| Dokumendiregister | Riigikogu |
| Viit | 1-2/26-446/1 |
| Registreeritud | 26.06.2026 |
| Sünkroonitud | 27.06.2026 |
| Liik | EL dokument |
| Funktsioon | |
| Sari | |
| Toimik | Ettepanek - SEC(2026) 560, SWD(2026) 560, SWD(2026) 561, SWD(2026) 562, COM(2026) 560 |
| Juurdepääsupiirang | Avalik |
| Adressaat | |
| Saabumis/saatmisviis | |
| Vastutaja | |
| Originaal | Ava uues aknas |
EN EN
EUROPEAN COMMISSION
Brussels, 24.6.2026
COM(2026) 560 final
2026/0163 (CNS)
Proposal for a
COUNCIL DIRECTIVE
amending Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164,
(EU)2017/1852, (EU) 2025/50 as regards the simplification of the Union framework on
direct taxation and supporting growth and competitiveness of the EU
{SEC(2026) 560 final} - {SWD(2026) 560 final} - {SWD(2026) 561 final} -
{SWD(2026) 562 final}
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EXPLANATORY MEMORANDUM
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
This initiative was announced in the Commission Work Programme 2026 as part of the
Commission’s broader agenda to simplify Union legislation, reduce unnecessary
administrative burdens and strengthen the competitiveness of the internal market.
In recent decades, the Union’s framework on direct taxation has developed considerably in
response to the growing impact of globalisation and the digital economy, the rise of
aggressive tax planning strategies and practices and the need to strengthen the functioning of
the internal market while safeguarding its integrity. In particular, the Union has adopted a
broad range of directives aimed at ensuring fair taxation, preventing tax avoidance and
facilitating cross-border activities within the internal market. Council Directive 2003/49/EU1
(Interest and Royalties Directive – IRD), Council Directive 2011/96/EU2 (Parent-Subsidiary
Directive – PSD) and Council Directive 2009/133/EU3 (Tax Merger Directive – TMD)
established common rules for withholding taxes on certain intra-group payments and tax
neutrality for cross border reorganisations. Council Directive (EU) 2016/11644 as amended by
Council Directive (EU) 2017/9525 (Anti-Tax Avoidance Directive – ATAD) laid down a
coordinated minimum level of protection against aggressive tax planning practices. Council
Directive (EU) 2017/18526 (Dispute Resolution Mechanisms Directive – DRM) provided
mechanisms for the effective resolution of cross-border disputes in the Union that involve
double taxation or arising from double taxation conventions.
Collectively, those instruments have played a significant role in strengthening the internal
market by reducing obstacles affecting cross-border activities and investment, while reducing
opportunities for tax avoidance, improving coordination between Member States and
establishing a Union tax framework for cross-border activities within the internal market.
At the same time, the cumulative development of Union legislation in the field of direct
taxation, combined with divergent national implementation and evolving international tax
developments, has significantly increased the complexity of the Union corporate tax
framework and therefore, compliance burdens for businesses operating cross-border as well as
tax administrations in the Union. The directives were designed at different periods in time,
1 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest
and royalty payments made between associated companies of different Member States (OJ L 157,
26.6.2003, p.49, ELI: http://data.europa.eu/eli/dir/2003/49/oj). 2 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in
the case of parent companies and subsidiaries of different Member States (OJ L 345, 29.12.2011, p. 8,
ELI: http://data.europa.eu/eli/dir/2011/96/oj). 3 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to
mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies
of different Member States and to the transfer of the registered office of an SE or SCE between Member
States (OJ L 310, 25.11.2009, p. 34, ELI: http://data.europa.eu/eli/dir/2009/133/oj). 4 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices
that directly affect the functioning of the internal market (OJ L 193, 19.7.2016, p. 1,
ELI: http://data.europa.eu/eli/dir/2016/1164/oj). 5 Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards
hybrid mistmatches with third countries (OJ L 144, 7.6.2017, p.1, ELI:
http://data.europa.eu/eli/dir/2017/952/oj) 6 Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the
European Union (OJ L 265, 14.10.2017, p. 1, ELI: http://data.europa.eu/eli/dir/2017/1852/oj).
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each reflecting distinct contexts. In addition, the implementation of the global minimum tax
rules under Council Directive (EU) 2022/25237 (Pillar Two Directive) has altered the
framework in which several existing Union anti-abuse measures operate. In particular, certain
provisions of ATAD may lead to duplicative outcomes or disproportionate compliance
burdens when applied alongside the Pillar Two rules. Furthermore, experience from the
application of IRD and PSD has shown that procedural barriers and legal uncertainty arise
from the practical operation of the withholding tax relief provided for under these directives.
Concerns have also been raised regarding the application of certain provisions of ATAD that
are no longer fully in line with current economic realities, create disproportionate compliance
burdens or legal uncertainty, and do not sufficiently support investment and growth within the
internal market. In particular, the absence of a common Union framework for the tax
treatment of research and development (‘R&D’) expenditure contributes to fragmentation
across Member States and may distort or discourage investment decisions and innovation
within the internal market.
The proposal reflects the need to ensure that the Union direct tax framework remains
coherent, proportionate and effective. It aims to simplify the existing Union framework in the
field of direct taxation in order to reduce unnecessary compliance burdens, improve legal
certainty and ensure the coherent functioning of the internal market. The proposal therefore
introduces amendments to the PSD, IRD (as well as a related targeted amendment to Council
Directive 2025/508, faster and safer relief of excess withholding taxes – FASTER), TMD,
ATAD and the DRM.
• Consistency with existing policy provisions in the policy area
The Omnibus is consistent with existing EU direct tax policy. The proposal simplifies and
modernises the Union direct tax acquis, while preserving the original objectives of the
directives. It contributes to the Commission’s broader objective of strengthening the
competitiveness of the Union by reducing unnecessary compliance burdens, improving legal
certainty and facilitating cross-border investment and business activity within the internal
market.
In the area of withholding tax exemption on financial flows of interests, royalties and
distribution of profits within the Union, the proposal builds on the progress initiated by
FASTER, and addresses overlaps, fragmentation and outdated procedural or substantive
requirements that generate disproportionate costs for businesses operating cross-border in the
Union.
The proposal also supports the implementation of the Pillar Two Directive within the Union
and aims to simplify and eliminate overlapping provisions within the ATAD, ensuring that the
existing Union direct tax framework remains coherent in light of recent international tax
developments. The proposal should also be considered alongside the DAC Recast proposal,
which simplifies certain reporting obligations and procedures, also in relation to MNE groups
in scope of the Pillar Two Directive.
Taken together, these initiatives establish a more coherent, modern and competitive tax
framework for businesses operating within the internal market. In doing so, the proposal
7 Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of
taxation for multinational enterprise groups and large-scale domestic groups in the Union (OJ L 328,
22.12.2022, p. 1, ELI: http://data.europa.eu/eli/dir/2022/2523/oj). 8 Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer relief of excess withholding
taxes (OJ L, 2025/50, 10.1.2025, ELI: http://data.europa.eu/eli/dir/2025/50/oj).
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maintains the high level of protection against tax avoidance and abusive practices within the
Union. The initiative does not weaken existing safeguards but rather ensures that anti-abuse
rules remain proportionate, coherent and effective in light of more recent developments in
international taxation and practical implementation experience, while removing unnecessary
complexity, legal uncertainty and administrative burdens for taxpayers and tax
administrations.
• Consistency with other Union policies
The proposal is consistent with the Commission’s broader policy objectives concerning
simplification, competitiveness and the proper functioning of the internal market. The
proposal contributes to the objective of strengthening competitiveness in the Union by
reducing obstacles affecting cross-border investment and economic activity within the internal
market, in line with the Draghi Report on EU Competitiveness9 and the broader objectives set
out in the Competitiveness Compass for the EU10.
In doing so, it meaningfully reduces administrative burdens. It will also contribute to
furthering other Commission priorities, such as building a strong Savings and Investments
Union11, and delivering on the importance of immediate expensing for investment decisions
in the field of Research and Development, as recommended in the Clean Industrial Deal of 2
July 202512. More generally, the proposal will encourage cross-border commercial activity
and business expansion in the internal market, and facilitate business restructurings in line
with Directive 2017/113213 as amended by Directive 2019/2121 (Mobility Directive)14.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
This proposal falls within the scope of Article 115 of the Treaty on the Functioning of the
European Union (TFEU). The rules of the proposal aim to approximate the laws, regulations
and administrative practices of the Member States as directly affect the establishment or
functioning of the internal market. It shall therefore be adopted under the special legislative
procedure in accordance with this article and the initiative should take the form of a directive.
The competence of the Union in this area is shared with the Member States.
• Subsidiarity (for non-exclusive competence)
Union competence in the area of direct taxation is shared with the Member States on the basis
of Article 115 TFEU. In accordance with the subsidiarity principle laid down in Article 5(3)
TFEU, action at EU level may be taken only when the envisaged objectives cannot be
9 The Draghi report on EU competitiveness 10 European Commission, ‘A competitiveness Compass for the EU’, COM (2025) 30 Final 11 Among the key objectives of the Savings and Investment Union is the breaking down of barriers to
integrated financial markets and supporting investments, as explained here:
https://finance.ec.europa.eu/regulation-and-supervision/savings-and-investments-union_en#what 12 ‘Commission Recommandation of 2 July 2025 on tax incentives to support the Clean Industrial Deal
and in light of the Clean Industrial Dearl State aid Framework’, C(2025) 4319 final. 13 Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to
certain aspects of company law (OJ L 169, 30.6.2017, p. 46,
ELI: http://data.europa.eu/eli/dir/2017/1132/oj). 14 Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019
amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (OJ L
321, 12.12.2019, p. 1, ELI: http://data.europa.eu/eli/dir/2019/2121/oj).
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achieved sufficiently by Member States acting alone and in addition, when, by reason of the
scale or effects of the proposed action, such objectives can be better achieved by the EU.
On this basis, each Member States has its own domestic tax system, based on its individual
economic priorities, budgetary requirements, and political choices. However, there are
situations where EU-wide action is essential to maintain a fair and efficient internal market
and to uphold fundamental freedoms. For instance, the IRD and the PSD were introduced to
ensure equal treatment of dividends, interest or royalties when payments are made between
taxpayers in different Member States. Similarly, the TMD establishes a common tax
framework for certain cross-border reorganisations within the Union, ensuring that mergers,
divisions, transfer of assets and exchange of shares can take place without immediate taxation
thereby reducing tax obstacles to business restructurings which could affect business
decisions. ATAD introduces a set of common anti-tax avoidance rules to address risks of base
erosion and profit shifting, often caused or aggravated by mismatches or fragmentation
between the national tax systems of Member States. The DRM establishes rules for resolving
disputes that arise from the interpretation and application of double tax treaties among
Member States.
While Member States remain responsible for simplification of domestic tax rules, only action
at EU level can amend the existing EU direct tax acquis in accordance with the Treaties. This
is required to simplify and clarify the common rules, address identified challenges, and thus
enhance the competitiveness of EU businesses. As a result, the objectives of the Omnibus on
Taxation cannot be achieved sufficiently if each Member State acts alone.
In addition, EU action in this area would bring clear EU added value to both businesses and
tax administrations. The objective is to remove overlapping or superfluous rules, streamline
procedures, further reduce double taxation and market distortions, clarify concepts, eliminate
outdated provisions, and address the inconsistent or divergent application of rules across
Member States. The proposal would make EU tax rules and procedures clearer and simpler
and it would thus be less costly for businesses to operate across multiple Member States. This
would enable a better use of the internal market’s potential making it a more attractive place
to establish businesses and invest. For tax administrations, clearer and more efficient rules
would simplify compliance checks and tax audits, reducing disputes and lowering
administrative burdens.
• Proportionality
The proposal is limited to targeted amendments necessary to simplify existing Union tax
legislation and improve its coherence and effectiveness. It does not go beyond what is
necessary to achieve these objectives. In particular, it preserves the core objectives and
safeguards of the existing directives while updating, streamlining or simplifying specific
provisions that have been identified as generating unnecessary complexity, administrative
burdens, legal uncertainty or disproportionate compliance costs. It therefore strikes an
appropriate balance between simplification, legal certainty and the preservation of the original
objectives to ensure a high degree of protection against tax avoidance in the internal market.
• Choice of the instrument
The proposal is for a directive, which is the only permissible legal instrument under the legal
basis (Article 115 TFEU).
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3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER
CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
Commission Staff Working Document ‘Evaluation of Council Directive 2016/1164 laying
down rules against tax avoidance practices that directly affect the functioning of the internal
market’ evaluates the implementation and impact of ATAD I and II, under Better Regulation
criteria. The evaluation considers the efficiency, effectiveness, relevance, coherence and EU
added value of the directives. The evaluation is primarily based on the findings of an external
study which was undertaken by a contractor. The contractor conducted in-depth interviews of
national tax authorities in 15 Member States and consulted the remaining 12 tax authorities
through a survey. The contractor also conducted in-depth interviews with private sector
stakeholders (including EU and national business associations, MNEs, tax advisors,
academics and NGOs) in a sample of 10 Member States, as well as carried out a survey of tax
advisors and a targeted survey of 20 MNEs in all 27 Member States.
The results of the evaluation inform the impact assessment report accompanying the initiative,
by providing an evidence base. The impact assessment report further clarifies the connection
between those findings and the issues addressed in the context of this initiative.
• Stakeholder consultations
The stakeholder consultation strategy for this initiative consisted of a call for evidence and
targeted consultations. No public consultation was conducted as extensive targeted
consultations were held with key stakeholders over the course of 15 months, in addition to the
in-depth study undertaken on ATAD. The targeted consultations included a large
representation of key stakeholders, and included the 27 national authorities. All contributions
received were considered in the impact assessment report, which accompanies this proposal.
It includes a synopsis report of the stakeholder consultation in Annex 2, which details the
profiles of the respondents and the input received.
Throughout the process, Commission services, consulted the Member States through
dedicated meetings of the Commission Working Party IV (direct taxation) and the Council
High-Level Working Party (HLWP).
A call for evidence15 was published on 16 February 2026, and remained open for consultation
until 30 March 2026. The consultation sought feedback on the need for action, and collected
evidence on issues such as administrative costs, burdensome procedures, outdated or
overlapping rules, and lack of clarity or differences in how rules are interpreted. The call for
evidence received 117 contributions, from business associations and companies, but also
citizens, as well as academic institutions, non-governmental organisations, and trade unions.
Overall, stakeholders fully supported the initiative to simplify existing EU tax rules with a
view to improving the functioning of the internal market and ensuring Europe’s attractiveness
as a place to invest and to do business. Nonetheless, the views varied on how exactly the
simplification could be achieved.
Most stakeholders expressed the need for simplifying the existing directives, e.g., by
rationalising and modernising them, reducing overlaps, inconsistencies, fragmented
implementations, and administrative burdens, and by standardising and clarifying the terms,
15 Call for evidence for an impact assessment - Ares(2026)1712759.
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rules and procedures following from the directives, including through the use of digital tools,
and by limiting national discretion in implementing the directives. Some also pointed out to
the importance of making the rules and procedures simpler for SMEs.
• Collection and use of expertise
The Commission has relied on the expertise of its Joint Research Centre, which used the
CORTAX model to study the possible impacts of the initiative. The CORTAX model is a
general equilibrium model designed to evaluate the effects of corporate tax reforms in 27
Member States, using detailed data from various sources. The Commission relied on external
expertise in preparing this proposal. The initiative and the impact assessment report build on
the results of the ATAD evaluation, which integrates the results from an external study on the
ATAD by an outside contractor16.
• Impact assessment
An impact assessment was carried out to prepare this initiative. The draft impact assessment
report was submitted to the Commission’s Regulatory Scrutiny Board (RSB) on 8 April 2026
and a meeting was held on 29 April 2026. Based on a Decision of the President of the
Commission as regards the tasks of the Regulatory Scrutiny Board (RSB)17, dated 28 April
2026, the RSB delivered an ‘unqualified’ Opinion with recommendations on 4 May. The
Decision of 8 April thus prescribes that omnibus proposals are treated as targeted initiatives
which are not subject to qualified opinions by the RSB. However, the RSB did provide some
recommendations including suggestions for improvements on the connections between the
problems, objectives, the intervention logic of the report; the range and the construction of the
options; analysis of the general objective of maintaining high tax standards in the EU; and the
analysis of the costs and benefits, including the robustness of the assumptions used. A revised
impact assessment report addressing these recommendations was prepared.
The report assesses the impact on the basis of several policy options. Regarding withholding
taxes under the IRD and PSD, the impact assessment report considers an option to exempt
all intra-EU interest, royalty and dividend payments through an extension of these directives,
coupled with the removal of upfront procedures for entitlement, while an alternative option
considered in the report was to align the scope and procedures of the IRD and PSD. For
Controlled Foreign Company (CFCs) legislation under the ATAD, the report considers a
mandatory application of Model A and a carve-out for Pillar 2 companies (or, alternatively,
taking account of Pillar 2 Qualified Domestic Minimum Top-up Taxes to determine whether a
CFC tax charge is due and, if so,, credit the top-up tax against the CFC liability).
