E-News from KPMG’s EU Tax Centre

KPMG’s EU Tax Centre compiles a regular update of EU and international tax developments that can have both a domestic and a cross-border impact, with the aim of helping you keep track of and understand these developments and how they can impact your business. Today’s edition includes updates on:

• CJEU Referral: Compatibility of German taxation of upstream merger gains with EU Merger Directive
• European Commission: Review report of the Foreign Subsidies Regulation
• European Commission: Updated public country-by-country reporting conversion tool published
• OECD: Global Forum publishes new EOIR peer review reports
• Belgium: Clarifications on the deadline for GIR notifications
• France: Extended deadline for submitting WHT refund claim
• Monaco: Draft legislation to implement minimum taxation rules (Pillar Two)
• Portugal: Form published for local top-up tax return filing
• Italy (court decision): Italian Tax Court rules direct online sales fall outside the scope of the Digital Services Tax
• Poland (court decision): Polish Supreme Administrative Court denies PSD exemption for indirect shareholders under look-through approach

Compatibility of German taxation of upstream merger gains with EU Merger Directive

On August 6, 2026, the German Federal Tax Court (BFH) referred a question to the Court of Justice of the European Union (CJEU) on whether the German tax treatment of upstream mergers of an EU subsidiary into its German parent company is compatible with the EU Merger Directive.

The plaintiff in the case at hand is a German GmbH that held 100-percent participations in five subsidiaries established in other EU Member States. In 2010, the subsidiaries were merged into the German parent company at book value. Following the mergers, the parent company continued the businesses through permanent establishments in the respective countries.

Under German merger tax rules, an upstream merger is treated as a transaction similar to a share exchange. The parent company's shares in the subsidiary cease to exist and are replaced by the subsidiary's assets and liabilities. Where the value of the transferred assets exceeds the tax book value of the participation, a merger gain arises.

Pursuant to the German Reorganization Tax Act, merger gains are treated similar to capital gains arising from a disposal of shares such that they are generally exempt from corporate income tax. However, 5 percent of the exempt gain is deemed to represent non-deductible expenses and is, therefore, effectively subject to tax.

The taxpayer challenged the 5 percent add-back, arguing that Article 7(1) of the EU Merger Directive requires merger-related gains to remain fully tax neutral.

The BFH provided the following initial considerations:

• According to the BFH, the 5 percent add-back does not constitute taxation of the merger gain itself. Instead, it reflects a lump-sum limitation on the deductibility of expenses linked to the holding of the participation, similar to the treatment of tax-exempt dividends under Germany's participation exemption regime. The BFH also emphasized the close relationship between the EU Merger Directive and the Parent-Subsidiary Directive, under which an analogous 5 percent expense add-back is expressly permitted.
• At the same time, the BFH acknowledged that the Merger Directive does not contain an explicit provision allowing Member States to impose an add-back comparable to the Parent-Subsidiary Directive.

However, in light of divergent views in the academic literature and a lack of existing CJEU case law on this issue, the BFH decided to request a preliminary ruling from the CJEU with respect to the question whether Article 7(1) of the EU Merger Directive precludes the application of a 5 percent add-back to an otherwise tax-exempt merger gain.

Report on review of the Foreign Subsidies Regulation

On July 14, 2026, the European Commission (the Commission of the EC) published the first review report on the implementation and enforcement of the EU Regulation on foreign subsidies distorting the internal markets (Foreign Subsidies Regulation – FSR).

As a reminder, the Regulation gives the EC powers to investigate financial contributions received in non-EU countries by groups operating in the EU internal market. The Regulation aims to restore fair competition between all undertakings in the EU internal market, complementing the EU State aid rules.

The report reflects findings from public consultations conducted in 2025 as well as targeted interviews and meetings with stakeholders and Member State. Key takeaways from a direct tax perspective include:

• The Commission considers the Regulation fit for purpose and an important tool for addressing distortions resulting from subsidies granted by non-EU governments.
• The report confirms that preferential tax measures may constitute foreign subsidies and have already featured in the Commission's in recent in-depth investigations.
• The report confirms that, in light of the stakeholders’ feedback, the EC may consider possible adjustments to the FSR procedural set up to reduce the administrative burden on businesses and facilitate compliance, while maintaining the FSR’s effectiveness.

According to the accompanying Q&A release, this may include increased notification and reporting threshold, simplified notification options, additional reporting exemptions from reporting requirements for certain foreign financial contributions, simplifications and clarifications in the notification and reporting forms.

The Q&A release further indicates that the Commission aims to publish a draft text of the targeted adjustments to the FSR procedural framework in autumn 2026 and to adopt the changes in 2027 following the collection of feedback by stakeholders.

For more details on the FSR, please refer to Euro Tax Flash Issue 572.

