The following article highlights key provision considerations, current issues in corporate tax, and updates for companies preparing income tax provisions for the first quarter of 2025. Read more about global tax law changes, the impact of tariffs, updates from the Financial Accounting Standards Board (FASB), and other considerations for the first quarter (Q1) of 2025 below.
Tariffs. That seems to be the start of every news article right now, and this one is no exception. The headline is currently overshadowing those regarding potential tax reform. For a brief update on the expected macroeconomic impacts of tariffs, read more from the RSM US The Real Economy in U.S. tariffs and their impact on growth and inflation.
While tariffs are not an income tax, they are expected to create impacts that will ripple through entities’ financial results and ultimately, their income tax provision. Our Accounting brief on the financial reporting implications of tariffs provides a comprehensive overview of changes to entities’ financial reporting that we may begin to see as a result of the tariffs being implemented, including considerations of impacts related to accounting for income taxes under ASC 740. Most notably, entities may need to consider the future impacts of tariffs on their projections and their transfer pricing strategies.
In the income tax world, there is also significant uncertainty. As Congress works towards crafting a bill with a stated timeline for passage of late summer, corporate taxpayers are playing close to the potential benefits and pay-fors in tax legislation. While Retroactive ‘100% expensing’ emerges as Trump tax priority, there has also been significant discussion in Congress about expanding the state and local tax limitation to apply to corporate taxpayers. With so many “what-ifs” flying around, it is important to not lose sight of tax law changes that are already enacted, which have impacts on current quarter provisions. Those changes are discussed below, along with their potential provision impacts and considerations.
While the bonus depreciation rules are subject to change with potential tax reform, based on the phase-out included as part of the Tax Cuts and Jobs Act in 2017, the applicable percentage for bonus depreciation for assets placed in service during 2025 is currently 40%. Currently, the bonus depreciation applicable percentage further falls to 20% for assets placed in service during 2026, and no bonus depreciation deduction will be available in 2027 and thereafter.
Early in the first quarter of 2025, the IRS released proposed regulations regarding the expansion of the limitation on compensation under section 162(m). The American Rescue Plan Act of 2021 (ARPA) expanded the definition of a “covered employee” under section 162(m), effective for tax years beginning after Dec. 31, 2026. Section 162(m) currently limits the deduction of compensation for an entity’s covered employees – Chief Executive Officer (CEO), Chief Financial Officer (CFO), and three other highest-paid officers – to $1 million per employee. Additionally, once an officer is identified as a covered employee, they will always be considered as such.
Under ARPA, the list of covered employees will include the CEO, CFO, three other highest-paid officers, and the next five highest-paid employees, (which could also be officers, if applicable). More information on the complexities and nuances of these rules is discussed in RSM’s article: IRS proposes regulations to implement changes to section 162(m). Under ASC 740, effects of laws should be reflected when enacted, even if the effective date is in the future, if applicable. While this law was enacted in 2021, the proposed regulations and that we the effective date is drawing nearer, has brought refocused attention on the effects.
Certain long term compensation arrangements, such as deferred compensation and share based compensation arrangements may result in an entity recording book expense today for amounts that would not be deductible until tax years beginning after Dec. 31, 2026. Entities should consider any applicable impacts of the future 162(m) limitation on their deferred tax assets (DTA) for stock compensation or other deferred compensation arrangements.
Final regulations for section 987 were released on Dec. 10, 2024, with corrections posted on Jan. 17, 2025. The regulations, generally applicable for tax years beginning after Dec. 31, 2024, address the taxation of foreign currency gains and losses related to earnings and remittances from a qualified business unit (QBU).
The final regulations maintain the same fundamental principles as the proposed regulations. However, they introduce two new elections and modify the transition rules, scope of entities subject to section 987, calculations for remittances and loss suspension rules.
More details on the changes from the proposed regulations to the final regulations are discussed in our article: Final foreign currency regulations, Section 987.
The FASB issued two accounting standards updates (ASU) during the first quarter of 2025, including ASU 2025-01 – Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date and ASU 2025-02 – Liabilities (405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, released in December 2023, is now effective for calendar year public business entities (periods beginning after Dec. 15, 2024). The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid. The ASU is effective one year later for all other entities.
The expected interim disclosure updates were stripped from the final version of the ASU. Therefore, the ASU generally does not have an impact on 2025 interim financial statements. However, public business entities will want to begin preparing for what their income tax disclosures will look like in their 2025 10-K, especially if they are planning for retrospective adoption. Corporate tax departments should evaluate the necessary changes to their provision processes and the configuration of any tax provision software that would be necessary to comply with the year-end requirements of the ASU. For additional information on the income tax disclosure ASU, read our article: ASC 740: FASB releases ASU 2023-09: Improvements to Income Tax Disclosures.