Additionally, the analysis assesses a carveout for SMEs. For investments in research and
development (R&D), the immediate expensing of the cost for the acquisition of tangible
R&D assets is explored against the status quo, whereby R&D expensing would continue to be
delineated at national level. Several options were considered for the interest limitation rule
under the ATAD with the primary goal to ensure fairness and mitigating its procyclical
effects: a carveout for SMEs, mandatory application of the 30% EBITDA cap, mandatory
application of certain currently optional variations, a carve-out for low-risk third-party loans,
and full deductibility in case of downward shocks in profitability. The report also assesses
modifications for removing the rules on imported hybrid mismatches; aligning the Tax
Merger Directive with the Mobility Directive (cross-border mergers from a company law
16 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules
against tax avoidance practices that directly affect the functioning of the internal market. 17 Decision of the President of the Commission amending Decision P(2020)2 as regards the tasks of the
Regulatory Scrutiny Boar, 28.4.2026.
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perspective), either through a dynamic reference or via adding new structuring transactions;
and several targeted improvements to the Dispute Resolution Mechanism Directive, to
clarify procedural rules and allow the use of Council implementing acts.
The impact assessment specifically examines three combinations of options.
(a) Comprehensive Omnibus: this combination includes all policy options and where
relevant, elects for the most ambitious alternatives for the main measures of this
initiative on the taxation of cross-border interest, royalty and dividend payments, and
taxation of CFCs, to assess the most ambitious potential for simplification.
(b) Medium Ambition Omnibus: this approach encompassed all policy options except
the action related to R&D spending, and included the less ambitious alternatives for
withholding taxes under the IRD and the PSD, and CFC in ATAD.
(c) Limited Ambition Omnibus: this version targets existing measures in a simpler and
more straightforward way, and maintained the status quo for the remaining policy
options.
The impact assessment report concludes that the Comprehensive Omnibus is the
preferred policy package. It does not only prove effective in achieving the specific
objectives of the initiative but, in addition, performs best on effectiveness and efficiency, as
explained in the impact assessment report.
The impact assessment includes a cost-benefit analysis of the initiative, which is expected to
be positive. The benefits consist of the simplifications that the initiative would introduce
which can significantly reduce tax compliance costs for EU taxpayers. The impact assessment
report sets out the potential cost savings for businesses and the economy in the EU as a result
of potential reductions of current tax compliance costs, as well as the broader, longer-term
macro-economic impact. It results that the preferred option is the Comprehensive Omnibus.
This option is roughly estimated to reduce compliance and related financial costs by about
EUR 6.6 billion per year, out of which recurrent costs related to cutting down administrative
burden is roughly EUR 2 billion per year (a breakdown of these numbers can be found in
Annex 3 to the impact assessment report). Some of its individual measures are estimated to
increase EU GDP by roughly 0.04% (exemption from withholding tax) and 0.2% (immediate
expensing of certain R&D assets) in the long run.
The impact assessment report also attempts to articulate some of the possible costs. The
purpose of the Tax Omnibus proposal is to reduce existing recurrent costs, by simplifying EU
tax rules where possible. Accordingly, as outlined in Chapter 6 and Annex 3, the initiative is
not expected to bring any significant costs for businesses and tax administrations, and these
are thus estimated as none, marginal, or not relevant.
In addition, the impact assessment report does not expect any particular and direct
environmental impact given that the proposal is a horizontal simplification measure in the
field of direct taxation, nor any material direct social impacts as the proposal does not concern
any labour, social or other directly related rights. Any environmental or social effects would
therefore be indirect, depending on the use of the freed-up resources by EU businesses. Given
the expected low impacts on the environment, the ‘do no significant harm’ principle
assessment and climate consistency check were not conducted for the impact assessment
accompanying this initiative.
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• Regulatory fitness and simplification
The proposal seeks to reduce regulatory burdens for both taxpayers and tax administrations.
Tax compliance costs are a burden for businesses, and a reduction will be a major benefit in
the implementation of the initiative. Overall, as stated above, the Omnibus is roughly
estimated to reduce compliance and related financial costs in the internal market by about
EUR 6.6 billion per year, out of which about EUR 2 billion per year in recurrent costs related
to administrative burdens. For instance, the total cost reduction for corporate taxpayers from
the introduction of a full exemption of interest, royalties and dividends (amendments to the
IRD and PSD) amount to an estimated EUR 5.34 billion per year. Deactivation of CFC rules
for MNEs in scope of Pillar 2 (amendments to the ATAD) could save compliance costs of
around EUR 160 million per year. The immediate expensing of assets related to R&D could
save compliance costs of around EUR 265 million per year. Reduction in compliance costs
will also benefit SMEs, in particular through: (i) the introduction of a specific carve-out from
ATAD CFC rules, which could save compliance costs of about EUR 90 million per year; and
(ii) the de facto exclusion of SMEs from the ATAD interest limitation rule, which could save
compliance costs of EUR 69 million by making the EUR 3 million safe harbour mandatory
within 3 years of the entry into force of the proposal. The carve-out of low-risk third-party
loans could save compliance costs of around EUR 430 million per year. The detailed
estimated reduction in compliance costs features in the impact assessment report.
To meet the objectives of simplifying EU tax rules with the aim to boost EU competitiveness,
while maintaining high tax standards in the EU, in an effective and efficient manner, the
proposal aims to simplify the EU tax environment, in conjunction with the DAC Recast, by
making sure that the material tax rules are up-to-date and fit for purpose. This should reduce
red tape and lower obstacles to cross-border operations. By amending the EU direct tax acquis
with the aim of simplification, the proposal should make tax compliance in the EU clearer,
easier and more efficient. Additionally, where the proposal introduces new harmonised rules,
it builds on existing approaches, e.g. the FASTER Directive for withholding tax procedures,
or simpler frameworks (e.g. the tax depreciation treatment of assets related to Research and
Development), thus further limiting initial adjustment costs for companies.
• Fundamental rights
It is not expected that there will be any significant impact on fundamental rights. The
proposed measures are compatible with the rights, freedoms and principles of the Charter of
fundamental rights of the European Union.18 Reducing fragmentation and unnecessary
compliance requirements, improving predictability and facilitating cross-border business
activity within the internal market may have a limited positive bearing on the freedom to
conduct a business and on the effective exercise of the right of establishment. However, such
potential impacts cannot be interpreted as meaning that the problems outlined in this Directive
lead to any discrimination or unjustified restrictions. The initiative is therefore considered to
be compatible with the Charter.
Where the implementation of the initiative entails the processing of personal data, such
processing would have to comply fully with the applicable Union framework. Accordingly,
data protection rights covered by the Charter and the General Data Protection Regulation
(GDPR)19 are safeguarded.
18 Charter of Fundamental Rights of the European Union, OJ C 326, 26.10.2012, p. 391. 19 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the
protection of natural persons with regard to the processing of personal data and on the free movement of
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4. BUDGETARY IMPLICATIONS
The initiative will not have budgetary implications for the EU budget.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
For the purpose of monitoring and evaluating the implementation of the Tax Omnibus, the
Commission will periodically monitor its implementation and application in close cooperation
with the Member States, based on the following indicators: tax compliance costs; the number
of cases where exceeding borrowing costs where not deductible; the amount of R&D
investment in the EU; costs and cost savings for tax administrations; stakeholder views such
as on interpretational, operational and technical issues, costs and benefits, and the practical
effect of the Omnibus; the number of cases resolved using the DRM; the existence of tax gaps
and overlaps; foreign direct investment flows within the EU; and outbound interest and
royalty payments. This is set out in more detail in the impact assessment report accompanying
this proposal.
The Commission will review the situation in the Member States regularly and publish a
report. For this purpose, Member States should communicate to the Commission any relevant
information that is necessary for the monitoring and evaluation of the Omnibus on Taxation
proposal. Considering the impact of the initiative on several existing EU direct tax directives,
which have been transposed by the Member States, it will be necessary to give Member States
time to properly implement the measures which will be adopted in Council as part of the
Omnibus on Taxation. On this premise, the first evaluation should not take place earlier than
five years after the new rules start to apply.
• Explanatory documents (for directives)
The proposal does not require Explanatory Documents on the transposition.
• Detailed explanation of the specific provisions of the proposal
Amendments to Council Directive 2003/46/EC (Interest and Royalty Directive - IRD)
According to the IRD, interest and royalty payments arising in a Member State are exempt
from withholding taxes in that State, provided that the beneficial owner is an associated
company of another Member State or a permanent establishment situated in another Member
State. The Directive currently applies only where the minimum holding requirements laid
down in the definition of “associated company” are fulfilled. In addition, Member States may
currently apply administrative or prior authorisation/certification procedures to verify a priori
whether access to the exemption from withholding tax should be granted.
The proposal amends the IRD to simplify the substantive and procedural conditions for
accessing the withholding tax exemption.
First, Article 1 of the proposal extends the material scope of the IRD, by removing the
minimum holding requirement applicable under the concept of ‘associated company’. As a
result, interest and royalty payments between companies within the Union may benefit from
the exemption irrespective of the level of participation held between them.
such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (Text with EEA
relevance) (OJ L 119, 4.5.2016, p. 1)
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Second, the proposal introduces a safeguard to prevent situations of double non-taxation.
Member States would be required either to levy withholding tax or deny the deductibility of
interest and royalty payments at source, where the recipient of the payment is established in a
jurisdiction that does not levy corporate income tax or applies a zero tax rate to income flows
of interests and royalties, while the Member State of source does not levy withholding tax
either. This safeguard would not apply where the recipient is subject to a qualified domestic
top-up tax for the tax period and receive no refunds or direct or indirect financial benefits in
this connection or is part of an MNE group which, for that tax period, falls within the scope of
the rules laid down in the Pillar Two Directive, or as regards third-country jurisdictions, the
OECD Model Rules.
Third, the proposal limits the use of administrative or prior authorisation procedures for
accessing the exemption. As a general rule, Member States will no longer be able to require
prior authorisation or administrative procedure for verifying whether the conditions for the
exemption are fulfilled at the time of payment. Eligibility will be self-assessed by the
taxpayer, subject to ex post controls and the application of anti-abuse rules, including rules on
beneficial ownership by Member States. However, there are cases when the taxpayer will not
be able to ensure eligibility at the time of payment. In such case, the proposal addresses the
procedural rules in two different ways, depending on the situation:
• In the case of publicly traded securities, when the investor is unknown to the paying
company, thus preventing the latter to determine in advance whether the conditions for the
exemption are met, the proposal amends the FASTER Directive to ensure that the fast-track
procedures are made available.
• In all other cases where the substantive conditions for the exemption are met but tax is
nonetheless withheld, Member States should ensure that the excess tax is refunded through
standard domestic refund procedures within a reasonable time.
Additionally, the proposal clarifies that the IRD applies to payments which are attributable to
the activities of a permanent establishment, irrespective of whether those payments are tax-
deductible in the Member States in which the permanent establishment is situated.
Finally, the proposal updates in the Annex the list of company forms that can benefit from the
Directive, to ensure that all entities which, by their nature, should fall within the scope of the
Directive are explicitly covered. The Commission is also empowered to adopt delegated acts
to further amend the Annex, to encompass future legal forms of companies introduced by
Member States or EU law.
Amendments to Council Directive 2009/133/EC (Tax Merger Directive - TMD)
Under the TMD, Member States apply common rules providing for the deferral of taxation of
capital gains resulting from certain cross-border business reorganisations, including mergers,
divisions, transfer of assets and exchanges of shares involving companies of different Member
States until the actual disposal of the underlying assets. The TMD aims to ensure that such
restructuring operations can take place without immediate taxation which would create
barriers to the functioning of the internal market.
However, the scope of the TMD no longer fully reflects more recent developments in Union
company law. In particular, Directive 2017/1132 of the European Parliament and of the
Council, as amended by Directive 2019/2121 of the European Parliament and of the Council,
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introduced new forms of cross-border reorganisations which are not covered by the current
scope of the TMD.
To ensure that the TMD is still fit for purpose, Article 2 of the proposal aligns definitions of
the TMD with that of Directive 2017/1132, to include “simplified merger” and division by
separation”, which were not yet covered by the Directive.
Currently, the TMD only covers transfers of registered offices of a European Company or
European Cooperative Society. Article 2 introduces a new chapter in the TMD, regarding
rules applicable to cross-border operations, which include at least transfer of office of a
company, to guarantee that the principle of tax neutrality applies.
Finally, the list of company forms that can benefit from the Directive, included in the Annex
to the TMD, is amended, to ensure that all entities which, by their nature, should fall within
the scope of the Directive are explicitly covered. The Commission is also empowered to adopt
delegated acts to further amend the Annex, to encompass future legal forms of companies
introduced by Member States or EU law.
Amendments to Council Directive 2011/96/EU (Parent-Subsidiary Directive - PSD)
The PSD exempts dividends and other profit distributions paid by subsidiaries to parent
companies in different Member States from withholding taxes at source and eliminates double
taxation of such income at the level of the parent company (participation exemption or relief
by credit). The Directive currently applies only where the minimum holding requirements laid
down in the definition of ‘parent company’ are fulfilled. In addition, while the PSD does not
harmonise procedures for accessing its benefits, Member States may currently apply upfront
administrative procedures in order to verify a priori whether the conditions for the exemption
are satisfied.
The proposal amends the PSD to simplify the substantive and procedural conditions for
accessing the withholding tax exemption.
First, Article 3 of the proposal extends the material scope of the PSD by removing the
minimum holding requirement applicable under the concept of ‘parent company’. As a result,
dividends and other profit distributions between companies within the Union may benefit
from the exemption irrespective of the level of participation held between them. In addition,
and in light of the broadened scope of the Directive, the preexisting option for Member States
to deny deduction of charges relating to the holding or losses connected with the distribution
of profits is limited to cases where there is a relevant holding (10%), and therefore when
management costs are actually incurred.
Second, the scope of the PSD is also further extended to pension funds, irrespective of their
legal form. To that end, the proposal introduces a derogation from the subject-to-tax condition
applicable under the Directive.
Third, and aligned with the proposed amendments for the IRD, Member States will no longer
be able to require prior authorisation or administrative procedure for verifying whether the
conditions for the exemption are fulfilled at the time of payment, subject to ex post controls
and the application of anti-abuse rules by Member States. Similarly to the IRD, when the
taxpayer will not be able to verify eligibility at the time of payment, either FASTER
procedures or domestic refund procedures within a reasonable time will apply.
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Finally, the proposal updates in the Annex the list of company forms that can benefit from the
Directive, to ensure that all entities which, by their nature, should fall within the scope of the
Directive are explicitly covered. The Commission is also empowered to adopt delegated acts
to further amend the Annex, to encompass future legal forms of companies introduced by
Member States or EU law.
Amendments to Council Directive (EU) 2016/1164 (Anti-Tax Avoidance Directive –
ATAD)
The ATAD established a common framework of anti-avoidance rules aimed at protecting
Member States’ corporate tax base against aggressive practices of base erosion and profit
shifting. The ATAD sets out rules establishing a minimum level of protection on interest
limitation, exit taxation, controlled foreign companies, hybrid mismatches and a general anti-
abuse rule (‘GAAR’).
Since the adoption of the ATAD, there have been significant developments at international
level, in particular following the adoption of the OECD/G20 Two-pillar solution and the Pillar
Two Directive, which may overlap with certain ATAD rules. Experience with the practical
application of ATAD has also shown that certain provisions are no longer up-to-date, or
create disproportionate compliance burden, legal uncertainty and fragmentation.
Additionally, in the field of Research and Development (R&D) activities, the legal framework
which Member States have put in place at national level creates a fragmented landscape
across the EU where there is no common minimum level of support for R&D. This situation
often places the European Union in a less advantageous position when it comes to
competitiveness vis-à-vis its major trading partners internationally. The outcome is
exacerbated when one considers that such measures receive a favourable treatment under the
Pillar Two framework leading to no or limited additional top-up taxes. Similar to our key
partner economies, we should ensure our EU businesses can benefit from this.
Against this background, ATAD is amended to extend its material scope and include the full
expensing of certain R&D expenditure. The choice of ATAD as the legal instrument is
deliberate, as both the existing measures against tax avoidance and the tax treatment of R&D
constitute elements of the corporate tax base and pursue the common objective of contributing
to the proper functioning of the internal market.
While the existing framework lays down minimum standards against tax avoidance, the new
provisions address the competitiveness challenges that arise from the fragmentation of R&D
tax regimes across the Union. The amendment of ATAD ensures consistency between these
two regulatory frameworks and reflects their shared policy objectives.
Regarding R&D, Article 4 of the proposal first amends the title of the Directive to reflect the
inclusion of new provisions on R&D expenditure.
Second, a new Chapter is introduced in ATAD, to lay down an EU wide R&D allowance, as a
minimum standard, in order to ensure full deductibility of R&D qualifying expenditure (i.e.
capital expenditure on plant, machinery and tangible assets used directly for R&D or to
support R&D facilities). Taxpayers can either immediately deduct qualifying expenditure in
the tax period in which this is incurred, or over any of the four subsequent tax periods.
Third, the revisions include rules to ensure proper use of the new provision and prevent abuse.
To this end, qualifying expenditure must be used for R&D for a minimum of three years.
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Rules on the withdrawal of the allowance and balancing charges where the assets are disposed
of, demolished or ceased to be owned are also introduced and any generated monetary value
must be taken into account, so that the allowance accurately reflects actual R&D investments.
Finally, necessary adjustments are made to the calculation of the EBITDA under the Interest
Limitation Rule, to ensure that the new R&D allowance, nor being treated as depreciation or
amortisation, does not decrease the taxpayer’s EBITDA and as a result, its entitlement to
interest deductibility.
The proposal introduces a series of revisions to the anti-tax avoidance rules of the ATAD.
