ASC 740: Q1 2026 provision considerations

There were no legislative developments in Australia during Q1 2026 expected to affect U.S. corporate taxpayers. However, a couple of important judicial decisions were issued.

In Commissioner of Taxation v. S.N.A. Group Pty Ltd [2026] FCAFC 10, the Court held that related‑party service fees exceeding $19 million were not ‘incurred’ and, therefore, not deductible, emphasizing the need for robust contemporaneous documentation and distinguishing payment from incurrence. This judgment serves as a reminder of the error in assuming that ‘paid’ equals ‘incurred’ to many companies. It highlights that, for tax purposes, a legal liability must be definitively committed, not merely settled in cash, before a deduction is allowed. Companies will want to prepare clear and substantiated documentation at the time the issue arises, not just when payments are made.

In Brisbane Club v. Commissioner of Taxation [2026] FCA 220, the Federal Court determined that a building constituted a pre‑Capital Gain Tax (CGT) asset, concluding that a post‑CGT construction contract varied, rather than replaced, an earlier pre‑CGT development agreement. The asset retained its original pre-CGT status, so the capital gain on disposal may remain exempt.

Looking ahead, the Australian Federal Budget is scheduled for May 12, 2026, with significant tax reform anticipated.

On March 26, 2026, Bill C-15 received royal assent. For companies with cross-border operations, the most significant changes include updated transfer pricing requirements for related company transactions and the treatment of passive income earned through foreign affiliates. The legislation also introduces new tax depreciation acceleration rules and expanded eligibility for scientific research and development credits, which aims to support innovation, manufacturing and green technologies development. Ontario has announced in its budget an intention to align provincial rules with the new federal tax depreciation acceleration rules.

Additionally, the Canadian government released a package of draft legislation in January. Most notably, this package includes the second bundle of rules for hybrid mismatch arrangements. Taxpayers who engage in cross-border payments or those who use hybrid instruments in their cross-border transactions, e.g., financial instruments that might be treated as debt in one country and equity in another country, will need to review these rules. All hybrid mismatch-related amendments apply to payments made on or after July 1, 2026, except for the revised definition of specified minimum tax regime, which applies for foreign taxation years beginning after Dec. 31, 2025.

On Feb. 10, 2026, the Location Promotion Act entered into force. With the Act, several amendments to the German Investment Tax Act as well as an increase in the maximum amount of hidden reserves (unrealized gain) attributable to shares in corporations that are held as business assets, which may be deferred by transferring those gains from the sale of such shares into qualifying replacement or reinvestment assets. Read more from Ebner Stolz.

On Feb. 13, 2026, the German Federal Ministry of Finance published a comprehensive draft letter on the interpretation and application of permanent establishment (PE) criteria under both German and international tax law. The draft letter addresses numerous practical scenarios, such as home offices, working in third-party premises as well as service and management companies. It also clarifies the differences between the German and treaty-based concept of a PE. Read more from RSM Ebner Stolz.

During Q1 2026, India enacted Budget 2026, which introduced several direct tax measures relevant to corporate taxpayers, including changes to the minimum alternate tax (MAT) regime. Notably, MAT is converted into a final tax at a reduced rate (14%, effective MAT rate of 16.3072%, previously 15% where effective MAT rate was 17.472%), with revised rules governing the utilization of existing MAT credits, effective beginning tax year 2026–27.

Indian companies opting for concessional tax regime for the tax year 2026-27 and onwards shall be allowed to set-off MAT credit available as on March 31, 2026, to the extent of 25% of the tax payable for that tax year. The remaining tax credit shall be allowed to be carried forward to subsequent tax years and shall be eligible for set-off up to 15 tax years from the tax year immediately succeeding the tax year in which the credit became allowable.

Under this Budget 2026, the rationalization of the tax treatment on share buy-backs shifts the burden from being taxed as dividend income to as capital gains, aligning buybacks more closely with standard investment taxation principles. However, to prevent promoters from exploiting this change to extract profits in a more tax-efficient manner, the framework introduces an additional tax targeting promoter-level gains.

Per Budget 2026, enacted via the Finance Act 2025 on Dec. 23, 2025, the research and development (R&D) tax credit will increase to 35% along with other minor measures. The credit rate increase maintains Ireland as one of the highest incentive regimes globally. This applies to accounting periods commencing on or after Jan. 1, 2026. 

