Key Details of the Filing Requirements

Required Returns:

• Qualified Domestic Minimum Top-Up Tax (QDMTT)
• Income Inclusion Rule (IIR)
• Undertaxed Profits Rule (UTPR)

Filing Deadline:

• Returns must be submitted within 15 months after the end of the fiscal year.
• For the transitional year, there is an 18-month filing period.
• The deadline is the same as for the GIR, ensuring timely and coordinated submissions across these interconnected filings.

Even Without Top-Up Tax Liability:

• Mandatory filing even if there is no top-up tax liability for the respective year.
• This ensures uniform reporting of all qualifying tax positions, regardless of whether a top-up tax is triggered.

Online Submission:

• The Elster e-filing platform is the designated portal for submitting Pillar Two returns.
• Taxpayers will need to ensure that their systems and data are compatible with the platform’s XML filing requirements.

New Local File Thresholds: What’s Changed?

Starting in 2026, Cyprus will increase the Local File threshold for preparing transfer pricing documentation based on transaction size:

• €10 million for financial transactions
• €5 million for goods transactions
• €2.5 million for other categories of controlled transactions

Why This Matters for MNEs

• Companies involved in large cross-border transactions may see a reduced administrative burden, as only those exceeding the new thresholds need to prepare a Local file.
• For smaller transactions, businesses can still be required to comply with transfer pricing documentation but may not need to create a full Local file.

Key Areas Clarified by the Proposed Amendments

The proposed changes focus on several technical but high-impact areas:

1. Income and Tax Allocation for Cross-Border Entities

• Clarifies how income and related taxes should be allocated between jurisdictions
• Aims to reduce mismatches where income is recognized in one country but taxed in another
• Particularly relevant for groups with complex cross-border operating structures

Why it matters:
Incorrect allocation can distort effective tax rate (ETR) calculations and trigger unintended top-up tax exposure.

2. Deferred Tax Calculations

• Provides additional guidance on how deferred tax assets and liabilities should be treated under Pillar Two
• Aligns domestic rules with OECD principles on timing differences

Why it matters:
Deferred tax treatment can significantly impact Pillar Two outcomes, especially for capital-intensive or loss-making entities.

3. Treatment of Losses

• Clarifies how losses should be carried forward and reflected in Pillar Two calculations
• Addresses timing and utilization issues that commonly arise in multinational groups

Why it matters:
Misalignment between accounting losses and Pillar Two rules may delay or reduce the benefit of loss relief in minimum tax computations.

4. Foreign Tax Credits

• Refines how foreign tax credits are recognized for Pillar Two purposes
• Aims to prevent double counting or inappropriate offsets

Why it matters:
Foreign tax credit treatment directly affects whether a jurisdiction falls below the minimum tax threshold.

5. Hybrid and Flow-Through Entities

• Updates definitions and classification rules
• Clarifies how these entities are treated when computing Pillar Two income and taxes

Why it matters:
Hybrid and flow-through structures are particularly sensitive under minimum tax rules and often attract scrutiny from tax authorities.

What Has Changed: DMTT Annual Return Is Now Available

The NBR has enabled the DMTT annual return functionality, allowing in-scope groups to begin preparing their filings.

Who Is Affected?

MNE groups that:

• Meet the €750 million consolidated revenue threshold
• Have met that threshold in at least two of the four preceding fiscal years
• Are subject to Bahrain’s DMTT regime

Before accessing the return, groups must submit a revenue test notification confirming threshold eligibility.

Why These Poland Tax Updates Matter for Transfer Pricing

Poland is one of the EU jurisdictions with high audit intensity and detailed reporting expectations. Recent changes suggest a dual approach:

Procedural relief where compliance burden was excessive

Continued strictness where economic substance or abuse risk is identified

For Transfer Pricing teams, this means simpler mechanics in some areas, but no reduction in scrutiny.

Why 2026 Is a Turning Point for Transfer Pricing

The year 2026 is not about one single reform—it’s about overlapping frameworks coming into force at the same time. Transfer pricing is now directly influenced by:

• Global minimum tax rules
• Public disclosures
• Trade and tariff policy
• Digitalisation and new business models

Strategic reality: Transfer pricing can no longer be planned in isolation. It must work side-by-side with global tax, finance, and operational strategy.