Regarding the Interest Limitation Rule, Article 4 of the proposal firstmakes the 30%
EBITDA amount mandatory, disallowing Member States from setting lower thresholds to
reduce the deductibility of exceeding borrowing costs. In addition, as BEPS risks primarily
arise from excessive interest payments between associated enterprise, the proposal excludes
from the scope of the interest limitation rule loans that are granted by non-associated
enterprises (i.e. third party-loans), under the condition that they are used to fund the
borrowing taxpayer’s own activities, thus excluding on-lending within the group.
Second, to reduce the burden of the interest limitation rule, especially for smaller taxpayers,
and ensure that the safe harbour reflects at all times the current economic situation in the
Union, Article 4 makes the safe harbour of EUR 3 million mandatory within the first 3 years
of entry into force of the Directive and introduces an automatic annual indexation based on
inflation. Furthermore, the option to exclude standalone entities is removed, as the exclusion
of low-risk third-party loans coupled with the mandatory safe harbour make it redundant.
Additionally, the proposal introduces a safeguard to address the procyclical effect of the
interest limitation rule, providing that no interest limitation will apply to a taxpayer when its
EBITDA is reduced by 50% in a given tax year.
Third, the proposal clarifies the operation of the optional long-term public infrastructure
project exclusion in line with common EU priorities, by referring to long-term public-benefit
projects instead of infrastructure. In addition, a mandatory, temporary exclusion for the
defence sector is introduced for investments initiated in the first 5 tax periods from the entry
in to force of the initiative.
Finally, to simplify the functioning of the interest limitation rule, a number of options are
made mandatory, namely the group escape rule, to address the concerns of capital-intensive
sectors which are highly leveraged for legitimate reasons, and the carry-forward mechanism,
to ensure that the rule accommodates fluctuations in taxpayer’s profitability and offers
support to startups.
Regarding the GAAR, Article 4 updates the wording of the GAAR to ensure that its scope is
broad enough to encompass all direct taxes that companies are subject to, in particular to
ensure that it applies to withholding taxes or top-up taxes resulting from the Directive (EU)
2022/2523.
As for Controlled Foreign Company (CFC) Rules, first the proposal takes into account the
fact that the objective and effects of these rules significantly overlap with the income
inclusion rule laid down in Directive (EU) 2025/2523 (Pillar Two Framework). Therefore,
Article 4 introduces an exemption from CFC rule for taxpayers which fall within the scope of
the Pillar Two Framework. All EU-located companies will benefit from this carve-out for
their low-taxed subsidiaries, except where the group is headquartered in a jurisdiction which
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operates a qualified ‘side-by-side’ regime and the low-taxed controlled foreign subsidiary is
not subject to qualified domestic top-up tax or, where it is subject to a qualified domestic top-
up tax, a refund or direct or indirect financial benefit is granted in relation to that tax.
Second, Article 4 introduces an exemption from CFC rule for small and medium-sized
groups. Information collected from exchanges with several Member States indicates that
administrations have had almost no CFC cases related to SMEs in the approximately ten years
since ATAD started to apply. This indicates that these rules are rarely triggered for SMEs,
possibly because these companies' operating structures involve no or little cross-border
activity. Their exclusion would thus not hinder anti-avoidance and evasion or aggressive tax
planning efforts. It would rather bring significant cost and resource savings, and thus benefits,
to both companies and tax administrations. The exemption of such groups therefore aims to
reduce disproportionate compliance costs and administrative burdens for smaller businesses
operating across the internal market.
Third, in order to simplify and streamline the CFC framework across the Union, the proposal
makes Model A the only possible approach, deleting the option to implement CFC rules by
applying Model B.
Finally, Hybrid Mismatch Rules prevent companies from exploiting discrepancies amongst
national rules, in order to avoid taxation. Yet, in some cases, such as when it comes to
imported mismatches, application has proven particularly complex for both taxpayers and tax
administrations. In order to simplify hybrid mismatch rules and ensure their proportionality,
Article 4 of the proposalremoves rules related to imported mismatches from ATAD.
Amendments to Council Directive (EU) 2017/1852 (Dispute Resolution Mechanism –
DRM)
The DRM lays down rules for swiftly and effectively resolving disputes related to the
interpretation of tax treaties for both businesses and citizens and covers issues on double
taxation. Article 5 of the proposalintroduces targeted amendments to the DRM with the aim
to address interpretative divergences identified in practice, streamline procedures, and
improve taxpayers’ access to dispute resolution mechanisms. The amendments are designed
to preserve the overall architecture of the Directive while introducing clarifications and
procedural simplifications.
The amendment to article 2 of the DRM clarifies that, where the taxation of more than one
person is directly affected by the same question in dispute, each of these persons qualifies as
“affected person” for the purposes of the Directive. This clarification is intended to remove
uncertainty in multiple-entity cases and should be read together with the amendments to
article 3 concerning the filing of complaints.
Article 3 of the DRM is subjected to several amendments which are meant to streamline and
clarify the complaint stage of the procedure. First, it is clarified who should file the complaint
where multiple affected persons are involved. Member States must allow either each affected
person to submit a complaint individually to its State of residence or, alternatively, permit one
affected person to file on behalf of all affected persons. This approach seeks to combine legal
certainty with procedural flexibility. Second, the concept of “simultaneous submission” is
replaced with a 30-calendar-day submission window. This amendment responds to divergent
national interpretations of the term “simultaneously”, which in practice ranged from requiring
filing on the same day to allowing broader timeframes.
EN 15 EN
In Article 4 of the DRM, an amendment is introduced to clarify that, where competent
authorities conclude that no agreement can be reached, they should inform the taxpayer
without delay rather than waiting for the expiry of the two-year MAP period. The objective is
to allow taxpayers to access the arbitration phase earlier and avoid unnecessary delays.
The amendments to Article 5 of the DRM clarify that failure to comply with procedural
requirements — including failure to submit information within the new 30-day submission
window, failure to use an accepted language, or failure to provide the same information to all
competent authorities — may result in rejection of the complaint. At the same time, the
amendments strengthen taxpayer protection by requiring competent authorities to give
taxpayers the opportunity to remedy deficiencies within 30 days and by allowing taxpayers to
resubmit a complaint, provided the overall time limit is respected. The purpose is to avoid
disproportionate procedural rejections and facilitate access to the mechanism.
The amendment to article 8 clarifies the time limit for objections against independent persons
of standing that participate in the advisory commission. Objections may only be raised until
the final decision has been accepted by all competent authorities. This rule is intended to
prevent late procedural challenges from undermining legal certainty and delaying the
conclusion of the procedure.
In Article 10 of the DRM, the amendment specifies that an alternative dispute resolution
commission may also be set up for disputes relating to the admissibility of complaints and not
only for the substantive resolution of double taxation disputes. The objective is to broaden
procedural flexibility and facilitate the efficient settlement of disputes at an earlier stage.
The amendment to the rules of functioning in article 11 of the DRM clarifies that qualification
requirements apply only to independent persons of standing and not to representatives of
competent authorities. This clarification is intended to avoid unnecessary interpretative
uncertainty.
The amendment to article 16 of the DRM addresses the interaction between the Directive and
other dispute resolution procedures based on different legal frameworks. It provides that other
ongoing procedures are suspended once a DRM complaint is submitted and are terminated
only once the DRM complaint has been accepted by all competent authorities concerned. The
purpose is to ensure that taxpayers are not left without protection against double taxation
while at the same time avoiding overlaps between parallel procedures.
The amendment to article 17 of the DRM is meant to introduce additional clarifications for
individuals and smaller undertakings making use of the simplified filing system. It aims to
avoid unclear procedural situations and facilitate coordination between competent authorities
where communications are submitted only to the competent authority of the taxpayer’s State
of residence.
The new article 19a of the DRM introduces a new provision empowering the Council to adopt
implementing acts laying down binding technical and procedural rules necessary to ensure a
uniform and effective application of the Directive. The proposal reflects the view that certain
interpretative and procedural difficulties cannot be adequately addressed solely through
targeted legislative amendments and may require more detailed implementing rules.
Finally, the amendment to article 21 of the DRM introduces a harmonised statistical reporting
framework and empowers the Commission to adopt implementing acts concerning the format
and conditions for the communication of statistical data. The purpose is to ensure consistency
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of reporting across Member States and alignment with the OECD statistical framework,
thereby improving transparency and the evaluation of the functioning of the Directive.
Amendments to Council Directive EU 2025/50 (Directive on Faster and Safer Relief of
Excess Withholding Taxes - FASTER)
FASTER makes withholding tax procedures in the EU more efficient and secure for investors,
financial intermediaries and national tax administrations. In particular, FASTER provides for
standardised fast-track procedures for relief at source or quick refund of withholding tax
levied on dividends and interests from publicly traded securities.
As detailed above, the proposal extends the scope of the exemption from withholding tax of
the IRD and PSD, while excluding upfront procedures before granting the benefit from the
relevant withholding tax exemptions.
In practice, however, the application of these exemptions may create difficulties in the context
of publicly traded securities held through financial intermediaries and nominee accounts. In
such case, the paying company is often unable to determine at the time of payment whether
the conditions for a withholding tax exemption are fulfilled, in particular where ownership
information concerning portfolio investors is not available (usually below 5% of holding).
As a result, the paying company would not be able to assess whether the conditions of the
PSD and IRD, as amended, are met by the investor, and therefore the exemption cannot be
applied upfront. FASTER could bring significant simplification in such cases.
However, under the current FASTER provisions, Member States may deny access to the
standardised fast-track procedures where a full exemption from withholding tax is claimed.
This would de facto prevent the benefit of the FASTER procedures for refund from applying
to payments which are eligible for exemption under the extended scope of the IRD and PSD.
For this reason, Article 6 of the proposal adjusts the scope of FASTER, to ensure that it
covers refunds in the event of the IRD/PSD.
2026/0163 (CNS)
EN 1 EN
Proposal for a
COUNCIL DIRECTIVE
amending Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164,
(EU)2017/1852, (EU) 2025/50 as regards the simplification of the Union framework on
direct taxation and supporting growth and competitiveness of the EU
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular
Article 115 thereof,
Having regard to the proposal from the European Commission,
After transmission of the draft legislative act to the national parliaments,
Having regard to the opinion of the European Parliament1,
Having regard to the opinion of the European Economic and Social Committee2,
Acting in accordance with a special legislative procedure,
Whereas:
(1) The proper functioning of the internal market requires that rules on direct taxation
operate in a clear, consistent and efficient manner. In recent decades, the Union has
adopted several directives in the field of direct taxation that aim to eliminate double
taxation, ensure tax neutrality, facilitate dispute resolution and prevent tax avoidance
in cross-border situations.
(2) The acquis in direct taxation represents a significant achievement for the Union. As
part of this acquis, Council Directive 2003/49/EC3, Council Directive 2009/133/EU4
and Council Directive 2011/96/EU5 have contributed to the functioning of the internal
market by facilitating cross-border economic activities, in particular by removing
withholding taxes on certain intra-group payments and ensuring tax neutrality for
cross border reorganisations. Council Directive (EU) 2016/11646 has strengthened the
protection of the internal market by laying down coordinated rules against tax
avoidance practices that may distort competition and affect the allocation of taxing
1 OJ C , , p. . 2 OJ C , , p. . 3 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest
and royalty payments made between associated companies of different Member States (OJ L 157,
26.6.2003, p.49, ELI: http://data.europa.eu/eli/dir/2003/49/oj). 4 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to
mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies
of different Member States and to the transfer of the registered office of an SE or SCE between Member
States (OJ L 310, 25.11.2009, p. 34, ELI: http://data.europa.eu/eli/dir/2009/133/oj). 5 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in
the case of parent companies and subsidiaries of different Member States (OJ L 345, 29.12.2011, p. 8,
ELI: http://data.europa.eu/eli/dir/2011/96/oj). 6 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices
that directly affect the functioning of the internal market (OJ L 193, 19.7.2016, p. 1,
ELI: http://data.europa.eu/eli/dir/2016/1164/oj).
EN 2 EN
rights, thereby addressing risks of base erosion and profit shifting. Council Directive
(EU) 2017/18527 has further contributed to the proper functioning of the internal
market by providing mechanisms for the effective resolution of cross-border disputes
in the Union that involve double taxation or arise from double taxation conventions.
(3) While the objectives of those Directives remain valid, practical experience arising
from their application has revealed structural shortcomings as well as increasing
complexity. The coexistence of multiple sets of rules adopted over time has resulted in
a multilayered tax framework. Furthermore, the interaction between those directives
and more recent developments in the international tax landscape, in particular Council
Directive (EU) 2022/25238 ensuring a global minimum level of taxation for
multinational enterprise groups and large-scaled domestic groups, has in some cases
led to overlaps, duplications and situations of layered regulation addressing similar
objectives. In addition, the existence of numerous options for implementation and the
use of concepts that are not uniformly defined have resulted in divergent approaches
across Member States and contributed to a highly fragmented tax framework in the
Union. Certain provisions of the Union tax framework are no longer in line with
current economic and legal developments, resulting in outdated rules.
(4) Those factors contribute to legal uncertainty for taxpayers and tax administrations in
the Union, increase the risk of disputes and unintended tax outcomes, and result in
significant compliance costs and administrative burdens, in particular for cross-border
activities, thereby undermining the effective functioning of the internal market and
adversely affecting the competitiveness of businesses operating within the Union.
Taxpayers operating across the internal market may be subject to divergent rules
implementing the Union tax framework and face burdensome compliance
requirements and procedural inefficiencies.
(5) In order to address those shortcomings, it is necessary to simplify and streamline the
Union framework on direct taxation while maintaining the highest standard of
protection for the internal market. That requires reducing complexity, eliminating
overlaps and ensuring a more uniform application of tax rules across Member States.
Given the cross-border nature of the issues identified, a coordinated approach at Union
level is required to ensure consistent solutions and to avoid further fragmentation. This
Directive should therefore introduce targeted amendments to Directives 2003/49/EC,
2009/133/EC, 2011/96/EU, (EU) 2016/1164 and (EU) 2017/1852. While it already
represents a significant step forward in the simplification and streamlining of the
Union tax framework, it is also necessary to amend Council Directive (EU) 2025/509
to ensure that the withholding tax exemption under Directives 2003/49/EC and
2011/96/EU can also be applied to income arising from publicly traded securities.
Altogether, those amendments should reduce compliance costs and administrative
burdens, improve legal certainty and ensure a more coherent interaction between the
existing rules. They should also contribute to the proper functioning of the internal
market and support the competitiveness of the businesses operating within the Union.
7 Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the
European Union (OJ L 265, 14.10.2017, p. 1, ELI: http://data.europa.eu/eli/dir/2017/1852/oj). 8 Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of
taxation for multinational enterprise groups and large-scale domestic groups in the Union (OJ L 328,
22.12.2022, p. 1, ELI: http://data.europa.eu/eli/dir/2022/2523/oj). 9 Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer relief of excess withholding
taxes (OJ L, 2025/50, 10.1.2025, ELI: http://data.europa.eu/eli/dir/2025/50/oj).
EN 3 EN
(6) Small and medium sized enterprises (’SMEs’) are particularly affected by the
complexity and fragmentation of the Union direct tax framework, despite the fact that
they generally present limited risks of base erosion and profit shifting. In order to
ensure that compliance obligations remain proportionate, it is therefore important to
provide for targeted simplification measures for SMEs.
(7) At the same time, large multinational enterprise groups (‘MNE’ groups) and large-
scale domestic groups that fall within the scope of Directive (EU) 2022/2523 are
subject to complex and globally coordinated rules aimed at ensuring a minimum level
of taxation in each jurisdiction in which they operate. While those rules play a key role
in addressing base erosion and profit shifting, they also entail significant compliance
obligations and may give rise to overlapping requirements when interacting with
existing tax rules at Union and national level. In order to preserve the competitiveness
of businesses operating within the Union, while maintaining a high level of protection
against tax avoidance, it is therefore important to provide for targeted simplification
measures for entities within the scope of that Directive, in order to ensure coherence of
the tax system and mitigate the compliance burden.
(8) Directives 2003/49/EC and 2011/96/EU lay down exemptions from withholding taxes
on certain cross-border payments of interest, royalties, dividends and other profit
distributions and thereby contribute to the elimination of double taxation within the
Union. However, differences in their design and the limited material scope of those
directives, in particular as regards minimum shareholding requirements, have led to
inconsistent implementation across Member States and increased compliance costs,
which may distort investment decisions for businesses operating across the internal
market. Residual withholding taxation in the Union creates barriers and reduces tax
neutrality for cross-border investments.
(9) With a view to simplifying the functioning of the internal market and strengthen its
competitiveness, it is appropriate to broaden the material scope of both directives. To
that end, the requirements for a minimum percentage and a minimum duration of the
shareholding as conditions for granting relief from withholding tax and, in the case of
dividends or other profit distributions, for granting the participation exemption should
be removed. In light of this broader scope, the option for Member States to replace the
criterion of a participation in the capital by that of a participation in the voting rights
should also be eliminated, so as to ensure a more uniform and predictable application
of those directives. Moreover, in order to remove tax obstacles to cross-border
investment by pension institutions, distributions of dividends to such entities should be
exempt from withholding tax, irrespective of their legal form and by way of
derogation from the subject-to-tax condition. Furthermore, to ensure that the rules
allowing Member States to provide that charges relating to a participation and losses
resulting from the distribution of profits of the subsidiary are not deducted from the
taxable profits of the parent company remain proportionate in the light of the
broadened scope of Directive 2011/96/EU, the application of that option should be
allowed where the participation is of a sufficient size to justify incurring management
costs. For this purpose, a minimum participation of 10% in the capital of the
subsidiary should be required.
