In this edition of the newsletter, you will find the most important national and global developments in tax law that are (closely) related to the transfer pricing world.
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The following updates have been provided by our network partner, Castro Barros.
Brazil has formally requested that the OECD recognize its eligibility for the so-called side-by-side system, a recognition mechanism that allows coexistence between domestic tax methodologies of jurisdictions that already maintain a robust level of minimum taxation and the Pillar Two framework, in line with the principles of global minimum taxation. The mechanism was first applied to the United States, currently the only jurisdiction covered by the side-by-side regime.
Under this system, multinationals whose ultimate parent entities are domiciled in qualifying jurisdictions would not be subject to two of Pillar Two’s principal collection mechanisms: the Income Inclusion Rule (IIR), which allows a parent jurisdiction to collect a top-up charge when a subsidiary has been taxed below 15% in its home jurisdiction, and the Undertaxed Profits Rule (UTPR), a complementary instrument that permits additional taxation even when the underpayment occurs across third-country operations.
The side-by-side arrangement does not disapply the Qualified Domestic Minimum Top-up Tax (QDMTT), meaning that, should Brazil’s request be accepted by the OECD, Brazil will retain full authority to levy its own QDMTT, implemented domestically as an additional social contribution on net income (CSLL).
To qualify for the side-by-side system, a jurisdiction must satisfy, among other conditions, two central requirements: a nominal corporate tax rate of at least 20%, and the existence of a QDMTT or equivalent domestic instrument ensuring that no profits subject to the framework are taxed below 15%.
Brazil satisfies the requirements to be eligible for the side-by-side regime. Brazil’s combined corporate tax burden, consisting of the Corporate Income Tax (IRPJ) and the Social Contribution on Net Profits (CSLL), may reach up to 34%. Furthermore, Brazil’s worldwide taxation regime taxes both active and passive income earned by foreign-controlled entities, regardless of the jurisdiction in which they are located, a scope that aligns closely with the breadth of CFC coverage required under the side-by-side framework.
The request for recognition was confirmed on March 23, 2026, by the head of the International Relations Advisory Office of the Brazilian Federal Revenue Service, with a response from the OECD expected by mid-year.
After almost 30 years of negotiations, the Mercosur-European Union Agreement entered into force on May 1, 2026, creating one of the largest free trade areas in the world and significantly reducing tariffs applicable to trade flows between the two blocs.
The Brazilian National Confederation of Industry (CNI) estimates that, in this initial phase of implementation, approximately 80% of products exported by Brazil to the European bloc already benefit from the reduction of import duties to zero. The agreement connects markets comprising more than 700 million consumers, substantially expanding Brazil’s commercial reach. In addition to tariff reductions, the agreement establishes, among other aspects, common rules regarding technical standards, trade, and government procurement, aiming to enhance regulatory predictability and legal certainty for companies operating within both blocs.
Implementation proceeds on a graduated basis for more sensitive product categories. Tariff reductions for these items will be phased in over up to 10 years on the EU side and up to 15 years within Mercosul, with certain specific categories such as newer technologies subject to transition periods of up to 30 years.
On 6 May, the federal government introduced a bill to enact the remaining tax measures from the 2025 budget. The bill includes further Pillar Two changes to the Global Minimum Tax Act. It introduces the UTPR framework for fiscal years beginning on or after 31 December 2025. It also adds a transitional “side-by-side” safe harbour and election for fiscal years beginning on or after 1 January 2026. Additional changes cover covered-tax allocation rules, deferred tax rules, and certain transition items.
The Czech Financial Administration has announced a simplification for Pillar Two information returns. Czech constituent entities may submit a notification instead of a simplified local information return. This applies where the group-wide GIR is filed in an eligible jurisdiction and will be exchanged with the Czech Republic. The standard deadlines for the 2024 period remain unchanged. However, two separate returns are still required, one for the Czech top-up tax and one for the allocated top-up tax.
On 7 May 2026, the French Conseil d’État upheld a ruling in favour of Engie SA concerning transfer pricing for LNG coordination services. Engie applied a cost-plus 10% remuneration under a centralised “single voice” structure. However, the French tax authorities challenged this approach, asserting that Engie performed strategic functions involving valuable assets and should instead be remunerated using a profit split method. The authorities relied on internal “diversion clauses” as comparables.
However, the Court rejected this position, confirming that Engie’s role was limited to that of a broker and did not justify profit split treatment. It further held that related-party arrangements with different contexts cannot serve as reliable comparables. Importantly, the Court reaffirmed that the tax authority must prove any departure from the arm’s length principle; simply disputing the selected method is not enough.
On 29 May, the Hungarian tax authority published the expanded 24GLBADO form on the ONYA platform for filing Pillar Two top-up tax returns and the recognised domestic top-up tax advances. The notice confirms that 2024 is treated as a transitional year. It sets a filing and payment deadline of 30 June for taxpayers with a normal business year. The authority also released updated completion guidance and refreshed field definitions (link here, in Hungarian).
The Supreme Court of India dismissed the Revenue’s Special Leave Petition in a long-running transfer pricing dispute concerning advertising, marketing, and promotion (AMP) expenses incurred by Pernod Ricard India. The tax authorities had treated part of the AMP expenditure as an international transaction, arguing that it resulted in brand-building benefits for the foreign associated enterprise and required arm’s length compensation. However, the Court refused to overturn the Delhi High Court’s ruling, which had accepted that the AMP expenses were incurred for Pernod Ricard India’s own business and that no arrangement had been made with the associated enterprise for brand promotion. Significantly, the Supreme Court also noted a significant procedural delay of 384 days in filing the appeal and found no justification for condonation. As a result, the earlier decisions rejecting the AMP adjustment remain undisturbed.
