[World Tax News] EU Direct Tax Simplification and TP Reforms

Editorial Team – [2026] 183 taxmann.com 580 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week:

1. European Commission Seeks Input on Simplifying the EU Direct Taxation Framework

The European Commission has issued a call for evidence inviting stakeholders to submit their views on measures to simplify EU law and reduce regulatory burdens for businesses. The initiative seeks to enhance competitiveness and improve the effectiveness of the EU corporate taxation framework, including rules on parent–subsidiary arrangements, interest and royalties, mergers, anti-tax avoidance, and dispute-resolution mechanisms. Comments may be submitted until 16 March 2026.

The initiative’s overarching objective is to simplify the existing EU legal framework on direct taxation and strengthen competitiveness within the internal market, without compromising the key policy goals of the relevant Directives. These goals include eliminating double taxation of cross-border profits, interest and royalty payments; ensuring tax neutrality in cross-border corporate reorganisations; safeguarding the internal market from aggressive tax planning; and facilitating effective resolution of cross-border tax disputes. To achieve this, the initiative proposes:

• reducing unnecessary reporting and compliance burdens;
• removing outdated and overlapping tax provisions;
• simplifying tax legislation to improve internal market competitiveness;
• clarifying concepts within the tax framework; and
• streamlining and enhancing the application of tax rules, procedures, and reporting requirements.

The policy options under consideration may entail legislative amendments to the following instruments:

(a) Controlled Foreign Company (CFC) Rules under the Anti-Tax Avoidance Directive (ATAD) – to remove overlaps with Pillar Two and address inconsistencies arising from varied implementation choices across Member States.

(b) Interest Limitation Rules under ATAD – to mitigate procyclical effects, account for inflation, and consider concerns of sectors with structurally high but legitimate leverage, as well as the needs of small and medium enterprises, including possible rule simplification.

(c) Scope of the Parent-Subsidiary Directive, Interest and Royalty Directive, and Tax Merger Directive – to enhance the effectiveness of these Directives and, consequently, the functioning of the internal market.

(d) Procedural Requirements for Accessing Benefits under the Parent-Subsidiary and Interest and Royalty Directives – to reduce administrative and compliance burdens for businesses and improve the overall operation of these frameworks.

(e) Targeted Amendments to the Tax Dispute Resolution Mechanisms Directive – particularly concerning the admission stage, to remove ambiguities, promote consistent application across Member States, and facilitate usability for both taxpayers and tax authorities.

Source – Consultation

2. Tax Authority of Chile confirms no foreign tax credit where foreign operations result in a loss

The Chilean tax authority, Servicio de Impuestos Internos (SII), has issued Letter Ruling No. 286 dated 4 February 2026 addressing the availability of a foreign tax credit where a taxpayer’s net foreign-source income is zero or negative (i.e., a loss). The ruling responds to a taxpayer’s request seeking (i) allowance of a foreign tax credit in such circumstances and (ii) a refund of excess foreign tax paid due to non-utilisation of the credit.

In the ruling, the SII reiterates consistent with the Tax Code and its interpretative guidance in Circular No. 31 of 2021 that a foreign tax credit is available only in respect of foreign income that is also taxable in Chile. The credit may be set off solely against First Category Tax (Impuesto de Primera Categoría), Second Category Tax (Impuesto Único de Segunda Categoría), Complementary Global Tax (Impuesto Global Complementario), and Additional Tax (Impuesto Adicional). A prerequisite for claiming the credit is that the relevant foreign income must be subject to double taxation.

Accordingly, the SII clarifies that no foreign tax credit can arise where the taxpayer’s determined net foreign income is nil or reflects a foreign loss, since in such cases there is no taxable income in Chile that could give rise to double taxation. The authority further confirms that no refund of foreign tax paid is permissible in these circumstances.

Source – Servicio de Impuestos Internos (SII)

3. Macau Introduces Comprehensive Transfer Pricing Rules Effective from 1 January 2026

Macau enacted Law No. 24/2024 on 30 December 2024, introducing a new Tax Code and amendments to existing tax laws, generally effective from 1 January 2026. A key reform is the introduction of transfer pricing provisions, further detailed in Administrative Regulation No. 11/2025 (Transfer Pricing Regulation), published on 25 August 2025 and also effective from 1 January 2026.

The Regulation broadly defines “related parties.” A related-party relationship is deemed to exist, inter alia, where:

(i) an entity, its shareholders, or their spouses/direct relatives directly or indirectly hold at least 50% of another entity’s capital or voting rights;

(ii) the same persons jointly hold such interest;

(iii) more than half of an entity’s management is appointed by another entity or by a common third party;

(iv) key managers of two entities are related by marriage or direct kinship and exercise effective control;

(v) a franchise dependency exists along with capital or voting control (even below 50%);

(vi) one entity controls another’s purchase/sale decisions;

(vii) a dominant shareholder relationship exists under Article 212(1) of the Commercial Code; or

(viii) any direct or indirect influence causes non-arm’s-length terms.

The Regulation also introduces enhanced disclosure and documentation requirements. Taxpayers must file a transfer pricing summary table with the annual return where controlled transactions reach MOP 10 million. A Master File is required where controlled transactions exceed MOP 1 billion, or where the ultimate parent has prepared one. A Local File is required if controlled transactions exceed specified thresholds (e.g., tangible assets MOP 200 million; financial or intangible assets MOP 100 million; other transactions MOP 40 million). Specific documentation is also mandated for cost-sharing arrangements and intragroup services.

Master File and Local File content aligns with OECD guidance. Documentation must generally be prepared within nine months of year-end and furnished within 15 days of a tax authority request (extendable once by up to 60 days). The Regulation further covers comparability analysis, transfer pricing methods, treatment of specific transactions, adjustments (including treaty-based corresponding adjustments), and the advance pricing agreement framework.

Source – Law no. 24/2024

4. Slovenia Publishes Top-up Tax Returns and Instructions

Slovenia issued regulations on 13 February 2026 prescribing the top-up tax return and the domestic top-up tax return. The top-up tax return is used to report liabilities under the Pillar Two Income Inclusion Rule (IIR) or the Undertaxed Profits Rule (UTPR). It must be filed within 30 days after the due date of the GloBE Information Return (GIR), which is generally due 15 months after the end of the reporting fiscal year (extended to 18 months for the first year, with an initial deadline of 30 June 2026).

The domestic top-up tax return is used to report liabilities under the Qualified Domestic Minimum Top-up Tax (QDMTT) and to notify which group entity files the GIR. It is due 15 months after the end of the reporting fiscal year (18 months for the first year, with an initial deadline of 30 June 2026). Each regulation includes the prescribed return (Annex 1) and detailed instructions/methodology (Annex 2). The top-up tax return is required only where an IIR or UTPR liability arises, whereas the domestic top-up tax return must be filed irrespective of whether a QDMTT liability exists for the year.

Source:

• Top-up Tax Return
• Domestic Top-up Tax Return