(10) In order to prevent situations of double non-taxation, it is appropriate to ensure that
interest and royalty payments are subject to taxation at least once, either through a
withholding tax or by denying deductibility of those payments at source. While
Directive 2003/49/EC already includes a subject to tax requirement within the Union,
an additional measure is necessary to address situations where income flows of interest
EN 4 EN
and royalties leaving the Union remain untaxed in their country of destination. As a
general rule, Member States should continue to apply their national rules, including
those resulting from applicable tax treaties, to interest and royalty payments. The
specific protective measure should apply where the third-country jurisdiction in which
the recipient of the payment is established does not levy corporate income tax on
interest and royalty income or applies a zero corporate income tax rate to such income
and no withholding tax is levied in the Member State of source. The protective
measure would target the specific flow of income and consider the tax situation of the
direct recipient of the payment only. In this way, the rule would alleviate the payer
from the need to trace intermediary structures. This should be without prejudice to the
application of national and treaty-based anti-abuse provisions and Union principles
relating to beneficial ownership. However, that protective measure should not apply
where, for the tax period, the recipient of the payment is subject to a qualified
domestic top-up tax and does not receive any refund or direct or indirect financial
benefits in relation to that tax or is part of an MNE group which, for that tax period,
falls within the scope of the rules laid down in Directive (EU) 2022/2523 or, as
regards third-country jurisdictions, to the OECD Model Rules10. In this context, the
protective measure may still apply if the ultimate parent entity of the MNE group is
located in a jurisdiction with a qualified side-by-side regime for the tax period.
(11) No similar measure is necessary to address risks of double non-taxation of profit
distributions (dividends), since such distributions are already taxed within the Union,
either at the level of the distributing company or at the level of the recipient.
(12) Extensive and diverse procedural requirements applied by some Member States as
conditions for the application of the exemptions from withholding tax laid down in
Directives 2003/49/EC and 2011/96/EU have, in practice, created significant
administrative burdens for taxpayers and tax authorities in the Union and have
hindered the effective functioning of those exemptions. In order to reduce those
burdens, enhance legal certainty and support the competitiveness of the internal
market, it is appropriate to simplify and streamline those procedural
requirements. This Directive should therefore provide that Member States do not
require prior authorisation or administrative procedures for verifying whether the
conditions for the exemptions are fulfilled at the time of payment of the interest or
royalties or the distribution of profits. This should not affect the powers of Member
States to carry out ex post controls and to apply national anti-abuse rules, including
rules on beneficial ownership.
(13) In the case of publicly traded securities, portfolio investors whose holding in the
paying company remains below a certain threshold are frequently unknown to that
company, as such securities are often held in nominee-registered accounts. As a result,
the paying company may not be able to determine in advance whether the conditions
for the exemptions from withholding tax provided for in Directives 2003/49/EC and
2011/96/EU are fulfilled, which may impede effective access to those exemptions.
Directive (EU) 2025/50 established standardised relief-at-source and quick refund
procedures for excess withholding tax on income from publicly traded securities. In
order to avoid inefficient and burdensome national procedures and to ensure that
taxpayers who are entitled to the exemptions provided for in Directives
2003/49/EC and 2011/96/EU can also make use of the common procedures laid down
10 OECD (2021), Tax Challenges Arising from Digitalisation of the Economy – Global Anti-Base Erosion
Model Rules (Pillar Two): Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting
Project, OECD Publishing, Paris, https://doi.org/10.1787/782bac33-en.
EN 5 EN
in Directive (EU) 2025/50, that Directive should be amended so that income from
publicly traded securities which qualifies for those exemptions is not excluded from
the relief-at-source or quick refund procedures.
(14) Where payments falling within the scope of Directives 2003/49/EC and 2011/96/EU
satisfy the substantive conditions for exemption from withholding tax, but tax is
nonetheless withheld, for instance, because the paying company cannot determine in
advance whether those conditions are met, Member States should ensure that the
excess tax is refunded through standard refund procedures within a reasonable time.
To that end, Directive 2011/96/EU should be aligned with Directive 2003/49/EC as
regards the time limits for submitting refund claims and for processing them.
(15) Directive 2003/49/EC provides that a permanent establishment is to be treated as the
payer of interest or royalties where the payment constitutes a tax-deductible expense
for that permanent establishment. In order to avoid legal uncertainty and to ensure that
that rule applies in a manner consistent with the objective of the Directive, it is
appropriate to clarify that Directive 2003/49/EC applies to payments which are
attributable to the activities of a permanent establishment, irrespective of whether
those payments are tax-deductible in the Member State in which the permanent
establishment is situated.
(16) Directive 2009/133/EC provides for common rules to reduce tax obstacles and ensure
tax neutrality in reorganisations concerning companies of different Member States,
including mergers, divisions, partial divisions, transfers of assets, exchanges of shares
and the transfer of the registered office of a Societas Europaea (SE) or Societas
Cooperativa Europaea (SCE). Developments in Union company law, in particular
those introduced by Directive (EU) 2017/1132 of the European Parliament and of the
Council11, as amended by Directive (EU) 2019/2121 of the European Parliament and
of the Council12, have led to a misalignment between the scope of tax rules and
company law provisions. This results in legal uncertainty for the businesses and
compromises competitiveness in the internal market. In order to ensure coherence
between the tax framework and company law, the definitions of Directive
2009/133/EC should be aligned with Directive (EU) 2017/1132 to include an
additional subtype of a merger and “division by separation”.
(17) Directive 2009/133/EC also applies to the transfer of the registered office of an SE or
SCE. In light of the neutrality principle, it is necessary that the same tax treatment be
granted to the cross-border conversions, which include at least the transfer of the
registered office of the converting company from the departure Member State to the
destination Member State. Therefore, a new chapter should be introduced to Directive
2009/133/EC on rules applicable to cross-border conversions, whereby, in line with
the rest of the Directive, taxation of capital gains that arise on assets of a company
undergoing a cross-border conversion should be deferred until the actual disposal of
such assets, to the extent that the company remains a tax resident in the departure
Member State or maintains in that Member State a permanent establishment with
which such assets remain connected.
11 Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to
certain aspects of company law (OJ L 169, 30.6.2017, p. 46,
ELI: http://data.europa.eu/eli/dir/2017/1132/oj). 12 Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019
amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (OJ L
321, 12.12.2019, p. 1, ELI: http://data.europa.eu/eli/dir/2019/2121/oj).
EN 6 EN
(18) In the light of the judgment of the Court of Justice of 1 October 2009 in Case C-
247/0813, it is appropriate to revise the list of company forms included in the Annex to
Directive 2003/49/EC, Annex I, Part A, to Directive 2009/133/EC and Annex I, Part
A, to Directive 2011/96/EU in order to ensure that all entities, which by their nature
should fall within the scope of those directives, are explicitly covered.
(19) Directive (EU) 2016/1164 lays down rules against tax avoidance practices that directly
affect the functioning of the internal market, including specific rules on interest
limitation, controlled foreign companies, exit taxation, hybrid mismatches and a
general anti-abuse rule. Those rules set a common framework to ensure a minimum
level of protection against base erosion and profit shifting within the Union.
(20) In order to strengthen the Union’s competitiveness, support innovation and facilitate
the green and digital transition, it is important to promote investment in research and
development across the internal market. Considering, in particular, the changing
international tax environment, tax systems should continue to provide effective and
targeted support for genuine research and development activities. To that end, a
common framework for the tax treatment of certain research and development
expenditure should be established in Directive (EU) 2016/1164, ensuring simplicity,
legal certainty and consistency with the objective of maintaining a level-playing field
in view of enhancing international competitiveness.
(21) Capital expenditure on plant, machinery and other tangible assets used by taxpayers
for research and development, or to provide facilities for conducting such activities,
should be fully deductible from taxable income to foster innovation, strengthen the
internal market, and encourage investment in new technologies. Establishing a
framework to set a level playing field for the deductibility of such expenditure would
reduce barriers faced by businesses operating across borders within the Union. To this
effect, taxpayers should be allowed to deduct the qualifying expenditure from their
taxable base either in the tax period in which it is incurred, or at their choice, in any of
the four subsequent tax periods.
(22) In order to ensure legal certainty, simplify the application of the rules and prevent
abuse, conditions should be laid down to determine the minimum time during which
qualifying expenditure must be used for research and development, the withdrawal of
the allowance, and the treatment of balancing charges upon disposal. Taxpayers
benefiting from the allowance should therefore be required to use the qualifying
expenditure wholly and exclusively for research and development for a minimum
period of three years. Where the taxpayer ceases to own, demolishes, or otherwise
disposes of an asset to which that qualifying expenditure relates and generates any
monetary value, that value should be taken into account to ensure that the allowance
accurately reflects the actual investment in research and development.
(23) In conformity with the principles of subsidiarity and proportionality, the prescription
of a minimum level of harmonisation within the Union as regards the tax deductibility
of capital expenditure used for research and development is sufficient to ensure that
research and development remain central to the Union’s competitiveness and
contributes to a more level playing field within the internal market. Accordingly,
without prejudice to the application of the State aid rules, Member States should be
entitled to apply domestic provisions that allow for more favourable tax deductibility
in respect of qualifying expenditure.
13 Judgment of the Court of Justice of 1 October 2009, Gaz de France - Berliner Investissement SA
v. Bundeszentralamt für Steuern, C-247/08, ECLI:EU:C:2009:600.
EN 7 EN
(24) The Commission’s evaluation of Directive (EU) 2016/116414 concluded that the rules
of that directive are complex and rely on alternative approaches, multiple optional
exceptions and thresholds. In particular, discrepancies in key concepts and definitions,
as well as the coexistence of different models for the taxation of controlled foreign
companies and options in the interest limitation rule have resulted in fragmentation of
the Union legal framework for taxation, legal uncertainty for taxpayers and increased
compliance burdens, in particular for businesses operating cross-border. That is the
case also where the risk of base erosion and profit shifting is limited, notably for
SMEs. It follows that the applicable legal framework may result in a disproportionate
burden compared to the actual risk that it addresses. In addition, in light of the recent
introduction of a global minimum level of taxation through Directive (EU) 2022/2523,
Directive (EU) 2016/1164 should be adjusted to avoid overlaps and redundancies in
scope, objectives and effects, including situations of double taxation and duplicative
reporting obligations, resulting from the coexistence of the two frameworks.
(25) The interest limitation rule set out in Article 4 of Directive (EU) 2016/1164 is intended
to discourage aggressive tax planning through the use by taxpayers of artificially
inflated interest payments by placing excessive debt in high-tax jurisdictions. While
the rule fulfils an important function in preventing tax avoidance, the coexistence of
different thresholds, optional carve-outs and escape clauses, which have been
implemented differently by Member States, often risks not targeting base erosion and
profit shifting risks in a proportionate manner. That flexibility has contributed to
significant fragmentation, increased compliance costs and legal uncertainty within the
internal market. The interest limitation rule may also negatively affect companies’
ability to finance investment and growth, as it fails to adapt to changes in the
economic environment, particularly in a context of increasing interest rates and
inflation. Furthermore, the rule may disproportionately affect capital-intensive sectors,
such as real estate, infrastructures and innovative start-ups that rely on long-term debt
financing. Finally, the current interest limitation rule also risks placing unnecessary
burdens on SMEs, despite those companies having fewer resources and opportunities
to engage in aggressive tax planning using interest payments.
(26) Amendments to Article 4 of Directive (EU) 2016/1164 are therefore necessary to
simplify its application, better align it with its objective and ensure that the rule
remains fit for purpose while supporting genuine investments in the Union. In
particular, it is important to reduce the number of options available to Member States,
update the rule’s structure, clarify its scope and take into account the new common
framework for the tax treatment of certain research and development expenditure.
(27) The interest limitation rule is designed to ensure that most third-party borrowing costs
remain deductible for tax purposes, as such financing generally presents limited risks
of base erosion and profit shifting. However, the possibility for Member States to
apply lower deductibility thresholds when transposing that rule has resulted in
divergent approaches across the Union, increased complexity and reduced legal
certainty for taxpayers. In order to ensure a consistent application of the rule and equal
treatment within the internal market, the level of deductibility for tax purposes should
be fixed at 30% of EBITDA across all Member States.
(28) In order to preserve the effectiveness of the new common framework for the tax
treatment of certain research and development expenditure introduced into Directive
14 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules
against tax avoidance practices that directly affect the functioning of the internal market.
EN 8 EN
(EU) 2016/1164, the calculation of EBITDA for the purposes of the interest limitation
rule should include add-backs for tax-adjusted amounts relating to research and
development expenditure deducted under that framework, in the same manner as
exceeding borrowing costs, depreciation and amortisation are taken into account.
(29) Base erosion and profit shifting risks addressed by the interest limitation rule primarily
arise from excessive interest payments between associated enterprises. By contrast,
borrowing from non-associated enterprises, including through bonds issuances subject
to specific regulatory oversight, generally present limited risks of such practices. In
order to better align this rule with its objective and ensure a consistent and
proportionate application, borrowing costs arising from loans granted by non-
associated enterprises should be excluded from the scope of the limitation, provided
that such financing is used to fund the borrowing taxpayer’s own activities and
therefore, any on-lending within the group should not be covered by the exclusion.
(30) To reduce the administrative and compliance burden of the interest limitation rule,
especially for small taxpayers, Member States may currently provide a safe harbour
rule according to which net interest expenses are always deductible for tax purposes
up to a fixed monetary amount. However, the optional nature of this provision and its
transposition flexibility have resulted in divergent implementation across the Union,
limiting its effectiveness. It is therefore appropriate to make that safe harbour
mandatory, and provide for a periodic indexation, to ensure that it remains effective
and relevant over time.
(31) The two targeted exclusions from the interest limitation rule concerning loans granted
by non-associated enterprises and the mandatory increased safe harbour would render
the optional exclusion in favour of standalone entities redundant. Therefore, that
optional exclusion should be deleted in order to simplify and streamline the interest
limitation rule.
(32) The interest limitation rule links the deductibility of borrowing costs to earnings,
which may decline during economic downturns. As a result, taxpayers may face
stricter limitations precisely when access to external financing becomes more needed.
In order to mitigate such procyclical effect and ensure that the rule does not unduly
constrain economic activity in periods of financial stress, Directive (EU) 2016/1164
should be amended to alleviate the application of the interest limitation rule where a
significant drop of the EBITDA occurs in a given year.
(33) In order to ensure that the interest limitation rule does not hinder investments that are
essential for the Union’s economic development and public welfare, Directive (EU)
2016/1164 allows Member States to exclude certain long-term public infrastructure
projects from its scope. Since such projects generally present limited risk of base
erosion and profit shifting and without prejudice toState aid rules including
Commission Decision (EU) 2025/2630 on the application of Article 106(2) TFEU to
State aid in the form of public service compensation15, the scope of that exclusion
should be extended to cover a broader range of public-benefit projects, including those
contributing to the Union’s common priorities in particular in relation to climate,
digitalisation, social and economic resilience, energy security and social and
15 Commission Decision (EU) 2025/2630 of 16 December 2025 on the application of Article 106(2) of the
Treaty on the Functioning of the European Union to State aid in the form of public service
compensation granted to certain undertakings entrusted with the operation of services of general
economic interest and repealing Decision 2012/21/EU, C/2025/8820, OJ L, 2025/2630, 19.12.2025.
EN 9 EN
affordable housing, including the construction, transformation and renovation of
buildings for social and affordable housing purposes.
(34) In light of the evolving geopolitical landscape and, in particular, Russia’s war of
aggression against Ukraine, the Union is to strengthen its overall defence readiness
and facilitate the mobilisation of private investment in defence capabilities. To that
end and in order to address the capability gaps identified by the Commission and the
High Representative of the Union for Foreign Affairs and Security Policy in the joint
White Paper for European Defence Readiness 203016, and support the objectives set
out in Council Regulation (EU) 2025/110617, establishing the Security Action for
Europe, it is appropriate to introduce a temporary exclusion from the interest
limitation rule for exceeding borrowing costs incurred on loans used to finance
defence products in critical capability areas. In order to ensure that the exclusion
remains proportionate to that objective and does not unduly affect the application of
the interest limitation rule beyond what is necessary, the exclusion should be strictly
targeted and apply only to critical defence capabilities identified as priority areas by
Council Regulation (EU) 2025/1106. In order to ensure that the exclusion remains
proportionate and effectively supports the rapid scaling-up of production capacity, the
exclusion should be limited in time and apply only to loans concluded within the first
five tax years after the entry into force of this Directive. That temporary application is
also consistent with the European Council conclusions of 20 March 202518, which call
for accelerating efforts to enhance the Union’s defence readiness within the next five
years.
(35) The interest limitation rule may have a disproportionate impact on certain groups that
are highly leveraged for genuine commercial reasons. Directive (EU) 2016/1164
therefore provides Member States with the option to allow taxpayers to apply a group
escape rule, enabling them to deduct exceeding borrowing costs above the general
limitation, where they can demonstrate that their level of leverage is in line with that
of their group. However, the optional nature of this provision has resulted in divergent
application across the Union. In order to achieve a consistent and proportionate
application of the rule, while preserving its objective of addressing base erosion and
profit shifting risks, the group escape rule should be made mandatory, while allowing
Member States to retain the choice between the two existing mechanisms for the
implementation of the group escape rule as set out in Article 4(5), points (a) and (b) of
Directive (EU) 2016/1164.
