or Designated Filing Entity in another jurisdiction where late-filing penalties are waived, provided the Irish Notification of Filing is submitted by June 30, 2026, for Dec. 31, 2024 year-ends and the TIR is filed by the earlier of the foreign no-penalty deadline or Sept. 30, 2026.

The confirmation provides useful flexibility for large U.S. multinational groups by allowing continued reliance on centralized Pillar Two filings, provided Irish notification deadlines and the Sept. 30, 2026 longstop date is met.

Irish High Court: Foreign withholding tax (FWHT) deduction denied

The Irish High Court, in Accenture Global Solutions Limited v. The Revenue Commissioners (2026) IEHC 305, held that foreign withholding tax (FWHT) on royalty income cannot be deducted as a trading expense, even where no effective credit relief is available.

U.S. MNEs should not assume that FWHT suffered by an Irish royalty recipient will be recoverable where Irish credits cannot be used.

Revenue guidance on tax transparency and withholding tax treatment of investment limited partnerships (ILP)

Irish Revenue’s updated guidance confirms ILPs remain tax transparent, with income, gains and losses attributed directly to partners. ILPs may also qualify for dividend withholding tax exemptions on distributions from Irish subsidiaries, subject to ownership and compliance conditions. However, ILPs continue to be treated as separate persons for interest withholding tax purposes, meaning interest payments may still be subject to withholding tax unless an exemption applies. Revenue will also ‘look through’ partnership structures in bona fide investment chains where the relevant conditions are met.

The guidance supports tax transparency and dividend withholding tax planning, but interest paid to ILPs may still attract Irish withholding tax unless a domestic or treaty exemption is available. This point may be particularly relevant for U.S.-backed, debt-funded structures.

Full self-assessment: Time limits for making inquiries and making or amending assessments

The time limits for making inquiries and making or amending assessments have been amended by Irish Revenue eBrief No. 097/26 on May 21, 2026, to clarify an exception to the four-year assessment period where a taxpayer has not made a full and true disclosure of all material facts necessary to make an assessment for a period.

For U.S. MNEs with Irish operations, the clarification reinforces the importance of maintaining robust Irish tax return files, transfer pricing support and contemporaneous documentation.

Foreign entity classification for Irish tax purposes

Irish Revenue’s updated guidance on foreign entity classification incorporates section 1009A TCA 1997, confirming that a foreign entity may be treated as a partnership for Irish tax purposes where it is tax transparent and has characteristics similar to an Irish partnership, even if legally constituted as a body corporate.

The updated guidance is relevant for determining whether Ireland classifies a U.S. LLC as a company or partnership in Irish-U.S. structures.

The Italian tax authorities have introduced a simplified option for controlled foreign companies (CFCs) for Italian tax purposes. Italian parent companies may elect to pay a 15% substitute tax on the accounting profits of their foreign subsidiaries instead of applying the standard CFC tests. Under this optional regime, future dividends distributed by these subsidiaries generally are exempt from further taxation.

Additionally, the 2026 Budget Law had linked the Italian dividend exemption regime and the Italian participation exemption regime to ownership of a shareholding of at least 5% or a tax value of at least 500,000 euros.

These restrictions were subsequently reversed retroactive to Jan. 1, 2026. As a result, the 95% tax exemption now applies regardless of the size or financial value of the shareholding, restoring a more flexible and favorable environment for investors.

New Global Reporting Obligations (GIR)

Consistent with global minimum tax standards, Italy has released instructions for the Global Information Return (GIR). Large multinational groups are required to file the report electronically, providing tax authorities with information on group structure and income to support administration of the global minimum tax rules.

Japan’s Special Defense Corporate Tax, previously discussed in our Q3 2025 provision considerations, is now effective for fiscal years beginning on or after April 1, 2026. The government has introduced a 4% surtax on corporate income tax, referred to as the ‘Special Defense Corporate Tax.’

The tax liability is calculated as follows:
Special Defense Corporate Tax Amount = ((Standard Corporate Tax Amount– JPY 5,000,000) × 4%) – Applicable Tax Credits

• The Standard Corporate Tax Amount is the corporate income tax liability before application of any tax credits, such as general tax credits and foreign tax credits.
• For corporations filing on a consolidated basis, the JPY 5,000,000 threshold is apportioned among each group member in proportion to its Standard Corporate Tax Amount.
• Applicable tax credits include the foreign tax credit, the deduction for foreign tax equivalents adjusted upon dividend distribution and deductions of the Special Defense Corporate Tax amount in cases of inflated filings due to fictitious accounting, among others.

This change is effective for fiscal years beginning on or after April 1, 2026.

Although no corporate income tax law changes were enacted in the Netherlands during Q2 2026, the following developments are noted for U.S. corporations with Dutch subsidiaries, financing structures or other Dutch tax filing positions.

Dutch tax advisers have been assisting taxpayers with protective objections against the Dutch earnings stripping interest deduction limitation rule under article 15b of the Dutch Corporate Income Tax (CIT) Act. These objections are being considered in light of recent European Union (EU) case law addressing the proportionality of certain EU tax rules. U.S. corporations with Dutch entities that have been subject to an earnings stripping limitation should consult with their Dutch or EU tax advisers to determine whether filing a protective objection may be appropriate to preserve refund or appeal rights.

In addition, on June 24, 2026, the European Commission published a Tax Omnibus proposal intended to simplify EU tax rules, reduce compliance burdens for businesses and enhance the competitiveness of the Internal Market. The proposal includes, among other measures, an R&D allowance, more favorable rules for the earnings stripping interest deduction limitation and exemptions for certain intra-EU dividend, interest and royalty payments. This proposal is not expected to apply until Jan. 1, 2029, with certain measures deferred until later years.

The government has announced that the UK’s foreign branch exemption regime will become mandatory. As a result, profits and losses attributable to foreign permanent establishments of UK-resident companies generally will be exempt from UK corporation tax, rather than subject to an elective regime.

The change is intended to apply to accounting periods beginning on or after Jan. 1, 2027, or beginning on or after Sept. 1, 2026, for UK-resident companies with foreign permanent establishments engaged in activities related to the exploration or exploitation of oil and gas.

Transitional rules also will be amended so that losses and other tax attributes arising before the exemption applies cannot be used to offset UK profits arising after the exemption applies. This change may affect deferred tax provisions. The relevant legislation will be included in the next Finance Bill, which generally would be expected to be enacted in early 2027. Read more commentary on UK foreign branch exemption changes: what multinational businesses need to know.