Why This Case Matters for Pillar Two, DAC9, and DAC8

Germany is one of the EU’s most influential tax jurisdictions. Legislative changes here often set the tone for enforcement intensity, audit focus, and data-sharing practices across the region. The enactment of these measures confirms that minimum tax compliance, reporting transparency, and cross-border information exchange are now fully embedded in Germany’s tax framework.

Why This Case Matters for Transfer Pricing and VAT

Historically, tax authorities across the EU have taken inconsistent positions on whether transfer pricing adjustments should be treated as:

• taxable services,
• changes to the taxable amount of a supply, or
• transactions irrelevant for VAT.

The AG’s opinion aims to simplify this debate by focusing on economic reality and contractual substance, rather than abstract profit reallocations.

Core message:
A transfer pricing adjustment only affects VAT if it genuinely adjusts the agreed transaction price between the parties.

Cyprus EU Council Presidency Priorities for 2026: A Snapshot

Cyprus has unveiled its EU Presidency program for the first half of 2026, with several priorities that will affect businesses, tax professionals, and multinational corporations operating within the EU.

1. Simplification of Tax Rules

One of the major initiatives under Cyprus’ presidency is to begin work on simplifying the administrative cooperation directives (DAC), which will focus on recasting the existing frameworks. The aim is to streamline direct taxation rules for a more efficient tax system across EU member states.

What this means for businesses:

• A potential reduction in bureaucratic burden as EU tax rules become more transparent and straightforward
• Easier compliance with administrative reporting requirements, especially for multinational groups

2. Anti-Abuse Measures

The EU will continue to focus on combatting tax abuse by updating its list of non-cooperative jurisdictions. The goal is to ensure that tax avoidance practices are curbed and that EU member states work cohesively against aggressive tax planning.

What this means for businesses:

• An increased focus on ensuring global tax compliance
• Enhanced scrutiny of intercompany transactions, especially where tax havens are involved

3. Progress on Own Resources in the New Multiannual Financial Framework (MFF)

Cyprus will also focus on advancing the EU’s own resources proposals, specifically for the multiannual financial framework (MFF) for 2028-2034, which includes setting the EU budget and funding mechanisms.

What this means for businesses:

A possible shift in how taxation resources are allocated and how businesses contribute to the EU’s financial framework

4. International Tax Cooperation via the United Nations Framework

Cyprus will advance the EU’s efforts to engage in international tax cooperation through the United Nations Framework Convention.

What this means for businesses:

• Greater alignment of global tax standards, especially on Pillar Two and other OECD-based tax reforms

5. Savings and Investments Union (SIU)

The advancement of the Savings and Investments Union is on Cyprus’ agenda, which may impact how businesses manage cross-border investments and savings across the EU.

What this means for businesses:

Potential changes in tax treatment and regulatory oversight of cross-border investment activities

Key VAT Amendments in North Macedonia for 2026

The VAT law in North Macedonia has undergone crucial changes, impacting both businesses and individuals involved in import and domestic transactions. These changes reflect ongoing alignment with EU tax standards while addressing specific local needs.

1. VAT Exemption for Small Value Shipments

Effective December 18, 2025, the VAT exemption for small value shipments has been adjusted. The new rules limit the exemption to non-commercial shipments between individuals. The exemption threshold remains at €22, but it excludes alcohol, tobacco, and perfumes.

Key Implications for Transfer Pricing:

• Multinational companies with cross-border transactions should review how small value goods are classified and reported.
• The non-commercial nature requirement means businesses must ensure proper documentation for goods shipped to North Macedonia to avoid unintended tax liabilities.

2. Extension of 5% VAT Rate for Residential Buildings

A key change that affects the real estate sector is the extension of the preferential 5% VAT rate for residential buildings and apartments. This VAT rate is now extended through December 31, 2028, providing a long-term tax relief for developers and investors in residential properties.

What Does This Mean for Transfer Pricing in the Real Estate Sector?

• Companies involved in real estate development and construction must carefully track VAT obligations for transactions involving residential buildings to ensure compliance with the extended preferential rate.
• Multinational groups may need to adjust their Transfer Pricing policies for related-party transactions in the real estate sector to reflect these new VAT rules.