(36) The possibility to carry-forward exceeding borrowing costs and unused interest
capacity is essential to avoid disproportionate outcomes for taxpayers with volatile
earnings or long-term investment cycles, such as capital-intensive industries and start-
ups. While Directive (EU) 2016/1164 provides for such carry-forward rules, their
optional nature has led to divergent approaches across Member States. Such a
landscape compromises efforts to establish a level playing field within the internal
market, enhance legal certainty and support the economic resilience of capital-
intensive industries. For this purpose, the carry-forward of exceeding borrowing costs
and unused interest capacity should be made mandatory while allowing Member
16 Commission and High Representative of the Union for Foreign Affairs and Security Policy, Joint White
Paper for European Defence Readiness 2030 (19.3.2025 JOIN(2025) 120 final). 17 Council Regulation (EU) 2025/1106 of 27 May 2025 establishing the Security Action for Europe
(SAFE) through the Reinforcement of the European Defence Industry Instrument (OJ L 025/1106,
28.5.2025), ELI: http://data.europa.eu/eli/reg/2025/1106/oj). 18 European Council Conclusions, 20 March 2025, EUCO 1/25.
EN 10 EN
States to retain the choice between the different mechanisms for implementing such
carry-forward as set out in Article 4(6), points (a) and (c) of that Directive, thereby
recognising that the timing of interest expenses and taxable income may not always
align within a single tax year.
(37) Financial undertakings are subject to specific regulatory frameworks under Union law.
Directive (EU) 2016/1164 therefore allows Member States to exclude such
undertakings from the scope of the interest limitation rule. In order to ensure that this
exclusion remains fit for purpose and reflects developments in Union financial
regulation since the adoption of that Directive, the definition of financial undertakings
should be updated accordingly.
(38) The purpose of the general anti-abuse rules (GAAR) set out in Article 6 of Directive
(EU) 2016/1164 is to tackle abusive tax practices of companies that are not addressed
by specific provisions. Nevertheless, the reference to corporate tax has created
uncertainty as to the scope of application of the GAAR, in particular as to whether it
applies to withholding taxes or top-up taxes resulting from the application of Directive
(EU) 2022/2523. In order to enhance clarity and ensure consistent application across
the Union, the wording should be amended to confirm that the GAAR applies to all
taxes to which companies are subject.
(39) The rules on controlled foreign company (CFC) in Articles 7 and 8 of Directive (EU)
2016/1164 re-attribute the income of low taxed subsidiaries or permanent
establishments to the parent company, in order to prevent base erosion and profit
shifting. However, the objective and effects of those rules overlap to a significant
extent with the income inclusion rule laid down in Directive (EU) 2022/2523 (the
Pillar Two framework), which ensures a minimum level of taxation at an effective rate
of 15% on a broader tax base comprising passive and active income. The parallel
application of CFC rules and the Pillar Two framework may result not only in
economic double taxation but also duplicative and complex compliance obligations for
MNE groups, which are required to perform overlapping calculations and reporting
under both sets of rules. In order to avoid such unintended outcomes while preserving
the CFC rules’ objective of preventing tax-avoidance, an exemption should be granted
to taxpayers subject to the Pillar Two framework. Furthermore, where the ultimate
parent entity (UPE) of an MNE is located in a jurisdiction with a qualified ‘side-by-
side’ regime19, the income inclusion rule is not to apply. However, the combination of
CFC rules and a domestic top-up tax in the state of the low-taxed controlled company
may still lead to double taxation and comparable overlapping compliance burdens. For
this reason, a targeted exemption from CFC taxation should still be given to MNEs
with UPEs in states that operate qualified side-by-side regimes in respect of the
income of their low-taxed controlled foreign companies which are subject to a
qualified domestic top-up tax and receive no refunds or relevant direct or indirect
financial benefits.
(40) Article 7(2) of Directive (EU) 2016/1164 allows Member States to choose between
two methods for determining the income of a CFC which is included in the tax base of
the parent company. This optionality has led to divergent implementation across the
Union, resulting in fragmentation, increased compliance costs and reduced legal
19 OECD (2026), Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base
Erosion Model Rules (Pillar Two), Side-by-Side Package: Inclusive Framework on BEPS, OECD,
https://www.oecd.org/content/dam/oecd/en/topics/policysub-issues/global-minimum-tax/side-by-side-
package.pdf.
EN 11 EN
certainty for taxpayers. Evidence from the application of those rules indicate that the
model based on specific categories of passive income (‘Model A’) provides a more
effective and administrable approach than the model targeting non-genuine
arrangements (‘Model B’). The latter overlaps significantly with transfer pricing rules
and offers limited additional value in practice. In order to simplify the CFC
framework, enhance legal certainty and ensure the consistent application of CFC rules
across the Union, Member States should apply a single approach based on Model A.
Consequently, the option to apply Model B and the related de minimis rule which has
become redundant given that it is solely applicable under Model B, should be deleted.
(41) In the Union, 99.8% of businesses are SMEs. However, only 10% of them have cross-
border activities, and 2% have subsidiaries outside of the Union. In addition, 42% of
SMEs are standalone entities, and therefore not part of a group and without associated
enterprises.20 Information collected from exchanges with several Member
States indicates that administrations have had almost no CFC cases related to SMEs in
the approximately 10 years since Directive (EU) 2016/1164 started to apply.
This indicates that the rules on CFC are rarely applied to SMEs, possibly because
those companies' operating structures involve no or little cross-border activity. The
exclusion of SMEs from the scope of these rules would thus not impact on the efforts
to counter tax avoidance and evasion or aggressive tax planning but rather
bring benefits in the form of cost and resource savings to both companies and tax
administrations. It therefore follows that in line with similar exemptions in favour of
SMEs in this initiative and in other areas of taxation and Union law, it is appropriate to
also introduce an exemption for SMEs from the scope of CFC rules. This will
ensure the proportionate application of CFC rules and mitigate the compliance and
administrative burden for taxpayers and tax authorities respectively.
The exemption should apply to all small and medium-sized groups as defined in
Directive (EU) 2013/34 of the European Parliament and of the Council21, regardless of
whether the ultimate parent undertaking is located in the Union or in third
countries. The scope of the SME exemption ensures that groups may only benefit from
the SME exemption if the group in its entirety meets the definition of a small or
medium-sized group. The exemption should also be granted to standalone
entities, with a permanent establishment abroad, which qualify as a micro, small or
medium-sized undertaking as defined in that Directive.
(42) The CFC rules grant Member States the option to exclude from their scope entities or
permanent establishments whose level of passive income remains limited since the
risks of tax avoidance in those cases are considered low. The option also covers
specific situations involving financial undertakings, for which a higher proportion of
passive income may arise as part of their ordinary business activities. In order to
reduce the administrative and compliance burden for taxpayers, Article 7(3) of
Directive (EU) 2016/1164 should be amended so as to require Member States to
introduce such exemption.
20 VVA/KPMG, Tax compliance costs for SMEs: An update and a complement Final Report KPMG/VVA
2022. 21 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual
financial statements, consolidated financial statements and related reports of certain types of
undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and
repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19,
ELI: http://data.europa.eu/eli/dir/2013/34/oj).
EN 12 EN
(43) The rules on imported mismatches in Article 9(3) of Directive (EU) 2016/1164 have
proven excessively complex, primarily due to their elaborate definitions and multi-
layered compliance obligations. That complexity not only hinders their practical
implementation but also generates significant administrative burdens for both
taxpayers and tax authorities, without achieving their intended results. Considering the
difficulties in applying the rules on imported mismatches and in deriving any positive
outcome, it is appropriate and in conformity with the principle of proportionality to
delete those rules.
(44) In order to reduce fragmentation within the internal market and ensure that the
simplification objectives of this Directive are achieved consistently across the Union,
the rules laid down in Article 4(5) and 4(7)(d) should apply in a uniform manner in all
Member States. For this purpose, Member States should not maintain or introduce
provisions diverging from the uniform rules laid down in this Directive.
(45) The effective resolution of disputes on double taxation within the Union remains a
priority for the proper functioning of the internal market. Unresolved situations of
double taxation create obstacles to cross-border economic activity, undermine legal
certainty and result in excessive tax burden for taxpayers. While Directive (EU)
2017/1852 has significantly improved the framework for resolving such disputes,
experience has shown that certain concepts should be clarified and divergent
interpretations should be addressed, in order to enhance effectiveness and ensure a
more consistent and accessible dispute resolution procedure across the Union to the
benefit of both taxpayers and tax administrations.
(46) To facilitate the use of the procedures for tax dispute resolution laid down in Directive
(EU) 2017/1852 and ensure their wider use, it is necessary to clarify the notion of
“affected person”, including in disputes involving more than one person, and to
specify who is entitled to submit a complaint in such cases.
(47) While ensuring that all competent authorities receive the same information remains
essential, it is equally important to enhance flexibility and ease of access to the dispute
resolution procedure. To that end, it should be clarified in Article 3 of Directive (EU)
2017/1852 that, in cases involving more than one affected person, each affected person
may submit the complaint only to the competent authority of its Member State of
residence, thereby avoiding unnecessary multiple filings and reducing the
administrative burden. For example, where a transfer pricing adjustment affects two or
more associated enterprises, each enterprise should be entitled to submit a complaint
only to the competent authority of its Member State of residence. However, that does
not prevent one affected person from submitting a complaint on behalf of another
affected person in accordance with national law.
(48) To enhance legal certainty, while continuing to ensure that all competent authorities
concerned receive the same information at the same time, the requirements in Article 3
of Directive (EU) 2017/1852 for simultaneous submission of complaints, which has
proven difficult to interpret, should be replaced by a clear time limit for submission.
(49) In order to ensure that competent authorities engage constructively and focus on
eliminating double taxation effectively, the grounds for rejecting a complaint set out in
Article 5 of Directive (EU) 2017/1852 should be reduced to a minimum and restricted
to cases where the complaint lacks the essential information required. In addition,
affected persons should be given the possibility to remedy deficiencies in the
complaint, where appropriate, and, in the event of rejection, to resubmit the complaint,
provided that the applicable time limits are respected.
EN 13 EN
(50) In order to expedite the dispute resolution procedure, communication between
competent authorities and with affected persons should be clear and timely. Where the
competent authorities agree that no agreement can be reached on the resolution of the
dispute, for example because a precedent already exists, they should inform the
affected person without delay, rather than awaiting the expiry of the period provided
for in the mutual agreement procedure under Article 4 of Directive (EU) 2017/1852.
(51) To ensure that an affected person who intends to make use of the procedures laid
down in Directive (EU) 2017/1852 is not left without protection against double
taxation while at the same time avoiding overlaps between procedures based on
different legal frameworks, it is necessary to provide that other procedures initiated
under legal frameworks other than Directive (EU) 2017/1852 are suspended upon the
submission of a complaint and are terminated only once the complaint has been
accepted by all competent authorities concerned.
(52) In order to create a more transparent and efficient procedure in resolving disputes, it is
essential to establish further common procedural rules by way of implementing acts.
Those implementing acts should provide taxpayers and the competent authorities with
detailed and clear rules, with the aim to bring down the compliance burden and
achieve swift resolution of disputes. Such measures are expected to have an impact on
Member States’ executive and enforcement powers in the field of direct taxation and
more specifically, on the exercise of their taxing rights under bilateral or multilateral
tax conventions as well as on Member States’ tax bases. For that reason, it is necessary
to confer powers on the Council, acting on a proposal from the Commission, to adopt
implementing acts under Directive (EU) 2017/1852.
(53) In order to evaluate the effectiveness of the new rules introduced to Directive (EU)
2017/1852, the Commission should prepare an evaluation on the basis of the
information provided by Member States and other available data. The data should be
aligned as much as possible with the data provided to the OECD on the same matter as
to prevent an unnecessary additional burden for the Member States. In order to ensure
uniform conditions for the implementation of this Directive, in particular regarding
what kind of data is to be provided on a yearly basis for statistical purposes,
implementing powers should be conferred on the Commission. Those powers should
be exercised in accordance with Regulation (EU) No 182/2011 of the European
Parliament and of the Council22.
(54) In order to allow Member States and taxpayers to adapt their systems and structures to
the new rules laid down in Article 1 points 2(b) to (h), (3)(c), and (5), in Article 3
points (2) and (5) to (10) and in Article 4 point (5)(d) of this Directive, the application
of those provisions should be deferred. Member States should therefore be allowed to
apply the national measures necessary to comply with those provisions from a later
date than the other provisions of this Directive. In order to ensure that the derogation
set out in Article 4 point (5)(g) applies only within a limited investment window, it is
appropriate to confine its application to loans concluded in the first five tax periods
following the date from which that rule starts to apply.
(55) In order to take account of future changes in the company legal forms that may be
constituted under national law or EU law, the power to adopt acts in accordance
with Article 290 of the Treaty on the Functioning of the European Union should be
22 Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011
laying down the rules and general principles concerning mechanisms for control by Member States of
the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).
EN 14 EN
delegated to the Commission in respect of updating the lists of forms set out in
the annexes to Directives 2003/49/EC, 2009/133/EC and 2011/96/EU. It is of
particular importance that the Commission carry out appropriate consultations during
its preparatory work, including at expert level, and that those consultations be
conducted in accordance with the principles laid down in the Interinstitutional
Agreement of 13 April 2016 on Better Law-Making. The European Parliament should
be informed of the adoption of delegated acts, of any objection expressed in respect of
them and of any revocation of the delegation of powers.
(56) Any processing of personal data carried out for the purposes of this Directive should
be carried out in accordance with Regulation (EU) 2016/679 of the European
Parliament and of the Council23. Any exchange or other transmission of information
by competent authorities under this Directive should be limited to what is necessary
and proportionate for the purposes of this Directive. Where such exchanges or
transmission involve personal data, the rights of data subjects and the corresponding
obligations of controllers and processors under Regulation (EU) 2016/679, as well as
any additional safeguards laid down in Union or national law, should be respected.
(57) Since the objectives of this Directive, namely to ensure a coherent and consistent
application of Union rules in the field of direct taxation, to reduce fragmentation and
compliance burdens and to support the growth and competitiveness of the internal
market, cannot be sufficiently achieved by the Member States acting alone but can
rather, by reason of their scale, cross-border dimension and effects on the internal
market, be better achieved at Union level, the Union may adopt measures, in
accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on
European Union. In accordance with the principle of proportionality, as set out in that
Article, this Directive does not go beyond what is necessary in order to achieve those
objectives,
HAS ADOPTED THIS DIRECTIVE:
Article 1
Amendments to Directive 2003/49/EC
Directive 2003/49/EC is amended as follows:
(1) the title is replaced by the following:
‘Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation
applicable to interest and royalty payments made between companies of different
Member States’;
(2) Article 1 is amended as follows:
(a) paragraph 3 is replaced by the following:
‘3. A permanent establishment shall be treated as the payer of interest or
royalties only insofar as those payments represent an expense incurred for the
purposes of the activity of the permanent establishment in the Member State in
which it is situated.’;
(b) paragraph 7 is deleted;
23 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the
protection of natural persons with regard to the processing of personal data and on the free movement of
such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016,
p. 1, ELI: http://data.europa.eu/eli/reg/2016/679/oj).
EN 15 EN
(c) paragraph 10 is deleted;
(d) paragraph 11 is replaced by the following:
‘11. For the purposes of paragraph 1, Member States shall not require any prior
authorisation or administrative procedure verifying the fulfilment of the
requirements laid down in this Article or in Article 3 at the time of payment.’;
(e) paragraphs 12 and 13 are deleted;
(f) paragraph 14 is replaced by the following:
‘14. If the requirements for exemption cease to be fulfilled, the receiving
company or permanent establishment shall immediately inform the paying
company or permanent establishment.;
(g) in paragraph 15, the second sentence is deleted;
(h) the following paragraph 17 is added:
‘17. For the purposes of this Article and by way of derogation from paragraphs
15 and 16, Member States shall ensure that relief from withholding tax is
granted in accordance with the procedures laid down in Council Directive (EU)
2025/50* for cases falling within the scope of that Directive.
______
*Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer
relief of excess withholding taxes (OJ L, 2025/50, 10.1.2025, ELI:
http://data.europa.eu/eli/dir/2025/50/oj)’;
(3) Article 3 is amended as follows:
(a) the heading is replaced by the following:
‘Definition of company and permanent establishment’;
(b) point (a) is amended as follows:
(1) in point (iii), the indent ‘- corporation tax in the United Kingdom,’ is
deleted;
(2) the following subparagraph is added:
‘The Commission is empowered to adopt delegated acts in accordance
with Article 3a to amend the Annex to this Directive in order to update
the list of forms referred to in the first subparagraph, point (i), as a result
of a notification by a Member State of a new company form that may be
constituted under its national law, or to include a new company form
introduced under Union law.’;
(c) point (b) is deleted;
(4) the following Articles 3a and 3b are inserted:
‘Article 3a
Exercise of the delegation
1. The power to adopt delegated acts is conferred on the Commission subject to the
conditions laid down in this Article.
EN 16 EN
2. The power to adopt delegated acts referred to in Article 3 shall be conferred on the
Commission for an indeterminate period of time from [the date of entry into force of
this Directive].
3. The delegation of power referred to in Article 3 may be revoked at any time by the
Council. A decision to revoke shall put an end to the delegation of the power
specified in that decision. It shall take effect the day following the publication of the
decision in the Official Journal of the European Union or at a later date specified
therein. It shall not affect the validity of any delegated acts already in force.
4. Before adopting a delegated act, the Commission shall consult experts designated
by each Member State in accordance with the principles laid down in the
Interinstitutional Agreement of 13 April 2016 on Better Law-Making.
