HMRC’s guidance on their transfer pricing compliance expectations was released at the end of last year and provides some welcome clarity and transparency of HMRC’s transfer pricing compliance expectations. The impact of the guidance is expected to be far reaching – setting a higher benchmark for transfer pricing compliance in the UK.

The guidelines set out what HMRC sees as best practice, and highlights what it regards as high risk and how taxpayers can best manage its compliance ‘end-to-end’.

In setting out HMRC’s expectations, the guidelines are likely to shape how we see HMRC engaging with transfer pricing compliance activity in the future. For our summary of the content of the guidance, please see the following: Transfer pricing compliance – new HMRC guidelines - BDO

The digitalisation of VAT reporting has required firms to re-evaluate their VAT compliance processes, data and systems. Many countries have introduced or are introducing digital reporting requirements (“DRR”) and e-invoicing regimes. The EU will also introduce similar requirements as part of its VAT in the Digital Age ("ViDA") initiative. International firms need to understand the various reporting requirements relevant to them, their existing reporting capabilities and the quality of its data to be able to comply with the various requirements (which may vary between territories). For more information on the VIDA updates please see VAT in a digital age

In February 2025, the UK government launched a consultation to gather views on standardising e-invoicing looking at how to increase its adoption in the UK. The consultation (which closes on 7 May) sets out to explore how different e-invoicing approaches may align with businesses and what impact they will have.

Large professional service businesses with global revenues of €750m or more may already be within the first in scope accounting period for Pillar Two (accounting periods starting on or after 31 December 2023). The OECD is still releasing guidance to clarify the Pillar Two framework. Countries are then issuing legislation and guidance at different paces and groups will need to monitor the evolving position. Partnership structures face additional complexities due to unique structures and the status of branches/ entities and partners within the structure. Our article Pillar Two - How it works - BDO covers the position with summaries of the latest developments in the implementation of Pillar Two around the world.

Our professional services webinar on 27 February 2025 covered the latest updates for UK headquartered professional services firms relevant where they have: i) Clients in India; ii) Individuals spending time in India; iii) a presence in India or, for law firms, iv) are considering establishing Indian operations.

Topics covered included:

• Local filing obligations;
• 10F forms to mitigate the exposure to withholding taxes and the position with respect to Permanent Account Numbers (PAN); and
• An update on the market opportunity for law firms setting up in India and proposed amendments to the Advocates Act in February 2025 which look to clarify the tax treatment for foreign lawyers and law firms and hence ease the entry to the local market. 
• The webinar can be viewed here.

Key takeaways included:

• In February 2025, a bill was proposed to recognise foreign law firms and lawyers under the Advocates Act which has proved a barrier to opening up in India (with limited update of the new regime thus far).
• If the amendment is passed, it will provide greater clarity on the tax treatment of foreign law firms and lawyers and could increase the appetite for local offices.
• Our previous article on international law firms in India can be found here: International Law Firms in India - what has changed? - BDO
• Whenever an Indian tax resident is making payment to a non-resident, it is liable to withholding taxes. In such situations, the India-UK tax treaty may provide tax benefits, and thereby, lower withholding tax. To claim these treaty benefits, the Indian tax laws provide for fulfilment of certain statutory obligations including an electronic form 10F and potentially a PAN. In order to mitigate a firm’s exposure to withholding tax it will therefore need to consider whether the administration and implications of making local filings outweigh the cost of the withholding tax.

The use of service entity arrangements is common in the Australian professional services industry in particular where the professional services business is undertaken through a partnership or sole trader structure and the owners are subject to unlimited liability. Typically, a service entity arrangement would involve the establishment of a separate legal entity (usually a discretionary trust) which will own certain assets and provide support services to the partnership (eg provision of support staff, office leases, plant and equipment) for a service fee (which is usually cost + mark up). The potential beneficiaries of the service entity are the partners or nominated associates ofthe partners (eg a Family Trust or spouse).

There is a view that the service entity arrangement reduces the amount of assets held beneficially by the partnership (and therefore partners) and accordingly, reduces risks associated with possible loss of assets in the event of litigation and relieves the partnership of issues relating to administration of employees. In addition, depending on the marginal tax rates of the potential beneficiaries, the arrangement may result in a reduction in the overall effective tax rate. The ATO is aware of these structures and has previously published guidance in the form of indicative rates to ensure that the service fee mark up is commercial and not excessive. In addition, in recent years, the ATO has released a risk matrix that applies to practitioners which has regard to the proportion of remuneration subject to tax in the hands of the partner as well as the effective tax rate of the total remuneration (including income taxed in the hands of associates) with high risk practitioners being flagged for additional ATO scrutiny. The ATO has recently increased monitoring activities for professional firm practitioners based on information available to the ATO (through filings, registrations etc) and the use of data analytics.

Given the increased ATO activity and recent Federal Budget funding for increased ATO compliance resources, professional firms who operate in Australia should consider undertaking a review of their service entity arrangements to ensure that the arrangements are in line with latest ATO guidance and market best practice.

Changes affecting social security calculations for self employed workers in France has led to some partnerships revisiting income sourcing for their French partners. While the changes are complex, broadly the changes look to align the basis for the computation of the different social contributions, and also affect the income upon which they are charged. It has not yet been confirmed if the new rules will be applicable for 2025 or 2026 reporting with further clarity expected once the current year’s tax return has been released.

Determining the appropriate sourcing of income for French resident partners has historically been a complex matter dependent on a partners’ individual circumstances and the social contribution changes might again lead to a need to model French income and social taxes for French partners based on different sourcing of income (depending on structure). French partners may also wish to consider the benefits of establishing personal companies to organise their affairs which we see utilised in French domestic professional service firms. A recent clarification in February 2025 from the Ministry of Labour considered the application of dividend distributions between liberal professional companies (SEL) and their holding companies (entity in question was a SPFPL). The clarification rejected a previous judgement from the Court of Cassation that social security contributions are automatically applicable on the dividends and confirmed that the application must instead be applied on a specific (and anticipated to be relatively narrow basis such as in the event that the purpose of the holding company was solely to avoid social security contributions).

We have observed increased levels of administration being required in order to satisfy the requirements for invoices to be paid to international businesses without withholding tax. In the past, it may have been sufficient for a firm to provide its client with a tax residency certificate as issued by the tax authorities. We have seen the Portuguese authorities issuing assessments where information is incomplete leading to increased rigour by Portuguese clients to request the appropriate “Mod.21-RFI” form in order to pay invoices without withholding tax. Businesses should therefore expect increased requests for documentation from clients and where significant work is being undertaken for clients in Portugal, consider the potential withholding tax exposure.

The Belgian federal government have concluded an agreement with far reaching proposed changes to the tax regime and labour market in the coming years. It should be noted that the policy changes have not yet been passed and a draft bill of law has not yet been issued. However, the agreement sets out the intention of the government to increase the purchasing power of working people and increase the competitiveness of the economy. The wide reaching changes will impact those with partners/ employees working in Belgium. In terms of the pertinent changes for Belgian residents generating professional income, a new deduction is proposed for the self-employed. The use of personal service companies is common practice for self employed workers in Belgium. Adjustments are proposed to reduce the period of time from 5 to 3 years upon which distributions can be made from small companies with a favourable rate of withholding tax. However, we are aware of some interest by the Belgian authorities into the arrangements of self employed workers with a single customer reviewing whether such individuals are engaged in an employment relationship. Businesses will therefore need to keep the status of its workers under review.