Midweek Tax News

The Finance (No.2) Bill was published on 4 December. The Bill is available here and the explanatory notes can be found here.
The Bill contains over 550 pages of legislation covering many of the Autumn Budget announcements, as well as previously announced measures.

As expected, the Bill includes legislation to reform aspects of the rules relating to transfer pricing and permanent establishments. It provides for diverted profits tax to be abolished and for a new higher rate of corporation tax (main rate plus 6%) to be charged on “unassessed transfer pricing profits” (UTPP) for accounting periods beginning on or after 1 January 2026.

Other measures in the Bill include the reduction to the capital allowance writing down allowance (WDA) rate on main pool expenditure, from 18% to 14% from April 2026, alongside a new 40% first-year allowance available for expenditure on main-rate assets from January 2026; technical amendments to the UK’s Pillar Two legislation; the creation of the new ‘Advance Tax Certainty Service’ (ATCS) which will provide tax clearances for major investments; and amendments to the corporate interest restriction (CIR) rules.

The Bill also includes legislation for the new regime for the taxation of carried interest, which was announced at Autumn Budget 2024 and comes into effect from 6 April 2026. Draft legislation was published for consultation earlier in 2025, and the text in the Finance Bill reflects some changes made in response to issues raised during this process.

Second reading of the Bill is scheduled for Tuesday 16 December. As a reminder, the Finance Bill legislation will be treated as substantively enacted for UK GAAP and IFRS purposes after Third Reading in the Commons; for US GAAP, the key date is enactment. It is not yet known when the Finance Bill will be enacted.

Also on 4 December, the Government published the National Insurance Contributions (Employer Pensions Contributions) Bill to legislate for the imposition of NICs on salary sacrifice arrangements for pension contributions in excess of a £2000 annual exempt allowance. The Bill will be given its Second Reading on Wednesday 17 December. This legislation will take effect from 6 April 2029

As a reminder, at the Autumn Budget the Government published its response to the recent e-invoicing consultation and confirmed that mandatory e-invoicing using specified technical formats will be introduced in the UK from April 2029. Following further consultation with stakeholders, the Government plans to publish an implementation roadmap at Budget 2026. Businesses are encouraged to begin assessing their current invoicing processes, data quality and technology now to ensure readiness for the new requirements. This global tax alert provides further discussion of the key themes arising from the consultation response and on the next steps for businesses.

Following the success of our first AI Tax University event in October, we will be hosting another running of the event on 3 February at our Churchill Place offices in London. This paid one-day training workshop has been designed to provide attendees with a strong grounding in AI and the value it can deliver for tax functions. A large part of the day will focus on MS Copilot where we will run hands-on training on fundamental Copilot skills as well as exploring tax-specific use cases leveraging Copilot. A pre-requisite for attendees is to already hold a paid Copilot licence. The session is not available to EY audit clients.

If you or other members of your tax team are interested in attending, or would like further information, please get in touch with Liam Larke.

Draft regulations to ratify the new double tax treaties which the UK has signed with Andorra, Romania, Portugal and Peru were debated and agreed to in Parliament on 1 December. The final regulations have not yet been laid. In the debate, the Exchequer Secretary to the Treasury, Dan Tomlinson, noted that Romania has already carried out its procedures to ratify the UK/Romania treaty, and Peru, Andorra and Portugal are expected to ratified their respective treaties by the end of the year.

On 4 December 2025, the UK and 24 other jurisdictions announced their intention to implement the OECD’s tax transparency framework for the automatic exchange of information on immovable property (real estate) – the OECD Multilateral Competent Authority Agreement on Automatic Exchange of Readily Available Information on Immovable Property (IPI MCAA). The countries hope to implement by 2029 or 2030.

In its response to a consultation which closed earlier this year, the UK ETS Authority announced on 4 December that it has decided that the UK ETS will be extended into a Phase II from 2031, and that this phase will run for 10 years from 1 January 2031 to 31 December 2040. The banking of allowances will be permitted between Phase I and Phase II of the Scheme.

Also on 4 December, the UK ETS Authority published its response to a December 2023 consultation on markets policy, which set out plans to ensure the UK ETS market continues to offer an effective financial incentive that drives its participants to decarbonise. The consultation outcome states that the UK ETS Authority has decided to retain and inflation-proof the Auction Reserve Price (ARP) and to retain the existing design and operation of the Cost Containment Mechanism (CCM).

As highlighted in Midweek Tax News last week, on 19 November the OECD released updates to the Model Tax Convention on Income and on Capital and its Commentary. Key changes include changes to the commentary to Article 5 to clarify when cross-border remote working creates a taxable presence for a business, and the addition of new alternative provision on how income from activities connected with the exploitation and extraction of natural resources should be taxed. Following on from the alerts included in last week’s Midweek Tax News, a further global tax alert is now available which discusses these updates in more detail.

As previously highlighted, on 19 November the Council of EU adopted its negotiating mandate on a targeted revision of the EU deforestation regulation (EUDR), supporting a one-year postponement of the application of the regulation for all operators, until 30 December 2026 (with an additional six-months for micro and small operators), and simplification measures. On 5 December, the European Parliament and the Council reached a provisional political agreement on amendments to the EUDR. The amendments must now be formally adopted by the Council and Parliament before coming into effect.

We have included links to a selection of our tax alerts below. Additional articles are available in our global tax alert library.

Canada: Canada has introduced a budget implementation Bill to enact measures announced in the 2025 Federal Budget and Fall Statement, and earlier proposals. Measures include transfer pricing changes, scientific research and experimental development (SR&ED) enhancements, and repeal of the Canadian digital services tax.

Argentina: Argentina has proposed a new draft General Resolution that would replace existing transfer pricing regulations and fundamentally reshape the Argentine transfer pricing regime for fiscal years ending on or after 31 December 2025.

Australia: Australia has issued detailed guidance on its implementation of the Pillar Two rules, which will apply retrospectively to fiscal years starting on or after 1 January 2024, with the first returns due by 30 June 2026.

Türkiye: Türkiye has extended the Pillar Two QDMTT filing and payment deadlines for 2024 returns to 15 January 2026, and released the return format for testing.

This article on EY.com explores the actions that multinational businesses should be considering to prepare for the operational and compliance demands of the Pillar Two global minimum tax rules. It highlights practical steps such as assessing data readiness, updating systems, managing compliance processes, and coordinating across teams to ensure accurate reporting and reduce risks under the new tax framework.

As announced in the Budget, UK customs duty relief on goods costing under £135 is being removed from March 2029 at the latest. The change will not just impact e-commerce, but also B2B traders, large retailers, shipping companies, freight forwarders, online sellers and online marketplaces. In this LinkedIn article, EY’s Gaurav Patney discussed what this means for businesses and supply chains.