5. As soon as it adopts a delegated act, the Commission shall notify it to the Council.
6. A delegated act adopted pursuant to Article 3 shall enter into force only if no
objection has been expressed by the Council within a period of two months of
notification of that act to the Council or if, before the expiry of that period, the
Council has informed the Commission that it will not object. That period shall be
extended by two months at the initiative of the Council.
Article 3b
Information to the European Parliament
The European Parliament shall be informed by the Commission of the adoption of
delegated acts, of any objections expressed in respect of those acts, and of any
revocation by the Council of the delegation of power.’;
(5) in Article 5, the following paragraph 3 is added:
‘3. Where an interest or royalty payment arising in a Member State is paid to a
recipient established in a third country jurisdiction where no corporate tax is levied
or where a nominal corporate tax at zero rate applies to interest and royalty income,
the source State shall ensure that either of the following measures applies:
(a) the levying of a withholding tax on the payment;
(b) the denial of the deductibility, for tax purposes, of the corresponding
payment for the payer.
This paragraph shall not apply where the recipient of the payment:
(a) is subject to a qualified domestic top-up tax for the tax period and no refund
or direct or indirect financial benefit is granted in relation to that tax; or
(b) is part of an MNE group which, for the tax period, falls within the scope of
the rules laid down in Council Directive (EU) 2022/2523* or, as regards third-
country jurisdictions, the OECD Model Rules, unless the ultimate parent entity
of that MNE group is located in a jurisdiction with a qualified side-by-side
regime for the tax period.
For the purposes of this paragraph:
(a) the recipient of the payment shall be regarded as established in a
jurisdiction where it is incorporated or constituted under the laws of that
jurisdiction or has its place of effective management there or is otherwise
EN 17 EN
treated as resident for tax purposes under the laws of that jurisdiction and is not
treated as resident for tax purposes in another jurisdiction;
(b) ‘qualified domestic top-up tax’ means a tax as defined in Article 3, point
(28), of Directive (EU) 2022/2523;
(c) ‘MNE Group’ means a group as defined in Article 3, point (4), of Directive
(EU) 2022/2523;
(d) ‘a jurisdiction with a qualified side-by-side regime’ means a jurisdiction
that is reported as having such status on the OECD Central Record for
purposes of the Global Minimum Tax in accordance with the agreement of the
OECD/G20 Inclusive Framework on a Side-by-Side Package of 5 January
2026;
__________
* Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a
global minimum level of taxation for multinational enterprise groups and large-
scale domestic groups in the Union (OJ L 328, 22.12.2022, p. 1, ELI:
http://data.europa.eu/eli/dir/2022/2523/oj)’;
(6) Article 6 is deleted;
(7) the Annex to Directive to 2003/49/EC is replaced by the text in Annex I to this
Directive.
Article 2
Amendments to Directive 2009/133/EC
Directive 2009/133/EC is amended as follows:
(1) Article 2 is amended as follows:
(a) in point (a), the following point (iv) is added:
‘(iv) one or more companies, on being dissolved without going into liquidation,
transfer all their assets and liabilities to another existing company, the
acquiring company, without the issue of any new shares by the acquiring
company, provided that one person holds directly or indirectly all the shares in
the merging companies or the members of the merging companies hold their
securities and shares in the same proportion in all merging companies;’;
(b) point (b) is replaced by the following:
‘(b) ‘division’ means an operation whereby:
(i) a company, on being dissolved without going into liquidation,
transfers all its assets and liabilities to two or more existing or new
companies, in exchange for the pro rata issue to its shareholders of
securities representing the capital of the companies receiving the assets
and liabilities, and, if applicable, a cash payment not exceeding 10 % of
the nominal value or, in the absence of a nominal value, of the
accounting par value of those securities;
(ii) a company being divided transfers part of its assets and liabilities to
one or more recipient companies, in exchange for the issue to the
company being divided of securities or shares in the recipient companies
(‘division by separation’);’;
EN 18 EN
(c) the following points (l), (m) and (n) are added:
‘(l) ‘cross-border conversion’ means an operation whereby a company, without
being dissolved, wound up or going into liquidation, converts the legal form
under which it is registered in a departure Member State into a legal form of
the destination Member State, as listed in Annex I, and transfers at least its
registered office to the destination Member State, while retaining its legal
personality;
(m) ‘departure Member State’ means a Member State in which a company is
registered prior to a cross-border conversion;
(n) ‘destination Member State’ means a Member State in which a converted
company is registered as a result of a cross-border conversion;’;
(2) in Article 3, the following subparagraph is added:
‘The Commission is empowered to adopt delegated acts in accordance with Article
3a, to amend Annex I, Part A, to this Directive in order to update the list of forms
referred to in point (a) as a result of a notification by a Member State of a new
company form that may be constituted under its national law, or to include a new
company form introduced under Union law.’;
(3) the following Articles 3a and 3b are inserted:
‘Article 3a
Exercise of the delegation
1. The power to adopt delegated acts is conferred on the Commission subject to the
conditions laid down in this Article.
2. The power to adopt delegated acts referred to in Article 3 shall be conferred on the
Commission for an indeterminate period of time from [the date of entry into force of
this Directive].
3. The delegation of power referred to in Article 3 may be revoked at any time by the
Council. A decision to revoke shall put an end to the delegation of the power
specified in that decision. It shall take effect the day following the publication of the
decision in the Official Journal of the European Union or at a later date specified
therein. It shall not affect the validity of any delegated acts already in force.
4. Before adopting a delegated act, the Commission shall consult experts designated
by each Member State in accordance with the principles laid down in the
Interinstitutional Agreement of 13 April 2016 on Better Law-Making.
5. As soon as it adopts a delegated act, the Commission shall notify it to the Council.
6. A delegated act adopted pursuant to Article 3 shall enter into force only if no
objection has been expressed by the Council within a period of two months of
notification of that act to the Council or if, before the expiry of that period, the
Council has informed the Commission that it will not object. That period shall be
extended by two months at the initiative of the Council.
EN 19 EN
Article 3b
Information to the European Parliament
The European Parliament shall be informed by the Commission of the adoption of
delegated acts, of any objections expressed in respect of those acts, and of any
revocation by the Council of the delegation of power.’;
(4) the following Chapter Va is inserted:
‘CHAPTER Va
RULES APPLICABLE TO CROSS-BORDER CONVERSIONS
Article 14a
1. A cross-border conversion shall not give rise to any taxation of capital gains
calculated in accordance with Article 4(1), in the departure Member State, provided
that one of the following conditions are met:
(a) the company undergoing the cross-border conversion remains a tax resident
in the departure Member State;
(b) such capital gains are derived from assets and liabilities which remain
effectively connected with a permanent establishment of the company
undergoing cross-border conversion in the departure Member State and play a
part in generating the profits or losses taken into account for tax purposes.
2. Paragraph 1 shall only apply if the company computes any new depreciation and
any gains or losses in respect of the assets and liabilities that remain in the departure
Member State or are effectively connected with a permanent establishment in that
Member State, as though the cross-border conversion had not taken place.
3. Where, under the laws of the departure Member State, the company is entitled to
have any new depreciation or any gains or losses in respect of the assets and
liabilities remaining in that Member State computed on a basis different from that set
out in paragraph 2, paragraph 1 shall not apply to the assets and liabilities in respect
of which that option is exercised.
Article 14b
1. Where a company undergoes a cross-border conversion, the Member States shall
take the necessary measures to ensure that provisions or reserves properly constituted
by the company before the cross-border conversion, that are partly or wholly exempt
from tax and not derived from permanent establishments abroad, may be carried over
with the same tax exemption, by a permanent establishment of the company
undergoing the cross-border conversion, which is situated within the territory of the
departure Member State.
2. To the extent that a company undergoing a cross-border conversion within the
territory of a Member State would be allowed to carry forward or carry back losses
which had not been exhausted for tax purposes, that Member State shall allow the
permanent establishment, situated within its territory, of the company undergoing
cross-border conversion, to take over those losses of that company which have not
been exhausted for tax purposes, provided that the loss carry forward or carry back
would have been available in comparable circumstances to a company which
continued to be tax resident in that Member State.
EN 20 EN
Article 14c
1. A cross-border conversion shall not in itself give rise to any taxation of the
income, profits or capital gains of the shareholders of the company undergoing that
cross-border conversion.
2. Paragraph 1 shall not prevent the Member States from taxing the gain arising out
of the subsequent transfer of the securities representing the capital of the company
undergoing cross-border conversion.’;
(5) Annex I to Directive 2009/133/EC is amended in accordance with Annex II to this
Directive.
Article 3
Amendments to Directive 2011/96/EU
Directive 2011/96/EU is amended as follows:
(1) the title is replaced by the following:
‘Council Directive 2011/96/EU of 30 November 2011 on a common system of
taxation applicable to dividends and other profit distributions between companies of
different Member States’;
(2) in Article 1, paragraph 1 is replaced by the following:
‘1. Each Member State shall apply this Directive:
(a) to distributions of profits received by companies of that Member State
which come from distributing companies of other Member States;
(b) to distributions of profits by companies of that Member State to
companies of other Member States of which they are distributing companies;
(c) to distributions of profits received by permanent establishments
situated in that Member State of companies of other Member States which
come from distributing companies of a Member State other than that where the
permanent establishment is situated;
(d) to distributions of profits by companies of that Member State to
permanent establishments situated in another Member State of companies of
the same Member State of which they are distributing companies.’;
(3) in Article 2, point (a), the following subparagraph is added:
‘The Commission is empowered to adopt delegated acts in accordance with Article
2a to amend Annex I to this Directive in order to update the list of forms referred to
in the first subparagraph, point (i), as a result of a notification by a Member State of a
new company form that may be constituted under its national law, or to include a
new company form introduced under Union law.’;
(4) the following Articles 2a and 2b are inserted:
‘Article 2a
Exercise of the delegation
1. The power to adopt delegated acts is conferred on the Commission subject to the
conditions laid down in this Article.
EN 21 EN
2. The power to adopt delegated acts referred to in Article 2 shall be conferred on the
Commission for an indeterminate period of time from [the date of entry into force of
this Directive].
3. The delegation of power referred to in Article 2 may be revoked at any time by the
Council. A decision to revoke shall put an end to the delegation of the power
specified in that decision. It shall take effect the day following the publication of the
decision in the Official Journal of the European Union or at a later date specified
therein. It shall not affect the validity of any delegated acts already in force.
4. Before adopting a delegated act, the Commission shall consult experts designated
by each Member State in accordance with the principles laid down in the
Interinstitutional Agreement of 13 April 2016 on Better Law-Making.
5. As soon as it adopts a delegated act, the Commission shall notify it to the Council.
6. A delegated act adopted pursuant to Article 2 shall enter into force only if no
objection has been expressed by the Council within a period of two months of
notification of that act to the Council or if, before the expiry of that period, the
Council has informed the Commission that it will not object. That period shall be
extended by two months at the initiative of the Council.
Article 2b
Information to the European Parliament
The European Parliament shall be informed by the Commission of the adoption of
delegated acts, of any objections expressed in respect of those acts, and of any
revocation by the Council of the delegation of power.’;
(5) Article 3 is deleted;
(6) in Article 4, paragraphs 1, 2 and 3 are replaced by the following:
‘1. Where a receiving company or its permanent establishment, by virtue of the
association of the receiving company with the distributing company, receives
distributed profits, the Member State of the receiving company and the Member State
of its permanent establishment shall, except when the distributing company is
liquidated, either:
(a) refrain from taxing such profits to the extent that such profits are not
deductible by the distributing company, and tax such profits to the extent that
such profits are deductible by the distributing company; or
(b) tax such profits while authorising the receiving company and the
permanent establishment to deduct from the amount of tax due that fraction of
the corporation tax related to those profits and paid by the distributing
company and any lower-tier distributing company, subject to the condition that
at each tier a company and its lower-tier distributing company fall within the
definitions laid down in Article 2 and meet the requirements provided for in
Article 3, up to the limit of the amount of the corresponding tax due.
This paragraph shall be without prejudice to national anti-abuse measures aimed at
preventing the avoidance of wealth or income tax liabilities through the use of
holding companies.
2. Nothing in this Directive shall prevent the Member State of the receiving company
from considering a distributing company to be fiscally transparent on the basis of that
EN 22 EN
Member State’s assessment of the legal characteristics of that distributing company
arising from the law under which it is constituted and therefore from taxing the
receiving company on its share of the profits of its the distributing company as and
when those profits arise. In this case the Member State of the receiving company
shall refrain from taxing the distributed profits of the distributing company.
When assessing the receiving company’s share of the profits of its the distributing
company as they arise the Member State of the receiving company shall either
exempt those profits or authorise the receiving company to deduct from the amount
of tax due that fraction of the corporation tax related to the receiving company’s
share of profits and paid by the distributing company and any lower-tier distributing
company, subject to the condition that at each tier a company and its lower-tier
distributing company fall within the definitions laid down in Article 2 and meet the
requirements provided for in Article 3, up to the limit of the amount of the
corresponding tax due.
3. Where a receiving company holds a minimum participation of 10% in the capital
of, or voting rights in, a company of another Member State, each Member State shall
retain the option of providing that any charges relating to the holding participation
and any losses resulting from the distribution of the profits of the distributing
company may not be deducted from the taxable profits of the receiving company.
Where the management costs relating to the holding participation in such a case are
fixed as a flat rate, the fixed amount may not exceed 5 % of the profits distributed by
the distributing company.’;
(7) Article 5 is replaced by the following:
‘Article 5
1. Profits which a distributing company distributes to its receiving company shall be
exempt from withholding tax.
2. By derogation from Article 2(a), points (i) and (iii), paragraph 1 shall also apply
where the receiving company is a pension institution.
For the purposes of the first subparagraph, ‘pension institution’ means any of the
following:
(a) an institution for occupational retirement provision as defined in Article 6,
point (1) of Directive (EU) 2016/2341 of the European Parliament and of the
Council*;
(b) an institution operating pension schemes which are considered to be social
security schemes covered by Regulation (EC) No 883/2004 of the European
Parliament and of the Council** and Regulation (EC) No 987/2009 of the
European Parliament and of the Council***, as well as any legal entity set up
for the purpose of investment of such schemes.
_________
* Directive (EU) 2016/2341 of the European Parliament and of the Council of 14
December 2016 on the activities and supervision of institutions for occupational
retirement provision (IORPs) (OJ L 354 23.12.2016, p. 37, ELI:
http://data.europa.eu/eli/dir/2016/2341/oj).
EN 23 EN
** Regulation (EC) No 883/2004 of the European Parliament and of the Council of
29 April 2004 on the coordination of social security systems (OJ L 166, 30.4.2004,
p. 1, ELI: http://data.europa.eu/eli/reg/2004/883/oj).
*** Regulation (EC) No 987/2009 of the European Parliament and of the Council of
16 September 2009 laying down the procedure for implementing Regulation (EC) No
883/2004 on the coordination of social security systems (OJ L 284, 30.10.2009, p. 1,
ELI: http://data.europa.eu/eli/reg/2009/987/oj).’;
(8) the following Articles 5a, 5b and 5c are inserted:
‘Article 5a
For the purposes of Article 5, Member States shall not require any prior authorisation
or administrative procedure for verifying the fulfilment of the requirements laid
down in Articles 2 and 3 at the time of the distribution of profits.
Article 5b
1. If the distributing company has withheld tax at source to be exempted under
Article 5, a claim may be made at source for repayment of that tax. The application
for repayment must be submitted within the period laid down. That period shall last
for at least two years from date of the distribution of profits.
2. The Member State of the distributing company shall repay the excess tax withheld
at source within one year following due receipt of the application and such
supporting information as it may reasonably ask for. If the tax withheld at source has
not been refunded within that period, the receiving company shall be entitled on
expiry of the year in question to interest on the tax which is refunded at a rate
corresponding to the national interest rate to be applied in comparable cases under
the domestic law of the Member State of the distributing company.
Article 5c
For the purpose of Article 5 and by way of derogation from Article 5a and 5b,
Member States shall ensure that relief from withholding tax is granted in accordance
with the procedures laid down in Council Directive (EU) 2025/50* for cases falling
within the scope of that Directive.
______
*Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer relief of
excess withholding taxes (OJ L, 2025/50, 10.1.2025, ELI:
http://data.europa.eu/eli/dir/2025/50/oj).’;
(9) Article 6 is replaced by the following:
‘The Member State of a receiving company may not charge withholding tax on the
profits which such a company receives from a distributing company.’;
(10) in Article 7, paragraph 1 is replaced by the following:
‘1. The term ‘withholding tax’ as used in this Directive shall not cover an advance
payment or prepayment (précompte) of corporation tax to the Member State of the
distributing company which is made in connection with a distribution of profits to its
receiving company.’;
EN 24 EN
(11) Annex I to Directive 2011/96/EU is amended in accordance with Annex III to this
Directive.