Updated public country-by-country reporting conversion tool published

On July 24, 2026, the EC released an updated version of its public country-by-country (CbyC) taxonomy project. The initiative was initially launched in 2025 to support multinational groups that are required to publish public CbyC reports under the EU Public CbyC Reporting Directive. The updated version was released following a review cycle that aimed to gather feedback from report preparers and other stakeholders.

The updated package includes:

• A multilingual public CbyC reporting taxonomy containing the data elements required to tag and structure public CbyC reporting disclosures.
• A report generator designed to create iXBRL-compliant public CbyC reports in xHTML format.
• Technical documentation and user guidance explaining the taxonomy architecture, reporting requirements and operation of the reporting tool.

For more details on EU public CbyC reporting, please refer to KPMG’s EU Tax Centre dedicated webpage. 

Global Forum publishes new EOIR peer review reports

On July 29, 2026, the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) published three new peer review reports on transparency and exchange of information on request (EOIR) for tax purposes for Cook Islands, Namibia and Tanzania, which received an overall rating of “Largely Compliant” with the EOIR standard.

The Global Forum has fully reviewed 135 jurisdictions, of which 91 percent have been rated “Compliant” or “Largely Compliant” with the standard, 6 percent “Partially Compliant”, and 3 percent “Non-Compliant”.

Notably, the Code of Conduct Group (Business Taxation) takes into account the peer review recommendations when bi-annually updating the EU list of non-cooperative jurisdiction (section 1.2). The next update to the EU list is expected in October 2026. 

Clarifications on the deadline for GIR notifications

On July 29, 2026, the Belgian tax authorities issued a note clarifying the deadline for submitting the GloBE Information Return (GIR) notification for both fiscal years 2024 and 2025.

Whilst previously the Belgian tax authorities announced that the GIR notification — identifying the GIR filing entity and its jurisdiction — must be submitted by September 30, 2026, for both fiscal years 2024 and 2025, the new release clarifies that this deadline only applies for fiscal years that:

• start on or before December 31, 2024, and end no later than February 28, 2025; or
• start on or after January 1, 2025, and end no later than May 31, 2025.

For more information on Pillar Two compliance requirements in Belgium, please refer to E-News Issue 231.

Extended deadline for submitting WHT refund claims

On July 29, 2026, the French government published a Decree extending the deadline for submitting withholding tax refund claims.

Under the former rules, a refund claim in relation to withholding tax levied in a given year had to be submitted by December 31 of the following year (one-year deadline), whilst refund claims for other types of taxes were allowed until December 31 of the second year following the year in which the withholding tax was levied (regular two-year deadline).

The Decree abolishes the special one-year limitation period and follows the French Supreme Administrative Court (Conseil d'État) decision of February 16, 2026 (No. 500909), which held that the one-year deadline was unlawful, and should be aligned with the regular two-year deadline.

The Decree entered into force on July 30, 2026.

France issues implementing rules for public CbyC reporting format and filing requirements

In July 2026, the French authorities issued a ministerial order implementing the public CbyC reporting requirements, covering both the reporting template and the electronic filing format.

Under the order, entities within the scope of the French public CbyC rules are required to prepare their reports using the common EU template set out in Annex I to Regulation (EU) 2024/2952. Reports must also be filed electronically using the electronic declaration format prescribed by Article 4 of that Regulation.

As a transitional measure, the order permits taxpayers to file reports in a non-standardized electronic format for financial years beginning between January 1, 2025, and December 31, 2026.

For more details, please refer to a tax report prepared by KPMG in France. 

Draft legislation to implement minimum taxation rules (Pillar Two)

On July 28, 2026, a draft bill was submitted to the Monegasque Parliament (Conseil National) to introduce a domestic minimum top-up tax (DMTT) applicable for fiscal year starting on or after December 31, 2026.

Key takeaways include:

• DMTT: The DMTT is generally designed to reach the qualified status under the Inclusive Framework peer review process and follows the regular GloBE rules for calculating the ETR and Top-up Tax liability, subject to certain exceptions in accordance with the OECD QDMTT guidance (e.g., exclusion of investment entities and insurance investment entities, removal of certain foreign covered taxes that would be allocated to local Constituent Entities under the regular GloBE rules).
• Safe Harbour: The draft includes references to a number of Safe Harbour provisions, including the transitional Country-by-Country Reporting Safe Harbour (applicable to fiscal year 2027), the permanent simplified ETR Safe Harbour and the Substance-based Tax Incentive Safe Harbour. Further details will be provided in form of a separate government ordinance.
• Compliance: In‑scope entities would be required to register and file the GIR and local DMTT returns within 15 months after the end of the fiscal year (18 months for the transition year). An option is provided to transfer the obligation to file the GIR to another Constituent Entity (along with the requirement to indicate the identity of the foreign Entity that is filing the GIR and the jurisdiction in which it is located). Such notification must be filed within the same deadline as for the GIR. Further details will be provided in form of a separate government ordinance.

