Tax Omnibus

Tax Omnibus

On 24 June 2026, the European Commission published its long-awaited Tax Simplification Package, comprising a proposed Directive on the simplification of EU direct tax legislation (the “Tax Omnibus”) together with a proposal to recast the Directive on Administrative Cooperation (DAC).

The package forms part of the Commission’s broader competitiveness agenda and seeks to reduce the administrative burden created by the successive waves of EU tax legislation adopted over the last decade. According to the Commission’s own estimates, the proposed measures could reduce annual compliance costs for businesses by approximately EUR 8 billion.

Although the proposals are still at an early stage of the legislative process, they provide a clear indication of the Commission’s intention to shift the focus from the introduction of new anti-avoidance measures towards the simplification of existing rules.

Background

Since 2016, multinational groups operating in the European Union have had to adapt to an increasingly complex legislative framework. The Anti-Tax Avoidance Directives (ATAD I and II), the amendments to the Parent-Subsidiary Directive, the Interest and Royalties Directive, DAC6, DAC7, DAC8, DAC9 and, most recently, the implementation of the OECD Pillar Two rules have significantly increased compliance obligations for both taxpayers and tax administrations.

The Commission now considers that many of these rules overlap, create unnecessary administrative costs or no longer serve their original purpose following the implementation of the global minimum tax.

The Tax Omnibus is therefore intended to simplify the existing framework while maintaining an appropriate level of protection against tax avoidance.

Main proposed measures

Among the most relevant proposals are the following:

1. Broader exemption from withholding taxes within the EU

Perhaps the most significant proposal is the amendment of both the Parent-Subsidiary Directive and the Interest and Royalties Directive.

The Commission proposes removing the current minimum shareholding requirements (10% under the Parent-Subsidiary Directive and 25% under the Interest and Royalties Directive), so that dividends, interest and royalties paid between EU companies would generally benefit from withholding tax exemptions irrespective of the level of participation, provided that the relevant anti-abuse provisions continue to apply.

If ultimately adopted in its current form, this would considerably simplify the tax treatment of many intra-group financing and holding structures across the European Union.

2. Simplification of the interest limitation rules

Among other measures, the EUR 3 million de minimis threshold would become mandatory across all Member States and certain optional provisions currently available to Member States would be eliminated. In addition, ordinary third-party borrowing would generally fall outside the scope of the limitation rules.

The objective is to focus the regime on highly leveraged intra-group financing arrangements rather than commercial external debt.

3. Review of the CFC rules

The Commission acknowledges that, following the implementation of Pillar Two, certain Controlled Foreign Company (CFC) rules may now duplicate the protection already provided by the global minimum tax.

The proposal therefore seeks to simplify the existing regime and reduce situations in which taxpayers are required to apply both sets of rules to the same structures.

4. Removal of imported hybrid mismatch rules

The proposal repeals the imported hybrid mismatch provisions introduced by ATAD II.

According to the Commission’s impact assessment, these rules have generated significant compliance costs while producing relatively limited practical benefits.

5. Modernisation of the Merger Directive

The Commission also proposes extending the scope of the Merger Directive so that tax neutrality would apply to all cross-border reorganisations recognised under EU company law, thereby reducing uncertainty surrounding certain corporate restructurings.

6. New common tax incentive for R&D investment

The proposal introduces an EU-wide mechanism allowing immediate tax deduction for certain investments in tangible assets used for research and development activities.

Although Member States would continue to operate their own domestic R&D incentive regimes, the proposal aims to establish a common minimum level of tax support across the European Union.

Simplification of administrative cooperation (DAC)

Alongside the Tax Omnibus, the Commission has proposed a complete recast of the Directive on Administrative Cooperation.

Rather than introducing entirely new reporting obligations, the proposal seeks to consolidate the existing DAC framework and eliminate certain reporting requirements that have proved to be of limited practical value.

Among the proposed changes are:

• consolidation of the current DAC directives into a single legislative instrument;
• simplification of the interaction between DAC4 (Country-by-Country Reporting) and DAC9 (Pillar Two reporting);
• targeted reductions to certain DAC6 reporting obligations;
• higher reporting thresholds for digital platform operators under DAC7; and
• simplification of various administrative procedures between taxpayers and tax authorities.

Our comments

Although these proposals are still subject to negotiation and unanimous approval by all Member States, they represent a notable change in direction in EU tax policy.

Over recent years, the emphasis has largely been on strengthening anti-avoidance legislation and increasing transparency obligations. The Tax Omnibus instead focuses on reducing complexity and eliminating rules that, in the Commission’s view, have become disproportionate or redundant.

Particularly noteworthy are the proposed changes to the withholding tax directives and the simplification of the ATAD rules, both of which could have a material impact on the way many multinational groups structure their European investments and financing arrangements.

The legislative process is expected to take some time, and significant amendments cannot be ruled out. Nevertheless, the package provides a useful indication of the Commission’s current policy direction and is likely to be closely followed by both businesses and tax practitioners.