Article 4
Amendments to Directive (EU) 2016/1164
Directive (EU) 2016/1164 is amended as follows:
(1) the title is replaced by the following:
‘Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules on the tax
treatment of research and development expenditure and against tax avoidance
practices that directly affect the functioning of the internal market’;
(2) Article 2 is amended as follows:
(a) the following points (-1), (-1a) and (-1b) are inserted before point (1):
‘(-1) ‘qualifying expenditure’ means capital expenditure on plant, machinery
and other tangible assets, net of deductible value added tax, incurred by or on
behalf of the taxpayer and used in the direct business interest of the taxpayer
for any of the following purposes:
(a) carrying out research and development;
(b) providing facilities for carrying out research and development;
(-1a) ‘research and development’ means any of the following:
(a) basic research: experimental or theoretical work undertaken primarily
to acquire new knowledge of the underlying foundations of phenomena
and observable facts, without any particular application or use in view;
(b) applied research: original investigation undertaken in order to acquire
new knowledge but directed primarily towards a specific, practical aim or
objective;
(c) experimental development: systematic work, drawing on knowledge
gained from research and practical experience and producing additional
knowledge, which is directed to producing new products or processes or
to improving existing products or processes;
(-1b) ‘disposal value’ means:
(a) in the case of a sale, at no less than market value, of assets in respect
of which qualifying expenditure has been incurred, the net proceeds of
the sale;
(b) in the case of demolition or destruction of such assets, the net amount
received for the remains together with any insurance or capital
compensation;
(c) in all other cases where the taxpayer ceases to own such assets, the
market value;’
(b) in point (4), third subparagraph, point (a) is replaced by the following:
‘(a) where the mismatch outcome arises under point (9), first subparagraph,
points (b), (c), (d), (e) or (g), or where an adjustment is required under Article
EN 25 EN
9a, the definition of associated enterprise is modified so that the 25 per cent
requirement is replaced by a 50 per cent requirement;’;
(c) point (5) is amended as follows:
(1) the introductory wording is replaced by the following:
‘‘financial undertaking’ means any of the following entities or permanent
establishments of such entities in one or more Member States:’;
(2) point (a) is replaced by the following:
‘(a) a credit institution as defined in point (1) of Article 4(1) of
Regulation (EU) No 575/2013 of the European Parliament and of the
Council*
______
*Regulation (EU) No 575/2013 of the European Parliament and of the
Council of 26 June 2013 on prudential requirements for credit institutions
and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1,
ELI: http://data.europa.eu/eli/reg/2013/575/oj). ’;
(3) the following points (aa), (ab) and (ac) are inserted:
‘(aa) an investment firm as defined in point (1) of Article 4(1) of
Directive 2014/65/EU the European Parliament and of the Council*;
(ab) an alternative investment fund manager (AIFM) as defined in point
(b) of Article 4(1) of Directive 2011/61/EU of the European Parliament
and of the Council**;
(ac) a management company of an undertaking for collective investment
in transferable securities as defined in point (b) of Article 2(1) Directive
2009/65/EC of the European Parliament and of the Council***;
______
*Directive 2014/65/EU of the European Parliament and of the Council of
15 May 2014 on markets in financial instruments and amending
Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014,
p. 349, ELI: http://data.europa.eu/eli/dir/2014/65/oj)
**Directive 2011/61/EU of the European Parliament and of the Council
of 8 June 2011 on Alternative Investment Fund Managers and amending
Directives 2003/41/EC and 2009/65/EC and Regulations (EC)
No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1,
ELI: http://data.europa.eu/eli/dir/2011/61/oj).
***Directive 2009/65/EC of the European Parliament and of the Council
of 13 July 2009 on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective
investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p.
32, ELI: http://data.europa.eu/eli/dir/2009/65/oj).;
(4) point (d) is replaced by the following:
‘(d) an institution for occupational retirement provision as defined in
point (1) of Article 6 of Directive 2016/2341 of the European Parliament
and of the Council*;
EN 26 EN
_____
*Directive (EU) 2016/2341 of the European Parliament and of the
Council of 14 December 2016 on the activities and supervision of
institutions for occupational retirement provision (IORPs) (OJ L 354,
23.12.2016, p. 37, ELI: http://data.europa.eu/eli/dir/2016/2341/oj). ’;
(5) point (f) is deleted;
(6) points (g), (h) and (i) are replaced by the following:
‘(g) an undertaking for collective investment in transferable securities
within the meaning of Article 1(2) of Directive 2009/65/EC;
(h) a central counterparty or ‘CPP’ as defined in Article 2, point (1) of
Regulation (EU) No 648/2012 of the European Parliament and of the
Council*;
(i) a central securities depository or ‘CSD’ as defined in Article 2(1),
point (1) of Regulation (EU) No 909/2014 of the European Parliament
and of the Council**;
____
*Regulation (EU) No 648/2012 of the European Parliament and of the
Council of 4 July 2012 on OTC derivatives, central counterparties and
trade repositories (OJ L 201, 27.7.2012, p. 1,
ELI: http://data.europa.eu/eli/reg/2012/648/oj).
**Regulation (EU) No 909/2014 of the European Parliament and of the
Council of 23 July 2014 on improving securities settlement in the
European Union and on central securities depositories and amending
Directives 98/26/EC and 2014/65/EU and Regulation (EU)
No 236/2012 (OJ L 257, 28.8.2014, p. 1,
ELI: http://data.europa.eu/eli/reg/2014/909/oj). ’;
(7) the following points (j) to (o) are added:
‘(j) an insurance or reinsurance special purpose vehicle authorised in
accordance with Article 211 of Directive 2009/138/EC;
(k) a financial holding company as defined in point (20) of Article 4(1) of
Regulation (EU) No 575/2013 and an insurance holding company as
defined in point (f) of Article 212(1) of Directive 2009/138/EC or a
mixed financial holding company as defined in point (15) of Article 2 of
Directive 2002/87/EC of the European Parliament and of the Council*,
which is part of an insurance group that is subject to supervision at the
level of the group pursuant to Article 213 of Directive 2009/138/EC and
which is not exempted from group supervision pursuant to Article 214(2)
of that Directive;
(l) a payment institution as defined in point (4) of Article 4 of Directive
(EU) 2015/2366 of the European Parliament and of the Council**;
(m) an electronic money institution as defined in point (1) of Article 2 of
Directive 2009/110/EC of the European Parliament and of the
Council***;
EN 27 EN
(n) a crowdfunding service provider as defined in point (e) of Article 2(1)
of Regulation (EU) 2020/1503 of the European Parliament and of the
Council****;
(o) a crypto-asset service provider as defined in point (15) of Article 3(1)
of Regulation (EU) 2023/1114 of the European Parliament and of the
Council*****.
____
*Directive 2002/87/EC of the European Parliament and of the Council of
16 December 2002 on the supplementary supervision of credit
institutions, insurance undertakings and investment firms in a financial
conglomerate and amending Council Directives 73/239/EEC,
79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and
Directives 98/78/EC and 2000/12/EC of the European Parliament and of
the Council (OJ L 35, 11.2.2003, p. 1,
ELI: http://data.europa.eu/eli/dir/2002/87/oj).
**Directive (EU) 2015/2366 of the European Parliament and of the
Council of 25 November 2015 on payment services in the internal
market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU
and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC
(OJ L 337, 23.12.2015, p. 35,
ELI: http://data.europa.eu/eli/dir/2015/2366/oj).
***Directive 2009/110/EC of the European Parliament and of the
Council of 16 September 2009 on the taking up, pursuit and prudential
supervision of the business of electronic money institutions amending
Directives 2005/60/EC and 2006/48/EC and repealing Directive
2000/46/EC (OJ L 267, 10.10.2009, p. 7,
ELI: http://data.europa.eu/eli/dir/2009/110/oj).
****Regulation (EU) 2020/1503 of the European Parliament and of the
Council of 7 October 2020 on European crowdfunding service providers
for business, and amending Regulation (EU) 2017/1129 and Directive
(EU) 2019/1937 (OJ L 347, 20.10.2020, p. 1,
ELI: http://data.europa.eu/eli/reg/2020/1503/oj).
*****Regulation (EU) 2023/1114 of the European Parliament and of the
Council of 31 May 2023 on markets in crypto-assets, and amending
Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives
2013/36/EU and (EU) 2019/1937 (OJ L 150, 9.6.2023, p. 40,
ELI: http://data.europa.eu/eli/reg/2023/1114/oj). ’;
(3) Article 3 is replaced by the following:
‘Article 3
Minimum level of harmonisation and minimum level of protection
1. Member States may decide to maintain or adopt alternative domestic measures
instead of introducing those laid down in Chapter Ia if they establish that such
domestic measures treat qualifying expenditure more favourably than the rules of
Chapter Ia.
EN 28 EN
2. Chapter II shall not preclude the application of domestic provisions or agreement-
based provisions aimed at safeguarding a higher level of protection for domestic
corporate tax bases.’;
(4) the following Chapter Ia is inserted:
‘CHAPTER Ia
RESEARCH AND DEVELOPMENT
Article 3a
Research and development allowance
1. Taxpayers shall be entitled to a research and development allowance (the
‘allowance’) for qualifying expenditure. That allowance shall be deductible from
their taxable base.
2. The amount of the allowance shall be equal to the amount of the qualifying
expenditure.
3. By way of derogation from paragraph 2, where a disposal value arises in respect of
that expenditure, the amount of the allowance shall be limited to the amount by
which that expenditure exceeds the disposal value.
4. The allowance shall be claimed in the tax period in which the qualifying
expenditure is incurred, or in any of the four subsequent tax periods.
5. No claim for the allowance may be made after expiry of the fourth tax period
following the tax period in which the qualifying expenditure was incurred.
Article 3b
Exclusions from qualifying expenditure
1. Qualifying expenditure shall not include expenditure incurred for the acquisition
of:
(a) land or rights over land, except where the expenditure relates to:
(i) a building or structure already constructed on the land;
(ii) rights over such a building or structure; or
(iii) plant or machinery which forms part of such a building or structure;
(b) a dwelling.
2. By way of derogation from paragraph 1, point (b), expenditure relating to a
building that includes a dwelling shall be treated as qualifying expenditure where
both of the following conditions are fulfilled:
(a) the parts of the building other than the dwelling are used for research and
development;
(b) no more than 20% of the expenditure relating to the building is attributable
to the dwelling.
Where the conditions laid down in the first subparagraph are fulfilled, the
expenditure relating to the entire building shall be treated as qualifying expenditure.
EN 29 EN
Where the condition in the first subparagraph, point (a), is fulfilled but the condition
in point (b) of that subparagraph is not, only the proportion of the expenditure
corresponding to the part of the building used for research and development shall be
treated as qualifying expenditure.
Article 3c
Minimum use of qualifying expenditure and balancing charge
1. Qualifying expenditure for which the allowance is claimed shall be used wholly
and exclusively for research and development for a continuous period of at least
three years. That three-year period shall start no later than one year after the end of
the tax period for which the allowance is first claimed.
2. If the condition laid down in paragraph 1 is not fulfilled, the allowance shall not be
granted or, if it has already been granted, it shall be withdrawn, and the amount of
the allowance shall be included in the taxable base of the tax period in which that
condition ceases to be met.
The first subparagraph shall not apply where the failure to satisfy that condition
results either from force majeure or from circumstances beyond the reasonable
control of the taxpayer.
3. Where a taxpayer ceases to own, demolishes or otherwise disposes of an asset
linked to qualifying expenditure in respect of which that taxpayer has claimed the
allowance, the disposal value of that asset shall be brought into account for tax
purposes.
If the disposal value exceeds any unclaimed allowance, a balancing charge shall
arise.
The amount of the balancing charge, which shall be included in the taxable income
of the taxpayer for the tax period in which the disposal occurs, shall be the lower of
the following amounts:
(a) the amount by which the disposal value exceeds any unclaimed allowance;
(b) the allowance claimed.’;
(5) Article 4 is amended as follows:
(a) in paragraph 1, the first subparagraph is replaced by the following:
‘Exceeding borrowing costs shall be deductible in the tax period in which they
are incurred only in an amount equal to 30 percent of the taxpayer's earnings
before interest, tax, depreciation and amortisation (EBITDA).’;
(b) paragraph 2 is replaced by the following:
‘The EBITDA shall be calculated by adding back to the income subject to
corporate tax in the Member State of the taxpayer the tax-adjusted amounts for
exceeding borrowing costs, the tax-adjusted amounts for depreciation and
amortization as well as the amount of qualifying expenditure deducted from the
taxable base pursuant to the rules laid down in Chapter Ia or domestic
provisions that provide for higher tax deductibility of such qualifying
expenditure. Tax-exempt income shall be excluded from the EBITDA of the
taxpayer.’;
(c) the following paragraph 2a is inserted:
EN 30 EN
‘2a. Member States shall exclude from the scope of paragraph 1 exceeding
borrowing costs incurred on low-risk third-party loans.
For the purpose of the first subparagraph, a low-risk third-party loan means a
loan that meets the following conditions:
(a) it is not provided by an associated enterprise or permanent
establishment or by an entity of the same consolidated group for financial
accounting purposes; and
(b) it is used to finance exclusively the own activities of the borrowing
entity itself, and no financing goes to an associated enterprise or
permanent establishment or to an entity of the same consolidated group
for financial accounting purposes.
For the purposes of the condition set out in point (b), a loan shall not be used,
directly or indirectly, to fund capital contributions or other equity contributions
resulting in financing an associated enterprise or permanent establishment or an
entity of the same consolidated group for financial accounting purposes.
Where the first subparagraph applies, any income arising from low-risk third-
party loans shall be excluded from the EBITDA of the taxpayer, and any
excluded exceeding borrowing cost shall not be included in the exceeding
borrowing costs of the group vis-à-vis third parties referred to in paragraph 5,
point (b).’;
(d) paragraph 3 is replaced by the following:
‘By derogation from paragraph 1, the taxpayer shall be given the right to
deduct exceeding borrowing costs in an amount equal to EUR 3 000 000.
The amount referred to in the first subparagraph shall be adjusted every year in
accordance with the following formula:
= −1 −1
−2
Where:
is the indexed amount applicable from 1 July of calendar year y until 30 June
of calendar year y+1.
−1is the indexed amount applicable from 1 July of calendar year y-1 until 30
June of calendar year y.
−1is the annual average Harmonised Index of Consumer Prices for the
Union (EU27) for calendar year y-1, as published by Eurostat.
−2is the annual average Harmonised Index of Consumer Prices for the
Union for calendar year y-2, as published by Eurostat.
The resulting amount shall be rounded to the nearest EUR 10 000.
For the purposes of paragraph 1, second subparagraph, the amount of EUR 3
000 000 shall be considered for the entire group.’;
(e) the following paragraph 3a is inserted:
EN 31 EN
‘3a. By derogation from paragraph 1, a taxpayer shall be given the right to fully
deduct exceeding borrowing costs incurred in a tax period where the taxpayer
demonstrates that its EBITDA for that tax period has decreased by at least 50
per cent compared to the EBITDA of the immediately preceding tax period.
The derogation provided for in the first subparagraph shall only apply to the
tax period in which the decrease in EBITDA occurs.’;
(f) paragraph 4 is replaced by the following:
‘4. Member States may exclude from the scope of paragraph 1 exceeding
borrowing costs incurred on:
(a) loans which were concluded before 17 June 2016, but the exclusion
shall not extend to any subsequent modification of such loans;
(b) loans used to fund a long-term public-benefit project where the
project operator, borrowing costs, assets and income are all in the Union.
For the purposes of the first subparagraph, point (b), a long-term public-benefit
project means a project to provide, upgrade, operate or maintain a large-scale
asset that is considered in the general public interest by a Member State
Where the first subparagraph, point (b), applies, any income arising from a
long-term public-benefit project shall be excluded from the EBITDA of the
taxpayer, and any excluded exceeding borrowing cost shall not be included in
the exceeding borrowing costs of the group vis-à-vis third parties referred to in
paragraph 5, point (b).’;
(g) the following paragraph 4a is inserted:
‘4a. Member States shall exclude from paragraph 1 exceeding borrowing costs
incurred on loans used to fund defence products or other products for defence
purposes belonging to any of the categories set out in Article 1, points (a) and
(b) of Council Regulation (EU) 2025/1106*, where the taxpayer, borrowing
costs, assets and income are all in the Union.
For the purpose of the first subparagraph:
(a) ‘defence products’ means goods, services, and works that fall within
the scope of Directive 2009/81/EC** of the European Parliament and of
the Council, as set out in Article 2 thereof;
(b) ‘other products for defence purposes’ means any good, service and
work other than those falling within the scope of Directive 2009/81/EC,
as set out in Article 2 thereof, which are necessary for or aimed at
defence purposes and intended specifically for military purposes.
Where the first subparagraph applies, any income arising from defence
products or other products for defence purposes in critical capability areas shall
be excluded from the EBITDA of the taxpayer, and any excluded exceeding
borrowing cost shall not be included in the exceeding borrowing costs of the
group vis-à-vis third parties referred to in paragraph 5, point (b).
The first subparagraph shall apply only to loans concluded during the first five
tax periods following 1 January 2029.
____
EN 32 EN
*Council Regulation (EU) 2025/1106 of 27 May 2025 establishing the Security
Action for Europe (SAFE) through the Reinforcement of the European Defence
Industry Instrument (OJ L, 2025/1106, 28.5.2025,
ELI: http://data.europa.eu/eli/reg/2025/1106/oj).
**Directive 2009/81/EC of the European Parliament and of the Council of
13 July 2009 on the coordination of procedures for the award of certain works
contracts, supply contracts and service contracts by contracting authorities or
entities in the fields of defence and security, and amending Directives
2004/17/EC and 2004/18/EC (OJ L 216, 20.8.2009, p. 76,
ELI: http://data.europa.eu/eli/dir/2009/81/oj). ’;
(h) in paragraph 5, the introductory wording is replaced by the following:
‘Where the taxpayer is a member of a consolidated group for financial
accounting purposes, the taxpayer shall be given the right to either:’;
(i) paragraph 6 is amended as follows:
(1) the introductory wording is replaced by the following:
‘The Member State of the taxpayer shall provide for rules either:’;
(2) point (a) is replaced by the following:
‘(a) to carry forward, without time limitation, exceeding borrowing costs
which cannot be deducted in the current tax period under paragraphs 1 to
5; or’;
(3) point (b) is deleted;
(4) the following subparagraph is added:
‘The Member State of the taxpayer may also provide for rules to carry
back, for a maximum of three years, exceeding borrowing costs which
cannot be deducted in the current tax period under paragraphs 1 to 5.’
