A Stage 2 governance rating depends on testing as committed.

The 2026 Top 100 findings report records ratings reduced from Stage 2 to Stage 1 where agreed actions were not completed. The Top 1,000 report says Stage 1 may be more appropriate where testing has not been done as committed.

The Constitutional Court maintained the UTPR challenge and its referral to the Court of Justice. First QDMTT and IIR returns and GIR reporting-entity notifications are now due 31 October 2026.

The 11th full edition includes the new Article 5 Commentary on remote work, with a 50 per cent of working time indicator, and new Article 9 Commentary on characterising debt before pricing it.

The Federal Court upheld a Part IVA determination on a pre-sale restructure that moved the hotel into a company held by a new Luxembourg affiliate. Three of four alternative postulates were found reasonable.

The ATO published its 2026 findings reports for the Top 100 and Top 1,000 programs on 17 September. For the first time, the Top 100 report records governance ratings falling: "In a small number of instances the governance rating was reduced from Stage 2 to Stage 1 due to agreed actions not being completed." Governance was also a factor where provisional high assurance ratings were downgraded to medium. The Top 1,000 report repeats a statement first published in September 2025. Where a taxpayer has not carried out internal control testing as committed, the ATO "may need to consider whether ... Board level control 4 has in fact been effectively designed or whether a stage 1 rating is more appropriate", although it will consider legitimate reasons such as a business change that requires the framework to be updated first. A Stage 2 rating requires a Board-endorsed commitment to periodic independent testing of key controls, and Stage 2 is required for overall high assurance. Once a taxpayer reaches Stage 3, the ATO expects all controls to be tested at least once every 3 to 5 years.

The risk is therefore not failing to reach Stage 3, but not keeping the testing commitment on which Stage 2 was given. Only 7 per cent of the Top 1,000 population is at Stage 3, so many groups hold a Stage 2 rating that rests on that commitment. Top 100 and Top 1,000 groups should check the start date they gave the ATO, whether testing has begun, whether the tester is independent of the people who designed the controls or prepared the return, and whether the Board has seen the results. Groups that lodge the supplementary annual GST return should note that it asks each year whether the GST governance rating has been maintained, taking into account whether commitments to the ATO have been actioned. These ratings apply to the Top 100 and Top 1,000 programs, not to private groups.

On 24 September the Belgian Constitutional Court (decision no. 107/2026) maintained the challenge to the undertaxed profits rule (UTPR) brought by a US business association, in which it first referred questions on 17 July 2025, and kept in place its referral to the Court of Justice of the European Union on whether the UTPR is compatible with the EU Charter and the freedoms of establishment and services. Belgium has not yet legislated the side-by-side package, and the Court held that a draft law in preparation does not remove the plaintiff's interest. Separately, on 28 September the tax administration extended to 31 October 2026 the deadlines for first QDMTT returns (tax years beginning on or after 31 December 2023 and ending between 1 January 2024 and 31 October 2025), first IIR returns for the 2024 and short 2025 cohorts, and GIR reporting-entity notifications. These replace the 30 September dates announced in April.

Belgium's transitional UTPR safe harbour only applies where the ultimate parent entity is in a jurisdiction with a corporate tax rate of at least 20 per cent, so Belgian entities of groups whose ultimate parent is elsewhere may face UTPR top-up tax for 2025. Groups with Belgian entities should confirm which cohort they fall into, use the extra month to settle the general representative notification, and follow the progress of the referral to the Court of Justice.

On 30 September the OECD released the 11th edition of the full Model Tax Convention, reflecting the text as at 18 November 2025. It brings together the 2025 update, including new Commentary on Article 5 (paragraphs 44.1 to 44.21) on cross-border remote work. A home or other location abroad will generally not be a place of business of the employer where the individual works there for less than 50 per cent of their working time in any 12-month period. At or above 50 per cent, a further factual analysis is needed, with particular weight on whether there is a commercial reason for the individual to be in that jurisdiction, such as dealing with local customers or suppliers. New Commentary on Article 9 (paragraphs 3 and 3.1) says a purported loan must first be characterised as debt, and the extent of that debt settled, before its pricing is tested, and that domestic interest limitation rules continue to apply.

The full edition is now the consolidated reference text. Groups with staff working remotely from overseas should check their arrangements against the 50 per cent indicator and the commercial reason test. The Article 9 Commentary broadly mirrors the Australian sequence of characterisation under Division 974, the amount of debt under Division 820 (section 815-140), and arm's length pricing under Subdivision 815-B.

In Order No. 23024 of 10 July 2026, Italy's Supreme Court upheld a transfer pricing adjustment for the 2008 tax year against an Italian packaging company. The company had licensed a trademark exclusively to its US and Canadian subsidiaries at a royalty of 2 per cent, and in 2002 reduced it to 0.5 per cent from 2003 to support the subsidiaries in a market with excess capacity. The Court held that the tax authority did not need to prove an avoidance purpose, that the burden moved to the taxpayer once pricing appeared to be below market, that a reduction made only in the group's interest was not arm's length, and that sales between the subsidiaries could not be excluded from the royalty base.

The decision is a reminder that a royalty step-down needs a reason an independent licensor would accept, such as a change in the licensed rights or in the licensee's functions, and evidence to support it. Groups that have reduced intra-group royalties or service fees to support loss-making affiliates should check that the file explains the change in those terms.

In Hilton International Australia Pty Ltd v Commissioner of Taxation (No 2) [2026] FCA 1325, delivered on 9 September, Younan J dismissed the taxpayer's appeal against the objection decision on a Part IVA determination that included a tax benefit of $173,300,032 in assessable income for the year ended 31 December 2015. Before the 2015 sale of the Hilton Sydney, the hotel and business assets were moved within the Australian multiple entry consolidated group into a company whose single share was held by a newly incorporated Luxembourg affiliate. The buyer acquired that company for about $29 million, paid to the Luxembourg entity, and paid $420 million directly to the Australian group to discharge an intercompany loan note. The Court found that three of the Commissioner's four alternative postulates were reasonable, including a straight asset sale, and that the dominant purpose test was met. Penalties and interest are being dealt with in separate Administrative Review Tribunal proceedings.

The decision is a significant application of the alternative postulate rules in section 177CB to a related-party restructure before a sale. Groups planning a pre-sale reorganisation, particularly one that moves the gain offshore or into a different part of a consolidated group, should document the commercial reasons for each step and test the outcome against the most obvious alternative, which is usually a straight asset or share sale.

Pereira Consulting is an independent tax advisory practice founded by Neil Pereira, advising multinational groups operating into and out of Australia on international tax, Pillar Two readiness, transfer pricing, anti-avoidance, ATO disputes and corporate income tax compliance. Neil is a Chartered Tax Adviser, Registered Tax Agent and Solicitor.

Disclaimer. This newsletter is general information only and does not constitute tax or legal advice. It is current as at the issue date. Pereira Consulting accepts no liability for any decision made in reliance on its contents. Please contact Neil Pereira to discuss the application of these developments to your specific circumstances.