Read about how technology can help entities comply with the coming disclosure requirements in our article with Bloomberg: Technology Solutions for FASB ASU 2023-09 Compliance.
Read more about state and local tax law changes, including changes in tax rates and conformity with the Internal Revenue Code, in our companion alert: State income tax law changes for the first quarter of 2025 .
Status of Pillar Two
Although some aspects of Pillar Two framework have been in effect for over one year now, the ever-changing legislative landscape surrounding Pillar Two remains one of the biggest challenges that multinational enterprise (MNE) groups are facing. For calendar year 2025, MNE groups must also analyze the potential impacts of the Undertaxed payments/profit rule (UTPR) for jurisdictions that have enacted this part of the framework. As of March 31, 2025, 53 countries have enacted part or all of the Pillar Two framework into laws that are effective for 2025.
Background
The Organization for Economic Cooperation and Development (OECD)’s Pillar Two framework was established to enact a global minimum corporate tax rate of 15% on the adjusted net income of large international businesses (those with €750 million or more in consolidated revenue) regardless of the locations of the business’ headquarters or jurisdictions in which the business operates. In 2024, entities began addressing two of the mechanisms of the Pillar Two framework to collect top-up tax, including the Qualified Domestic Minimum Top Up Tax (QDMTT), and the Income Inclusion Rule (IIR), which were generally effective for fiscal years beginning on or after Jan. 1, 2024. The UTPR is effective for years beginning on or after Dec. 31, 2024 (generally, calendar year 2025).
Under the collection mechanisms, any resulting top-up tax is first collected by the source jurisdiction if that jurisdiction has enacted a QDMTT. If the jurisdiction has not implemented a QDMTT, the top-up tax can be collected by the direct or indirect parent entity of the low-taxed entity if the parent’s jurisdiction has enacted an IIR. The UTPR serves to allocate any top-up tax that may not have been allocated under an IIR. While the IIR requires the parent entity to account for the top-up tax on their low-taxed constituents, the UTPR requires the constituent entities to account for the top-up tax in the jurisdictions where they are located.
Safe harbors
MNE Groups may elect to apply the UTPR safe harbor which eliminates any UTPR top-up tax in the UPE jurisdiction if that jurisdiction’s corporate tax rate is 20% or higher. This is a transitional safe harbor that only applies in the Ultimate Parent Entity jurisdiction and is only available for tax years beginning on or before Dec. 31, 2025, and ending before Dec. 31, 2026.
The Transitional Country-by-Country Reporting (CbCR) Safe Harbor is available for fiscal years beginning on or before Dec. 31, 2026, but not including a fiscal year that ends after June 30, 2028. Top-up tax for a jurisdiction is deemed to be zero where it satisfies at least one of the De Minimis, Simplified Effective Tax Rate or Routine Profits tests under the CbCR safe harbor.
US response to Pillar Two
The US has yet to take action on Pillar Two, and the current administration has rejected the framework. However, that does not mean that US-parented MNE groups are exempt. Further, there are interactions between the taxes discussed above and US income taxes. For a more detailed discussion, see our alert: US rejects OECD global tax deal, raising policy questions.
Entities should also understand the interaction between the QDMTT and Global Intangible Low Taxed Income when determining the reporting requirements for financial statement income tax provisions. Allocation of GILTI taxes is not allowed for purposes of QDMTT regimes. A QDMTT is generally considered a creditable foreign tax rather than a “final top-up tax” according to IRS Notice 2023-80, and it may be included in tested foreign income tax expense for purposes of GILTI. Accordingly, entities need to properly identify and accrue any QDMTT liabilities prior to completing the GILTI calculation for the period.
Accounting for Pillar Two
As noted above, the QDMTT, IIR and UTPR rules are all now generally effective, but it is important to note that only legislation enacted as of the balance sheet date is applicable for an income tax provision under Generally Accepted Accounting Principles (GAAP). Additionally, the FASB indicated during 2023 that taxes under Pillar Two would be viewed similar to an alternative minimum tax as discussed in Topic 740, Income Taxes. Under ASC 740, deferred taxes would not be recognized or adjusted for the future effects of the minimum taxes.
The below updates on global tax matters include several notes about Pillar Two and efforts to enact the framework into law.
