EU Tax Reform: Simplification and What It Means for Businesses
The European Commission’s Tax Simplification Package was formally proposed on 24 June 2026 against the backdrop of growing calls for a simpler and more coherent EU tax framework, particularly following a series of recent international and EU tax reforms.
The objective of the proposal remains clear and consistent: to simplify the EU tax framework, foster a more business-friendly environment across the Union, and enhance the EU’s competitiveness. By streamlining complex rules and removing unnecessary administrative requirements, the package is intended to allow businesses to dedicate more resources to growth, innovation and investment.
The package consists of two legislative proposals aimed at removing unnecessary red tape. These comprise the recast of the Directive on Administrative Cooperation (DAC) and a proposal for a Council Directive — referred to as the Taxation Omnibus Directive — amending several core EU direct tax directives.
The Direct Taxation Omnibus Directive
Interest and Royalties Directive (2003/49) and Parent-Subsidiary Directive (2011/96)
One of the most significant simplification measures proposed under the Omnibus relates to the Parent-Subsidiary Directive (PSD) and the Interest and Royalties Directive (IRD). The proposal would exempt cross-border payments of dividends, interest and royalties between qualifying EU entities from withholding taxes, removing a long-standing administrative barrier to cross-border investment and financing within the Single Market.
The proposal also extends the scope of the PSD to include pension institutions, allowing qualifying pension funds to benefit from withholding tax exemptions on dividends received from subsidiaries located in other Member States. This change seeks to ensure a more consistent tax treatment of cross-border investments and to further facilitate the free movement of capital across the European Union.
Collectively, these measures are intended to simplify withholding tax procedures, reduce compliance costs and support greater cross-border investment by removing tax obstacles that continue to affect businesses and institutional investors operating across multiple Member States.
Anti-Tax Avoidance Directive (2016/1164) (ATAD)
The package also includes targeted amendments to the interest limitation provisions contained in the Anti-Tax Avoidance Directive (ATAD). By streamlining existing rules, removing certain implementation options and increasing the mandatory de minimis threshold, the proposed changes aim to reduce administrative burdens and simplify compliance. Furthermore, low-risk third-party financing and genuine market-based borrowing arrangements would fall outside the scope of the limitation rule, ensuring that commercial financing activities are not unduly restricted where tax avoidance concerns are minimal.
The proposal also seeks to encourage innovation by introducing a common minimum standard for the tax treatment of research and development (R&D)-related tangible assets. Under the proposed rules, Member States would allow the full and immediate deduction of qualifying expenditure, thereby improving tax certainty and enhancing the EU’s attractiveness as a location for innovative and high-value investments.
In an effort to reduce complexity and avoid duplicative compliance obligations, the Omnibus addresses the interaction between the Controlled Foreign Company (CFC) rules and the Pillar Two global minimum tax framework. The proposal removes areas of overlap between the two regimes and introduces a more harmonised approach to the application of CFC rules, promoting greater consistency and legal certainty across Member States.
Merger Directive (2009/133)
The proposal also seeks to align the tax treatment of corporate reorganisations with recent developments in EU company law. While the Mobility Directive introduced a harmonised framework for cross-border conversions, mergers and divisions, the corresponding tax provisions were not updated at the time, creating potential inconsistencies between company law and tax legislation.
The Omnibus Proposal addresses this gap by expanding the scope of the Tax Merger Directive and updating its definitions to reflect the restructuring operations recognised under the Mobility Directive, including simplified mergers and divisions by separation. This alignment is intended to enhance legal certainty, ensure consistency across the EU legal framework and facilitate the implementation of cross-border restructuring transactions.
In addition, the proposal extends the availability of tax-neutral treatment to certain cross-border conversions and migrations of EU companies, broadening access to relief beyond the categories of legal entities previously covered. As a result, businesses undertaking genuine cross-border reorganisations may benefit from greater flexibility, increased legal certainty and reduced tax barriers when adapting their corporate structures within the Single Market.
Tax Dispute Resolution Mechanisms Directive (2017/1852)
The proposal also seeks to enhance the effectiveness of the EU tax dispute resolution framework by addressing procedural issues that can delay the resolution of cross-border tax disputes. By improving the operation of existing mechanisms, the proposed changes aim to provide taxpayers with faster outcomes, greater legal certainty and more effective relief from double taxation.
The Recast of the Directive on Administrative Cooperation (DAC)
The DAC framework currently comprises nine separate directives adopted over time. The recast seeks to codify these measures into a single, clearer legal instrument, while also introducing a number of targeted simplifications aimed at reducing compliance burdens for EU businesses.
A key aspect of the proposal is the reduction of reporting obligations that are considered duplicative or of limited practical value. In particular, multinational groups already subject to reporting requirements under the Pillar Two global minimum tax rules would be relieved from certain additional disclosure obligations. The proposal also removes reporting requirements relating to specific cross-border arrangements that have proven to generate limited benefits for tax authorities, thereby reducing the overall volume of reports required from businesses.
The recast also introduces targeted simplifications for the platform economy by increasing the reporting threshold applicable to online sales of goods. This measure is expected to exclude a significant number of occasional and private sellers, particularly individuals selling second-hand items, from the reporting framework.
In addition, the proposal aims to streamline administrative procedures by introducing a single notification process for country-by-country reporting and Pillar Two top-up tax information returns, reducing duplicate filings and simplifying compliance for multinational groups.
Finally, the recast seeks to improve the quality and effectiveness of administrative cooperation within the EU. Enhanced taxpayer identification mechanisms should facilitate the accurate matching of reported information, while the mandatory exchange of data across all categories of income and capital is expected to provide tax authorities with more complete information for the application of their domestic tax rules.
Next Steps
The publication of the Tax Simplification Package on 24 June 2026 marks the beginning of the EU legislative process rather than the immediate introduction of new rules. The proposals will now be examined by the European Parliament and the Council of the European Union, with technical discussions and negotiations between Member States expected to continue over the coming months and years.
As the proposals concern direct taxation, unanimous approval by all EU Member States will be required before they can be formally adopted. While the DAC recast may progress relatively quickly given the advanced level of prior discussions, negotiations on the Tax Omnibus Directive are expected to be more extensive due to the breadth and significance of the proposed changes. Given that unanimity is required, the content and timing of the final measures may differ significantly from the European Commission’s initial proposal.
Once adopted, the directives will be published in the Official Journal of the European Union and will enter into force at EU level. Member States will then be required to transpose the agreed rules into their domestic legislation within the prescribed implementation periods.
Based on the current proposal, Member States would be required to transpose the Tax Omnibus Directive by 31 December 2028, with the majority of provisions applying from 1 January 2029. Certain measures, however, are subject to longer implementation periods.
It should be noted that the timetable remains indicative and may evolve as negotiations progress. The final scope, implementation dates and transitional measures will ultimately depend on the outcome of discussions between EU institutions and Member States.
Businesses and tax practitioners should continue to monitor developments as the proposals progress through the EU legislative process. Further information and updates are available on the European Commission’s Taxation and Customs Union website (European Commission proposes landmark tax simplification package to streamline compliance and boost competitiveness – Taxation and Customs Union)
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