For more information, please refer to KPMG BEPS 2.0 tracker in Digital Gateway.

Updated hybrid mismatch guidance released

On July 24, 2026, the Dutch State Secretary for Finance issued updated guidance on the application of the Dutch anti-hybrid mismatch rules in correspondence with the EU Anti-Tax Avoidance Directive 2017/952 (ATAD2). 

Key updated clarifications include:

• Interaction with US tax regimes: the Decree provides that income and expenses recognized both for Dutch tax purposes and US tax purposes (under the former global intangible low-taxed income (GILTI) regime or the current net CFC tested income (NCTI) regime) do not, by themselves, trigger the Dutch ATAD2 hybrid mismatch rules.
• Capitalized acquisition costs: the Decree confirms that acquisition costs should be tested for ATAD2 purposes at the moment the expenses impact the tax base through depreciation, impairment or inventory losses (i.e., not at the moment the acquisition costs are capitalized). Timing differences are to be disregarded.
• Disregarded permanent establishments (PEs): the guidance clarifies that the existence of disregarded PEs must be assessed under the domestic tax laws of both the head office jurisdiction and the jurisdiction in which the permanent establishment is deemed to be located.
• Cost-plus arrangements: the guidance provides new examples showing whether and to what extent income arising in a cost-plus arrangement may be considered as dual inclusion income and, therefore, allowing the double deduction of related expenses that would otherwise not be allowed for ATAD2 purposes.

The decree replaces the previous policy decision originally published in 2021 and updated in 2022 – see E-News Issue 165.

For an overview of the implementation of the ATAD across EU Member States, please refer to a dedicated KPMG summary.

Form published for local top-up tax return filing

On July 30, 2026, the Portuguese tax administration published the local top-up tax return form to comply with the filing obligations under Pillar Two in Portugal.

This local return (Model 64) covers top-up tax liabilities arising under the Income Inclusion Rule (IIR), Undertaxed Profits Rule (UTPR) and QDMTT and is generally to be submitted within 15 months after the end of the fiscal year (18 months for the transition year).

The form requires general information (e.g., identification of group, Ultimate Parent Entity, GIR-filing entity), the amount of Portuguese top-up tax payable (separately reported for QDMTT, IIR and UTPR purposes, respectively) as well as its allocation among local group members. The return does not require the disclosure of detailed IIR, UTPR, or QDMTT calculations and is not required where no top-up tax is payable in Portugal.

As a reminder, Portugal also requires the filing of the GIR (Model 63) and an annual notification (Model 62). For more information on applicable filing deadlines, please refer to E-News Issue 224 and E-News Issue 231.

Italian Tax Court rules direct online sales fall outside the scope of the Digital Services Tax

On January 22, 2026, the First-Instance Tax Court of Milan (the Court) issued a decision (no. 292/2026) with respect to the scope of the Italian Digital Services Tax (DST). The Court concluded that the Italian DST does not apply to revenues from direct online sales realized by the operator of a digital platform.

The case concerned an online retailer of fashion, clothing and design products that sought a refund for the DST paid for tax years 2020 to 2022. The plaintiff operated two different business models through the same website. Under its marketplace model, customers purchased products from third-party sellers, and the plaintiff earned commissions for its intermediation services. The plaintiff did not dispute the application of DST to these revenues. The refund claim instead related to sales carried out under consignment-type arrangements with suppliers, under which the company purchased the goods only after receiving a customer order and then sold the products directly to the customer. The plaintiff argued that these transactions did not involve the provision of a “multilateral digital interface” within the meaning of the Italian DST rule. The plaintiff also highlighted that customers interacted exclusively with the retailer and could not interact either with suppliers or with other users through the website. Moreover, the plaintiff argued that under the latter business model it acted as the seller rather than as an intermediary, as it determined prices, entered into contracts in its own name and assumed the economic risks associated with the transactions.

The Italian Revenue Agency challenged the refund claim, arguing that the website enabled interactions between customers and suppliers and therefore constituted a qualifying digital interface for DST purposes. The tax authorities further highlighted that the retailer's contractual freedom was limited by agreements with suppliers and that several commercial risks remained with the suppliers.

In its decision, the Court upheld the taxpayer’s arguments. In this context, the Court noted that the DST applies only to revenues derived from making available a digital interface that enables users to contact and interact with one another. The Court found that, in the transactions at issue, customers interacted solely with the retailer. Customers could not interact with suppliers or with other users through the website and, therefore, the platform did not constitute a multilateral digital interface for the purposes of the DST rules. The Court also rejected the tax authorities’ reliance on provisions in the website’s terms and conditions that allowed customers to contact suppliers. According to the Court, those provisions related to the separate marketplace activities for which the taxpayer had already accepted the application of DST and were not relevant to the direct sales transactions covered by the refund claim.