The Department of Finance published the R&D Tax Credit and Innovation Compass, (‘the Compass’) which maps out a pathway on targeted areas to consider for both the R&D tax credit regime and for tax supports on innovation. The Compass identifies several measures that the government will consider, with the objective of ensuring Ireland’s R&D supports continue to evolve in an increasingly competitive global environment. 

There are a number of proposed measures flagged for further review to enhance the R&D ecosystem, which can be broadly categorized as follows: 

1. Qualifying expenditures 
2. Capital expenditures
3. Administration and simplification 
4. Innovation 
5. Knowledge Development Box 

The R&D credit is available to offset corporate tax or to be repaid over three years.

Read more about the R&D changes enacted by the 2026 Ireland Budget here: Budget 2026: R&D | RSM Ireland

The 2026 Budget Law introduces a new hyper-depreciation incentive, a substantial tax deduction for investments in new Industry 4.0 capital assets made between Jan. 1, 2026, and Sept. 30, 2028. The eligible assets must be produced in EU or European economic area (EEA) countries. The deductibility of purchase costs may reach up to 180% of the investments.

Beginning in 2026, capital gains on business assets must be fully taxed in the year realized, removing installment options. Limited exceptions remain (e.g., business transfers, sports rights).

The 2026 Budget Law amends the dividend exemption and aligns it with the Participation Exemption (PEX) regime. Dividends and qualifying capital gains remain 95% exempt only if the shareholding meets an economic relevance threshold, defined as either a direct participation of at least 5% or a tax basis of at least €500,000; otherwise, dividends are fully taxable. The revised PEX rules apply to capital gains on shareholdings acquired from 2026 onward (applying first in, first out (FIFO)), while the dividend rules apply to distributions approved on or after Jan. 1, 2026. The changes also affect the computation of 2026 tax prepayments, which must be calculated as if the new rules had applied in 2025.

Spain enacted Pillar Two through Law 7/2024 on Dec. 22, 2024, applicable for fiscal years beginning on or after Dec. 31, 2023. The first global information reporting (GIR) and notification filings open April 30, 2026, with UTPR and QDMTT filings due between July 1 and July 25, 2026, under forms approved by Ministerial Order HAC/1198/2025. Spain also implemented public CbC reporting via EU Directive 2021/2101, requiring groups with revenue exceeding €750 million to publish a public CbC report within six months of year‑end. These rules apply to fiscal years beginning on or after June 22, 2024, with first reports related to FY2025 and published by June 2026.

For corporate income tax purposes, Spain removed the 50% limitation on the offset of tax loss carryforwards within tax consolidated groups for tax periods beginning on or after Jan. 1, 2026, allowing 100% utilization of current‑year losses. In addition, for periods beginning on or after Jan. 1, 2026, the participation exemption for dividends and capital gains applies only where a minimum ownership threshold of 5% is met, regardless of whether the acquisition cost exceeds €20 million.

The UK Finance Act 2026 was substantively enacted on March 11, 2026, and received royal assent on March 18, 2026. Accordingly, the provisions of the Act should be reflected in income tax provisions for entities reporting under U.S. generally accepted accounting principles (GAAP) for periods ending on or after March 18, 2026. The most significant enacted changes affecting tax provisions relate to capital allowances (yearly deductions on qualifying fixed assets), transfer pricing and permanent establishment rules.

With respect to capital allowances, the main rate writing‑down allowance, or percentage of remaining value that is deductible each year, is reduced from 18% to 14%, effective April 1, 2026 (April 6 for non‑corporate entities). In addition, from Jan. 1, 2026, a new 40% first‑year allowance applies to qualifying main‑rate expenditures (excluding second‑hand assets and cars) where the 100% full expensing regime is unavailable, including for leased assets and entities outside the corporation tax regime.

In addition, the Act includes transfer pricing reforms effective for accounting periods beginning on or after Jan. 1, 2026, including a conditional exemption from the arm’s‑length standard for qualifying UK‑to‑UK transactions, subject to His Majesty’s Revenue and Customs (HMRC) override or taxpayer election, the repeal of the diverted profits tax regime with replacement rules incorporated into corporation tax, and updates to financing arrangements to align with Organisation for Economic Co-operation and Development (OECD) guidance.

The Permanent Establishment (PE) rules are also updated for periods beginning on or after Jan. 1, 2026, to align more closely with OECD standards and include guidance on when remote working arrangements may give rise to a UK PE.