The 2025-2026 Australian Federal Budget (the Budget) was delivered on March 25, 2025. The Budget was generally devoid of new corporate tax measures. RSM Australia’s report on the Budget can be accessed here: 2025-26 Federal Budget: Key Highlights & Economic Impact | RSM Australia
The following two previously announced measures have now passed both Houses of Parliament and await Royal Consent, both with an anticipated effective date of July 1, 2025:
The previously announced Critical Minerals Production Tax Incentive and Hydrogen Production Tax Incentive (previous RSM Australia Tax Insight here) has now been enacted and will apply to income years beginning on or after July 1, 2027.
Pillar 2
Law no. 15,079/2024 was published on Dec. 30, 2024, marking a significant step towards aligning the national tax system in Brazil with the proposals of the OECD in the Pillar Two framework. Although Brazil formally claims to be adopting the GloBE Rules in their entirety, currently the Executive Branch has only introduced rules relating to the QDMTT, which will be collected through an additional Social Contribution on Net Income (“CSLL”).
Entities that have tax incentives granted under the Superintendence for the Development of the Amazon (“Sudam”) and the Superintendence for the Development of the Northeast (“Sudene”) may convert them, in whole or in part, into a financial credit classifiable as a Qualified Refundable Tax Credit (QRTC), including provision for reimbursement in cash within 48 months.
The Law requires that the Executive Branch submit to the National Congress, during the first half of 2025, a legislative proposal to redesign the rules for Taxation on Universal Bases (“TBU”), provided for in articles 76 to 92 of Law 12,973, with a plan to introduce the Income Inclusion Rule (“IIR”) in accordance with the OECD Pillar Two guidelines and a Controlled Foreign Corporation Rules regime.
The law is in effect from April 2025 – although the law provides that it is in force since January, there is a ninety-day anteriority principle in the Federal Constitution - and there will be a payment term of seven months after the end of the fiscal year. The penalties for lack of information or delayed filing of the new tax obligation are between a minimum of 20,000 reais and a maximum of 5,000,000 reais.
Transfer Pricing
Normative Ruling 2,161/23 was modified by Normative Rulings 2,246/24 and 2,249/25 to establish specific rules and tax obligations for transactions involving commodities. All contract data (e.g., value, amounts, pricing rationale, parts, dates, etc.) must be entered into the Federal Revenue Services online system, Register of Transactions with Commodities. This data must be entered for every contract until the tenth day of the subsequent month after it was signed. Transactions occurring in January and February can be reported until March 31, 2025.
The Normative Ruling 2,246/24 stated that the penalties below will apply:
Income Tax – bill of law
Bill of law n. 1,087/2025 proposes add a tax on the distribution of dividends, including those paid to nonresidents. Under the proposal, the profits and dividends paid to residents in Brazil and residents abroad (both individuals and legal entities) will be subject to a withholding tax of 10% and, if the sum of the effective tax rates exceeds the nominal rates of the legal entities (i.e., 34%, 40% or 45%), the nonresident will be entitled to request a credit or refund. The bill will be submitted to National Congress and must be approved by House of Representatives and Senate to then be sanctioned by the President and converted into Law. If approved, it will become effective as of 2026.
Tax Losses – 30% limit
The Federal Supreme Court (STF) of Brazil decided to maintain the rule that limits the use of tax losses from Corporate Income Tax (IRPJ) and the negative basis of the CSLL to 30%, even in cases where entities are in the process of winding down.
French transfer pricing update
The French tax administration has intensified its focus on transfer pricing compliance, making it crucial for US groups with operations in France to adhere to local regulations, particularly for the fiscal year (FY) 2024 documentation that must be prepared during FY 2025.
A local file per year, per entity and a master file should be prepared by French taxpayers, including foreign branches, if they meet any of the following criteria:
In any case, the taxpayer must be able to document the arm’s length character of their intragroup transactions according to art. 57 of French General Tax Code (“FGTC”)
Form 2257-SD, the annual transfer pricing declaration, must be electronically filed on a yearly basis, within six months after the tax return deadline. The threshold for this form is €50 million, following the same principle as the ones set for Local file and Master file. This form includes details on intra-group transactions, intangible assets and transfer pricing policies.
New regulations resulting from the 2024 Finance Bill emphasize timely documentation preparation, including:
The above-mentioned updates make it crucial for French taxpayers to prepare their transfer pricing documentation contemporaneously with their 2024 tax returns. It is also very important for taxpayers to have proper legal documentation supporting their transfer pricing policy.
