Pillar Two Insights

Is Pillar Two About to Mirror GILTI?

One of the core commitments of the G7’s June announcement on the global minimum tax was to address any substantial risks of an uneven playing field under the “side-by-side solution”.

In this Matheson Insight, we have demonstrated how the side-by-side solution might give rise to differences in outcomes depending on where a group is headquartered by examining some very basic fact patterns. We consider the jurisdictional responses to those outcomes and consider some options that might rebalance the playing field.

Irish Government Responds to US Announcement on Pharmaceutical Tariffs

On 26 September, Irish Tánaiste, Simon Harris issued a short statement following the announcement by President Trump of new 100% US tariffs on branded and patented pharmaceuticals. In the statement, the Tánaiste confirmed his understanding that the 15% rate agreed under the framework for an EU / US trade deal would apply to any such pharmaceuticals imported from the EU to the US. The US administration subsequently confirmed that these new tariffs targeting pharmaceuticals do not apply to countries that already have negotiated trade deals.

Matheson LLP’s dedicated Customs and Trade Law team are monitoring developments closely in this area and assisting businesses to navigate the potential impact of new US tariffs.

Irish Budget 2026 and Finance Bill 2025

The Irish Budget 2026 is to be announced by the Irish government on 7 October 2025 and the Irish Finance Bill will be published shortly after the Budget (expected 16 October 2025).

We outlined in our recent submission to the Department of Finance certain issues that undermine Ireland’s position as a location of choice for investment and that could be easily addressed in Finance Bill 2025. In particular, we highlighted improvements to the participation exemption for dividends introduced last year and certain clarifications to the Irish tax legislation to simplify and provide certainty.

Following the public consultation on the operation of the R&D tax credit earlier this year, it is also anticipated that some changes will be announced to the credit on Budget Day.

We will outline the relevant proposed amendments and what it means for businesses operating in Ireland in our next update.

New Revenue Guidance - Karshan Disclosure Opportunity

Revenue has published a new Tax and Duty Manual which provides details of an opportunity granted to employers to correct payroll tax issues arising from bona fide errors where employees were misclassified as ‘self-employed’. To avail of the settlement terms, which apply in respect of 2024 and 2025, disclosures should be submitted to Revenue no later than Friday, 30 January 2026.

In our Matheson Insight (here) we outline the disclosure process and key considerations from the new guidance for employers.

VAT on Transfer Pricing Adjustments

Case C-726/23 SC Arcomet Towercranes SRL

The treatment of transfer pricing adjustments and whether they are consideration for VAT purposes has been an area lacking clarity. This recent CJEU decision has gone some way to confirming the broad circumstances in which certain equalisation payments intended to maintain margins within a transfer pricing range should be treated as consideration for a supply for VAT purposes and therefore give rise to VAT obligations for the parties.

The case centres on whether an annual equalisation payment made to ensure operating profit margins of one party to a transaction exceeded predetermined thresholds (between -0.71% and 2.74% in this case), constituted consideration for the supply of services that was subject to VAT. The CJEU ruled that the remuneration provided by the parent company to its subsidiary constituted the consideration for a supply of services falling within the scope of VAT. The Court established that both conditions for VAT liability were satisfied: a legal relationship between the parties with reciprocal performance obligations existed through the contract; and there was a direct link between the provision of the services and the equalisation consideration paid. The second point in particular is of note as the payment of any amount was conditional on the operating profit margin exceeding the predetermined threshold. It was conceivable that no payment would be made or indeed where the operating profit margin fell below a certain threshold, the service provider would have made a payment in the opposite direction (though neither circumstance arose in the years under consideration by the CJEU).

The ruling may significantly impact some multinational groups with intra-company service arrangements, particularly those requiring equalisation payments to maintain an agreed margin for one of the parties. Such groups should review their arrangements and any equalisation payments made to ensure they are in compliance with their VAT obligations as payments which may previously have justifiably been considered outside the scope of VAT may, based on the CJEU interpretation, trigger VAT obligations.