The Delhi High Court addressed key comparability issues in a transfer pricing dispute concerning American Express India, a captive ITeS provider remunerated on a cost-plus basis. The dispute was focused on the inclusion of specific comparables and not on the application of the Transactional Net Margin Method (TNMM). The Court ruled in favour of the tax authorities on the two comparables under dispute. This decision reinforces the importance of both functional analysis and scale considerations in TNMM-based benchmarking for ITeS entities.
On 4 May, the Directorate General of Taxation issued a regulation setting out the administrative rules for Pillar Two in Indonesia. The regulation covers registration, the GloBE annual tax return, the GIR and notifications, payments, post-reporting adjustments, audits and disputes, and a transitional simplified reporting framework. Key deadlines are also confirmed, including registration within nine months after the end of the first GloBE imposition year and GIR filing within 15 months (18 months for the first year).
On 26 May, Irish Revenue issued detailed guidance on GIR filing and filer notification under the Pillar Two rules. This guidance explains how to file the GIR in XML format through ROS. It also clarifies the process when the GIR is filed in another jurisdiction and exchanged with Ireland.
On 5 May, the government released the Finance Bill. The Bill proposes changes to transfer pricing reporting. It clarifies the CbC reporting rules and separates CbC reporting from Master File and Local File obligations. It also confirms that Master File and Local File requirements apply only to groups above the KES 95 billion consolidated turnover threshold, with most measures proposed to start on 1 July.
On 12 May, the State Tax Service launched the Transfer Pricing Information Form (TPIF) in its electronic filing system. The TPIF applies for tax periods starting with 2025. It must be filed by companies whose annual related-party transactions reach MDL 20 million or more. For the 2025 tax year, the TPIF must be submitted electronically and is due by 25 June. For 2024, late or corrected TPIF filings can still be made using an XLSX form and submitted by email to the STS.
On 4 May, the Ministry of Economy and Finance issued an order setting minimum transfer pricing documentation requirements for multinational groups operating in Niger. Affected entities must maintain a Master File and a Local File. Documentation must be updated annually and provided to the tax authorities by 30 April. This documentation must be prepared in the working language or accompanied by a certified translation and kept for at least 10 years. Non-compliant documentation can trigger penalties. The order is pending publication in the Official Gazette.
The following updates have been provided by our network partner, BTTP.
Following the Supreme Administrative Court’s position, the Director of the National Revenue Information (KIS) confirmed that, for the purposes of applying the domestic exemption from the obligation to prepare local transfer pricing documentation, the key factor is the actual use of a tax exemption, rather than the mere possession of a support decision under the Polish Investment Zone regime. The tax authority indicated that the absence of CIT-exempt income may allow the taxpayer to benefit from the domestic exemption from the obligation to prepare local transfer pricing documentation. This is important practical guidance for companies carrying out investments covered by a support decision but not actually benefiting from the tax exemption in a given year (link here).
In its judgment of 6 February 2026, case no. III SA/Wa 1717/25, the Voivodship Administrative Court in Warsaw (WSA) confirmed that individual tax rulings should also serve as a protective function in cross-border cases. The case concerned a Polish company operating through a permanent establishment in Germany and the Polish tax consequences of applying the German simplified cost plus method for profit attribution. The Court overturned the refusal of the Director of the National Revenue Information (KIS) to initiate individual tax ruling proceedings, holding that the tax authority should not treat a description of foreign tax rules as a request to interpret foreign law. For taxpayers, the judgment is an important reminder that the authority should distinguish between the factual background of a case and the assessment of its consequences under Polish tax law (link here).
A recent tax ruling provides useful guidance on the treatment of compensation paid as part of an intra-group restructuring. The Director of the National Revenue Information (KIS) confirmed that compensation for the transfer of functions, capabilities and future economic benefits may be recognised as an indirect tax-deductible cost. Importantly, the tax authority did not classify such payment as a transfer pricing adjustment (within the meaning of Article 11e of the Polish CIT Act), as it was not intended to amend or align previous settlements between related parties. This is particularly relevant for capital groups planning reorganisations in which the transfer of functions or profit potential requires a separate economic settlement (link here).
The Portuguese Supreme Administrative Court ruled in favour of a Portuguese branch of a French bank in a transfer pricing dispute concerning the allocation of “free capital” to a permanent establishment. The tax authority had sought to reclassify part of intra-group loans as equity, arguing that the branch was undercapitalised and that the corresponding interest should not be deductible.
The Court rejected this approach, ruling that Article 58 of the Corporate Income Tax Code only allows for the adjustments of the pricing of actual transactions and does not permit recharacterisation of debt as equity. The Court further confirmed that OECD guidance constitutes non-binding soft law and cannot, in itself, justify tax adjustments.
As the interest rate applied was not disputed and no pricing deviation was identified, the adjustment was annulled in full.
The Swedish Supreme Administrative Court ruled in favour of Kubikenborg Aluminium AB in a dispute concerning the deductibility of damages arising from the premature termination of an electricity supply contract. The tax authority had applied the transfer pricing correction rule, arguing that Kubal, a cost-plus toll manufacturer, should not have borne the risk and that profits had effectively been shifted within the group.
The Court rejected this position, emphasising that the application of the correction rule requires a clearly identifiable transaction leading to a transfer of income between related parties. It held that the tax authority had failed to demonstrate that the damages resulted in a profit shift to another group entity.
The ruling emphasises the importance of properly identifying both the economically relevant transaction and the entity that benefits from it before applying transfer pricing adjustments.
Thank you for taking the time to read this edition of our newsletter. I hope you found the insights and updates valuable. Do you have any questions or need further information? Contact us today to get expert advice on worldwide transfer pricing matters and developments.
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Best regards,
Adriaan van der Heijden
Partner at Quantera Global
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