The European Commission has adopted a comprehensive tax simplification package designed to modernise the EU’s direct tax framework, reduce compliance burdens for businesses and strengthen the competitiveness of the Single Market. The package consists of two legislative proposals: the Direct Taxation Omnibus Directive and a recast of the Directive on Administrative Cooperation (DAC).
According to the Commission, the measures are expected to reduce business compliance costs by approximately €7.9 billion, while maintaining existing safeguards against tax fraud, tax avoidance and tax evasion.
Direct Taxation Omnibus Modernises EU Direct Tax Rules
The Direct Taxation Omnibus introduces a broad range of measures intended to simplify cross-border taxation and promote investment across the European Union.
One of the most significant proposals is the abolition of withholding taxes on cross-border payments of dividends, interest and royalties between associated EU companies. The Commission said this would remove barriers to cross-border investment and facilitate the free movement of capital within the Single Market.
The proposal also extends the scope of the Parent-Subsidiary Directive to pension institutions, allowing them to benefit from withholding tax exemptions on qualifying dividend income received from other Member States.
Measures Target Investment, Pillar Two and ATAD Simplification
The Omnibus introduces a common minimum standard for the tax treatment of investments in research and development-related tangible assets by allowing immediate expensing across all Member States.
The package also seeks to simplify the interaction between Controlled Foreign Company (CFC) rules and the OECD Pillar Two global minimum tax framework. According to the Commission, the changes remove overlapping requirements and establish a more harmonised CFC model across the EU.
In addition, the proposal updates the interest limitation provisions under the Anti-Tax Avoidance Directive (ATAD). Key changes include:
- Increasing the mandatory de minimis threshold.
- Removing implementation options that have created complexity.
- Excluding certain low-risk third-party borrowing and market-based financing arrangements from the limitation rules.
The Commission said these measures are intended to reduce administrative burdens while maintaining protection against tax avoidance.
Cross-Border Tax Disputes and Corporate Reorganisations
The Omnibus also proposes improvements to EU tax dispute resolution procedures to address procedural delays that have affected cross-border cases.
In addition, the Tax Merger Directive would be expanded to cover all forms of corporate reorganisations recognised under EU company law, allowing qualifying mergers, divisions and asset transfers to take place on a tax-neutral basis.
According to the Commission, these changes will provide greater legal certainty for businesses operating across multiple Member States.
DAC Recast Reduces Reporting Obligations
The second proposal recasts the Directive on Administrative Cooperation (DAC), consolidating the existing nine directives into a single legislative instrument.
The Commission estimates that the revised framework will generate more than €1 billion in annual compliance savings while improving the efficiency of administrative cooperation between Member States.
Among the most significant changes are:
- Removal of DAC6 reporting obligations for approximately 3,000 multinational groups already subject to the OECD Pillar Two global minimum tax rules, generating estimated annual savings of €300 million.
- Elimination of certain DAC6 reporting obligations considered to provide limited value for tax administrations, reducing overall reporting volumes by 35% and saving businesses approximately €40 million annually.
- Increased reporting thresholds for online platform reporting of second-hand goods, removing reporting obligations for more than 10 million sellers and reducing compliance costs for digital platforms by approximately €678 million.
- Introduction of a single notification requirement for Country-by-Country Reporting (CbCR) and Pillar Two top-up tax information returns, generating estimated annual savings of more than €260 million.
- Introduction of a taxpayer verification tool to improve taxpayer identification by tax administrations.
- Mandatory exchange of information across all categories of income and capital between Member States.
Next Steps
Both legislative proposals will now be submitted to the European Parliament for consultation before being considered by the Council of the European Union.
The package forms part of the European Commission’s wider simplification agenda, which aims to reduce administrative burdens by at least 25% overall and 35% for SMEs by 2029.
According to the Commission, the combined measures are intended to create a simpler, more investment-friendly tax environment while preserving high standards of tax transparency and cooperation across the European Union.