In addition, the Court considered the legal and economic role performed by the taxpayer under the consignment arrangements. It found that the company acted as seller rather than intermediary because it concluded sales contracts directly with customers, determined the sales prices, bore customer credit and fraud risks, and assumed inventory, damage and deterioration risks once the contractual inspection period expired. The Court therefore concluded that the revenues were derived from the taxpayer’s own sales activity rather than from the provision of digital intermediation services.

In light of the above, the Court upheld the taxpayer’s claim and confirmed that the disputed revenues fell outside the scope of the Italian DST. 

Polish Supreme Administrative Court denies PSD exemption for indirect shareholders under look-through approach

On July 8, 2026, the Polish Supreme Administrative Court (SAC or the Court) issued several decisions (cases no. II FSK 185/25, II FSK 818/25, II FSK 863/25, II FSK 79/26, II FSK 80/26) concerning the interpretation of the 10 percent holding requirement for dividend WHT exemption under the Parent-Subsidiary Dividend (PSD). The SAC concluded that this condition must be read narrowly and applies exclusively to direct shareholdings. As a result, in the SAC’s view, an indirect shareholder, even if resident in an EU Member State and treated as the beneficial owner of the dividend, is not eligible for the exemption.

The plaintiff in the cases is a Luxembourg company that legally owned 100 percent of the shares in a Dutch company. The Dutch company, in turn, held approximately 43 percent of the shares in the Polish dividend-paying company. Independently of this, the Luxembourg company directly owned 15.7 percent of the shares in the same Polish company.

Subsequently, the Luxembourg and Dutch companies entered into an agreement for the assignment of dividend and voting rights, under which the Luxembourg company transferred to the Dutch company the right to dividends from half of its shares in the Polish company. As a result, the Dutch company became entitled to dividends from an additional 7.85 percent of the shares in the Polish company, therefore bringing its entitlement up to just over 50 percent of the dividend.

The Polish company withheld tax on the dividend at the standard domestic rate of 19 percent. The plaintiff then applied for a refund, arguing that, in light of the fact that the Dutch company lacked genuine business activity and real control over the funds, the Luxembourg company should be treated as the beneficial owner of the dividends under the look-through approach¹. On that basis, it claimed the PSD exemption.

The Polish Tax Authority (PTA) refunded only the difference between the 19 percent domestic rate and the 15 percent treaty rate applicable under the double tax treaty between Poland and Luxembourg. The PTA refused to grant the PSD exemption. The PTA argued that the Luxembourg company, although the beneficial owner of the dividend, did not directly hold at least 10 percent of the shares in the Polish payer, so the statutory condition for PSD exemption was not met.

For the portion of dividends that was assigned to the Dutch company under the agreement for the assignment of dividend and voting rights, the PTA also found that the condition of holding shares by way of ownership, as stipulated in Article 22(4d)(1) of the CIT Act, was not fulfilled.

Following an appeal by the plaintiff the District Administrative Court in Lublin dismissed the claims and upheld the position of the PTA in 2024. Following several legal proceedings, the case was brought in front of the SAC.

In the oral reasoning, the Court emphasized that the application of the dividend exemption is strictly conditional upon directly holding at least 10 percent of the shares in the capital of the dividend-paying company. Any interpretation of this requirement other than a literal (linguistic) one is, in the SAC’s view, incorrect and inadmissible. Therefore, the exemption cannot be applied to entities that hold only an indirect interest in the Polish company’s capital, even if another clearly identified EU/EEA entity is the beneficial owner of the dividend.

In the Court’s view, the look-through approach concept may be used solely to determine which entity in the payment chain should be regarded as the beneficial owner of the dividend and it cannot serve to extend or modify the statutory conditions for applying the exemption.

For more information, refer to the report prepared by KPMG in Poland (available only in Polish).

KPMG Pillar Two mid-year stocktake webcast – replay now available

As Pillar Two implementation continues to evolve and jurisdictions gain experience with the first round of GIR filings, MNE groups are facing an increasingly complex compliance landscape.

On July 21, 2026, a panel of KPMG Pillar Two specialists shared insights on recent developments and practical considerations, including:

• The 2024 GIR filing experience and key lessons learned from the first compliance cycle.
• Operational readiness considerations for managing ongoing Pillar Two compliance obligations.
• Expected technical and administrative developments and priorities for the months ahead.

The webcast replay and presentation materials are now available. Please visit the event page to access the recording and related resources.

Key links

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