EU Public Country-by-Country Reporting (CbCR)
Starting June 22, 2024, multinational enterprises (MNEs) subject to OECD CbCR (€750 million threshold) must publicly disclose tax-related data. This requirement applies to both EU and certain non-EU MNEs, with the first reporting due for FY 2025 for entities closing in December.
Italy enacted various changes that are effective as of Jan. 1, 2025, through the 2025 budget law (Law 207/2024). For fiscal years 2025 through 2027, qualifying enterprises will receive an extra cost reduction for newly hired permanent employees. This reduction equals 20% of the cost attributable to the employment increase (up to 30% for certain disadvantaged or vulnerable worker groups). The "cost attributable to the employment increase" is the lower of: (i) the actual personnel cost for these new hires; or (ii) the total increase in personnel costs compared to the previous fiscal year. This incentive is only applicable if both the number of permanent employees and the total number of employees at the fiscal year's end exceed their respective average numbers from the previous fiscal year.
For tax purposes, business deductions for employee travel (including accommodation, transport, and meals), and entertainment expenses are only allowed if paid via electronic transfer (bank or postal) or non-cash payment methods such as checks or credit/debit cards.
Qualifying enterprises may be eligible for a reduced 20% IRES tax (corporate income tax) rate in FY 2025, subject to the following conditions:
Additionally, Italy has issued a decree regarding notification obligations for Pillar Two purposes. The Ministerial Decree, dated Feb. 25, 2025, outlines the disclosure requirements for Italian entities that do not submit the Global Information Return (GIR) as specified in Article 51 of Legislative Decree 209/2023 for Pillar Two purposes, provided that the obligation is met by the UPE or a designated entity located in a country with a qualified information exchange agreement with Italy. In such scenarios, the Italian constituent entity must notify the Italian Tax Authorities with a summary of the Group's information, including details about the UPE and the designated entity. The Italian Tax Authorities will receive information related to Italian constituent entities within the Group through the GIR information exchange procedure with the country of the UPE or another designated entity.
On Dec. 17, 2024, the Dutch Senate officially approved the Dutch Tax Plan 2025, which was signed by the King and published on Dec. 23, 2024. Please find below a summary of the most important corporate income tax (“CIT”) items from the Dutch Tax Plan 2025 that will be implemented on Jan. 1, 2025:
The earning-stripping measure limits the interest a Dutch entity can deduct when determining profit if the net interest exceeds 20% of the gross operating result or more than €1 million. From 2025, this percentage will be increased from 20% to 24.5%. Effectively, this could result in a less strict interest deduction limitation.
Per 2025, a new foreign entity classification regime will be introduced in the Netherlands. This regime provides a framework of rules to assess whether foreign entities are (non-)transparent for corporate tax purposes. In summary, US groups with a Dutch subsidiary should verify whether the under-tier and upper-tier structure of their Dutch subsidiary are impacted differently with these new classification rules. Among other potential impacts, this could result in a higher/lower withholding tax burden pertaining to the upper-tier structure and more or less participation exemption in relation to the under-tier structure.
Certain rules within Dutch corporate tax (e.g., the Dutch participation exemption regime and Dutch 10a interest deduction rule) require a subject-to-tax test to sometimes be met in order to provide a tax benefit. These subject-to-tax tests will be updated to also include certain Pillar Two top-up taxation. For a US group this means that if a Pillar Two top-up tax is levied, they will satisfy certain subject-to-tax tests allowing for such tax benefits.
Waivers of debts owed by Dutch entities are in principle taxable income unless the waiver exemption applies. Due to an unforeseen concurrence, the FY 2022 new loss compensation rules resulted in a partial waiver exemption in some cases. This will be repaired in 2025 so that there will be full waiver exemption when the conditions are met. US entities that have loaned funds to Dutch entities and are considering waiving those debts should assess whether the waiver could lead to taxable income.
Read more about these items in: The Netherlands | 2024 Year- end update and actions.
The Finance Bill published following the 2024 Autumn Budget, now Finance Act (FA) 2025, contained provisions to implement the UTPR aspect of the Pillar Two global minimum tax rules. This rule applies to accounting periods beginning on or after Dec. 31, 2024, coming into force one year later than the UK’s IIR and QDMTT. The Bill passed its third reading in the House of Commons on March 3, 2025 (substantially enacted) and received royal assent (enacted) on March 20, 2025.
The Chancellor of the Exchequer delivered her Spring Statement on March 26, 2025. No significant corporate tax announcements affecting tax accounting were made as part of this fiscal event, which focused mainly on government spending decisions. Further details are available from RSM UK in Spring Statement 2025.
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