(j) the following paragraph 9 is added:
‘9. For the purposes of this Article, Member States shall not maintain or
introduce, in their national law, any provisions with a subject-matter that falls
within the scope of this Article if they lay down rules that diverge from those
laid down in this Article.’;
(6) in Article 6, paragraph 1 is replaced by the following:
‘1. For the purposes of calculating the tax liability, a Member State shall ignore an
arrangement or a series of arrangements which, having been put into place for the
main purpose or one of the main purposes of obtaining a tax advantage that defeats
the object or purpose of the applicable tax law, are not genuine having regard to all
relevant facts and circumstances. An arrangement may comprise more than one step
or part.’;
(7) Article 7 is amended as follows:
(a) paragraph 2 is amended as follows:
(1) point (a) is replaced by the following:
‘(a) the non-distributed income of the entity or the income of the permanent
establishment which is derived from the following categories:
EN 33 EN
(i) interest or any other income generated by financial assets;
(ii) royalties or any other income generated from intellectual
property;
(iii) dividends and income from the disposal of shares;
(iv) income from financial leasing;
(v) income from insurance, banking and other financial activities;
(vi) income from invoicing companies that earn sales and services
income from goods and services purchased from and sold to
associated enterprises, and add no or little economic value;
This point shall not apply where the controlled foreign company carries on a
substantive economic activity supported by staff, equipment, assets and
premises, as evidenced by relevant facts and circumstances.
Where the controlled foreign company is resident or situated in a third country
that is not party to the EEA Agreement, Member States may decide to refrain
from applying the preceding second subparagraph.’;
(2) point (b) is deleted;
(b) paragraph 3 is replaced by the following:
‘3. A Member State shall not treat an entity or permanent establishment as a
controlled foreign company under paragraph 1 if:
(a) one third or less of the income accruing to the entity or permanent
establishment falls within the categories under paragraph 2, point (a); or
(b) the entity is a financial undertaking and one third or less of the
entity's income from the categories under paragraph 2, point (a) comes
from transactions with the taxpayer or its associated enterprises.’;
(c) paragraph 4 is deleted;
(d) the following paragraphs 5, 6,7 and 8 are added:
‘5. For the purposes of this Article, the following definitions apply:
– ‘MNE group’ means a group as defined in Article 3, point (4), of
Directive (EU) 2022/2523;
– ‘large-scale domestic group’ means a group as defined in Article 3,
point (5), of Directive (EU) 2022/2523;
– ‘ultimate parent entity’ means an entity as defined in Article 3,
point (14), of Directive (EU) 2022/2523;
– ‘a jurisdiction with a qualified side-by-side regime’ means a
jurisdiction that is reported as having such status on the OECD
Central Record for purposes of the Global Minimum Tax in
accordance with the agreement of the OECD/G20 Inclusive
Framework on a Side-by-Side Package of 5 January 2026;
– ‘qualified domestic top-up tax’ means a tax as defined in Article 3,
point (28), of Directive (EU) 2022/2523.’
EN 34 EN
6. Member States shall ensure that paragraphs 1, 2 and 3 do not apply if the
taxpayer:
(a) is part of a small or medium-sized group in accordance with Article
3(5) and (6) of Directive (EU) 2013/34 of the European Parliament and
of the Council*;
(b) is not part of a group and is a micro, small or medium-sized
undertaking in accordance with Article 3(1), (2) and (3) of Directive
(EU) 2013/34; or
(c) is part of an MNE group or a large-scale domestic group, which for
the tax period falls within the scope of the rules laid down in Council
Directive 2022/2523** or, as regards third-country jurisdictions, the
OECD Model Rules, unless the ultimate parent entity of that MNE group
is located in a jurisdiction with a qualified side-by-side regime for the tax
period.
7. Notwithstanding paragraph 6, point (c), a Member State shall not treat an
entity or a permanent establishment as a controlled foreign company where the
taxpayer is directly or indirectly held by an ultimate parent entity that is located
in a jurisdiction with a side-by-side regime for the tax period, if both of the
following conditions are met:
(a) the entity or permanent establishment is subject to a qualified domestic
top-up tax for the tax period;
(b) no refund or direct or indirect financial benefit is granted in relation to
that tax.
8. For the purposes of this Article, Member States shall not maintain or
introduce, in their national law, any provisions with a subject-matter that falls
within the scope of paragraphs 5, 6 and 7 if they lay down rules that diverge
from those laid down in this Article.
____
*Directive 2013/34/EU of the European Parliament and of the Council of
26 June 2013 on the annual financial statements, consolidated financial
statements and related reports of certain types of undertakings, amending
Directive 2006/43/EC of the European Parliament and of the Council and
repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182,
29.6.2013, p. 19, ELI: http://data.europa.eu/eli/dir/2013/34/oj).
**Council Directive (EU) 2022/2523 of 15 December 2022 on ensuring a
global minimum level of taxation for multinational enterprise groups and large-
scale domestic groups in the Union OJ L 328, 22.12.2022, p. 1,
ELI: http://data.europa.eu/eli/dir/2022/2523/oj).’;
(8) in Article 8, paragraph 2 is deleted;
(9) in Article 9, paragraph 3 is deleted.
Article 5
Amendments to Directive (EU) 2017/1852
Directive (EU) 2017/1852 is amended as follows:
EN 35 EN
(1) in Article 2(1), point (d) is replaced by the following:
‘(d) ‘affected person’ means any person, including an individual, that is a resident of
a Member State for tax purposes, and whose taxation is directly affected by a
question in dispute. Where the taxation of more than one person is directly affected,
each such person shall be regarded as an affected person.’;
(2) Article 3 is amended as follows:
(a) paragraph 1 is replaced by the following:
‘1. Any affected person shall be entitled to submit a complaint on a question in
dispute requesting the resolution thereof. The complaint shall be submitted
within 3 years from the receipt of the first notification of the action resulting in,
or that will result in, the question in dispute, regardless of whether the affected
person has recourse to the remedies available under the national law of any of
the Member States concerned. The affected person shall submit the complaint
with the same information to each of the competent authorities of the Member
States concerned and shall indicate in the complaint which other Member
States are concerned. The affected person shall ensure that each Member State
concerned receives the complaint in at least one of the following languages:
(a) one of that Member State's official languages in accordance with national
law; or
(b) any other language that such a Member State accepts for this purpose.’;
By way of derogation from the first subparagraph, where the question in
dispute involves more than one affected person, each affected person shall be
allowed to submit the complaint only to the competent authority of its Member
State of residence.
In any event, the complaint shall be submitted to each of the competent
authorities of the Member States concerned within 30 calendar days from the
first submission. The last submission shall be made no later than 3 years from
the first notification as referred to in the first subparagraph.’;
(b) in paragraph 4, the last subparagraph is replaced by the following:
‘An affected person that receives a request in accordance with point (f) of
paragraph 3 shall reply within 3 months of receiving the request. A copy of this
reply shall also be sent to the competent authorities of the other Member States
concerned no later than 3 months of receiving the request.’;
(c) in paragraph 5, the following second subparagraph is inserted:
‘Before taking a decision on the admissibility of the complaint, the competent
authorities of the Member States concerned may consult each other with a view
to better understanding their respective positions.’;
(3) in Article 4(3), the following subparagraph is added:
‘Where all competent authorities of the Member States concerned agree that no
agreement can be reached, they shall, without delay and without awaiting the expiry
of the period provided for in paragraph 1, inform the affected person and provide the
general reasons for the failure to reach such agreement.’;
(4) in Article 5, paragraph 1 is replaced by the following:
EN 36 EN
‘1. Each competent authority of a Member State concerned may decide to reject a
complaint in any of the following cases:
(a) the complaint lacks information required under Article 3(3) (including any
information requested under Article 3(3)(f) that was not submitted within the
deadline specified in Article 3(4));
(b) there is no question in dispute;
(c) the complaint was not submitted within the 3-year period set out in Article
3(1);
(d) the complaint was not submitted within the 30-calendar days set out in
Article 3(1);
(e) the complaint was not submitted in a required language as referred to
Article 3(1) in at least one Member State;
(f) the complaint was not submitted with the same information to each of the
competent authorities of the Member States concerned as set out in Article
3(1).
The competent authority shall give the affected person the possibility to remedy any
deficiencies and supplement the complaint within a 30-day period of receipt of the
request, failing which the complaint may be rejected. Where a complaint has been
rejected, the affected person may resubmit the complaint, provided that the
resubmitted complaint is lodged within the 3-year period referred to in Article 3(1).
When informing the affected person of the rejection in accordance with Article 3(5),
the competent authority shall provide the general reasons for its rejection.’
(5) in Article 8(5), the following third subparagraph is added:
‘The competent authorities shall raise any objection relating to an independent
person of standing at the latest before a final decision pursuant to Article 15(1) is
agreed by all competent authorities. Any objection raised after that moment shall
have no effect on the final decision so agreed.’;
(6) in Article 10, paragraph 1 is replaced by the following:
‘1. The competent authorities of the Member States concerned may agree to set up an
alternative dispute resolution commission (an ‘Alternative Dispute Resolution
Commission’) instead of an Advisory Commission to adopt a decision on the
acceptance of the complaint in accordance with Article 6 or to deliver an opinion on
how to resolve the question in dispute in accordance with Article 14. The competent
authorities of the Member States may also agree to set up an Alternative Dispute
Resolution Commission in the form of a committee that is of a permanent nature (a
‘Standing Committee’).’;
(7) in Article 11(2), second subparagraph, point (e) is replaced by the following:
‘(e) the composition of the Advisory Commission or Alternative Dispute Resolution
Commission (including the number and names of the members, and for independent
persons of standing details of their competence and qualifications, and any conflicts
of interest of the members);’;
(8) in Article 16, paragraph 5 is replaced by the following:
‘5. The submission of a complaint as provided under Article 3 shall suspend any
other ongoing proceedings under the mutual agreement procedure or dispute
EN 37 EN
resolution procedure under an agreement or convention that is being interpreted or
applied in relation to the relevant question in dispute as of the date of the first receipt
of the complaint by any of the competent authorities of the Member States
concerned. The suspension ends on the day when the complaint is rejected by all the
competent authorities or the Advisory Commission or when the affected person
decides to withdraw the complaint. Where the complaint is accepted by all competent
authorities of the Member States concerned, those other proceedings shall be
terminated with immediate effect.’;
(9) Article 17 is amended as follows:
(a) in the first paragraph, the second sentence is replaced by the following:
The competent authority of that Member State shall notify the competent
authorities of all the other Member States concerned at the same time and
within 2 months of receipt of such communications and shall transmit a copy
of the complaint and of the relevant information received from the affected
person.
(b) the following third paragraph is added:
‘An affected person referred to in the first paragraph, point (b), who makes use
of the derogation laid down in that paragraph shall clearly state this in the
complaint’;
(10) the following Article 19a is inserted:
‘Article 19a
Council Implementing acts
1. On the basis of a proposal from the Commission, the Council may adopt
implementing acts laying down any other technical or procedural rules necessary to
ensure a streamlined and consistent application of the procedures provided for in this
Directive, in particular as regards:
(a) the complaint stage referred to in Articles 3 and 5;
(b) the mutual agreement procedure referred to in Article 4;
(c) the dispute resolution stage referred to in Article 6, including the rules on
the functioning of the Advisory Commission and Alternative Dispute
Resolution Commission referred to in Article 10.
(d) the interaction between procedures under this Directive and proceedings
before national courts.
(11) Article 21 is replaced by the following:
‘Article 21
Review
1. The Commission shall, by 31 December 2030 and every five years thereafter,
examine and evaluate the functioning of this Directive, including the potential need
to amend specific provisions, and submit a report to the European Parliament and the
Council.
2. Member States shall communicate to the Commission relevant yearly statistical
data, as referred to in paragraph 3, for the evaluation of this Directive, for the
EN 38 EN
purpose of improving the mutual agreement procedures referred to in Article 4 to
resolve a question in dispute.
3. The Commission shall, in accordance with the procedure referred to in Article
20(2), adopt an implementing act establishing a list of statistical data to be provided
yearly by the Member States for the purposes of the evaluation of this Directive, as
well as the format and the conditions of communication of that information. The
statistical data collected pursuant to this Article shall be published on the
Commission’s website in anonymised form.’.
Article 6
Amendments to Directive (EU) 2025/50
Article 11 of Directive (EU) 2025/50 is amended as follows:
(1) in paragraph 2, point (d) is replaced by the following:
‘(d) an exemption of the withholding tax is claimed, except where such exemption
results from Council Directive 2003/49/EC* or Council Directive 2011/96/EU**
_________
* Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation
applicable to interest and royalty payments made between associated companies of
different Member States (OJ L 157, 26.6.2003, p. 49,
ELI: http://data.europa.eu/eli/dir/2003/49/oj).
** Council Directive 2011/96/EU of 30 November 2011 on the common system of
taxation applicable in the case of parent companies and subsidiaries of different
Member States (OJ L 345, 29.12.2011, p. 8,
ELI: http://data.europa.eu/eli/dir/2011/96/oj);’
(2) in paragraph 7, the second sentence is replaced by the following:
‘Member States may also maintain and apply an existing national relief-at-source
system to the cases referred to in paragraph 2, point (e), of this Article in which
verifications are performed in order to ensure equal treatment between domestic and
cross-border situations to comply with Chapters 2 and 4 of Title IV of the Treaty on
the Functioning of the European Union.’
Article 7
Transposition
(1) Member States shall adopt and publish, by 31 December 2028, the laws, regulations
and administrative provisions necessary to comply with this Directive. They shall
immediately inform the Commission thereof.
They shall apply those provisions from 1 January 2029.
However, Member States shall apply the provisions necessary to comply with Article
1, point (2)(b) to (h), (3)(c), and (5), Article 3, points (2) and (5) to (10), from 1
January 2037 and the provisions necessary to comply with Article 4, point (5)(d)
from 1 January 2032.
When Member States adopt those measures, they shall include a reference to this
Directive or shall be accompanied by such reference on the occasion of their official
EN 39 EN
publication. The methods of making such reference shall be laid down by
Member States.
(2) Member States shall communicate to the Commission the text of the main provisions
of national law which they adopt in the field covered by this Directive.
Article 8
Entry into force
This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Union.
Article 9
Addressees
This Directive is addressed to the Member States.
Done at Brussels,
For the Council
The President
EN EN
EUROPEAN COMMISSION
Brussels, 24.6.2026
COM(2026) 560 final
ANNEXES 1 to 3
ANNEXES
to the
Proposal for a COUNCIL DIRECTIVE
amending Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164, (EU)
2017/1852, (EU) 2025/50 as regards the simplification of the Union framework on direct
taxation and supporting of growth and competitiveness of the EU
{SEC(2026) 560 final} - {SWD(2026) 560 final} - {SWD(2026) 561 final} -
{SWD(2026) 562 final}
EN 1 EN
ANNEX I
‘ANNEX
List of companies covered by Article 3(a) of the Directive
(a) companies incorporated under Council Regulation (EC) No 2157/20011 and Council
Directive 2001/86/EC2 and cooperative societies incorporated under Council
Regulation (EC) No 1435/20033 and Council Directive 2003/72/EC4;
(b) companies under Belgian law known as ‘société anonyme’/‘naamloze
vennootschap’, ‘société en commandite par actions’/‘commanditaire vennootschap
op aandelen’, ‘société privée à responsabilité limitée’/‘be sloten vennootschap met
beperkte aansprakelijkheid’, ‘société coopérative à responsabilité
limitée’/‘coöperatieve vennootschap met beperkte aansprakelijkheid’, ‘société
coopérative à responsabilité illimitée’/‘coöperatieve vennootschap met onbeperkte
aansprakelijkheid’, ‘société en nom collectif’/‘vennootschap onder firma’, ‘société
en commandite simple’/‘gewone commanditaire vennootschap’, public undertakings
which have adopted one of the abovementioned legal forms;
(c) companies under Bulgarian law known as: ‘събирателно дружество’, ‘командитно
дружество’, ‘дружество с ограничена отговорност’, ‘акционерно дружество’,
‘командитно дружество с акции’, ‘неперсонифицирано дружество’,
‘кооперации’, ‘кооперативни съюзи’, ‘държавни предприятия’ constituted under
Bulgarian law and carrying on commercial activities;
(d) companies under Czech law known as: ‘akciová společnost’, ‘družstvo’, ‘společnost
s ručením omezeným’;
(e) companies under Danish law known as ‘aktieselskab’ and ‘anpartsselskab’;
(f) companies under German law known as ‘Aktiengesellschaft’, ‘Kommandit-
gesellschaft auf Aktien’, ‘Gesellschaft mit beschränkter Haftung’,
‘Versicherungsverein auf Gegenseitigkeit’, ‘Erwerbs- und
Wirtschaftsgenossenschaft’, ‘Betriebe gewerblicher Art von juristischen Personen
des öffentlichen Rechts’;
(g) companies under Estonian law known as: ‘täisühing’, ‘usaldusühing’, ‘osaühing’,
‘aktsiaselts’, ‘tulundusühistu’;
(h) companies incorporated or existing under Irish law, bodies registered under the
Industrial and Provident Societies Act, building societies incorporated under the
Building Societies Acts and trustee savings banks within the meaning of the Trustee
Savings Banks Act, 1989;
1 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company
(SE)( OJ L 294 10.11.2001, p. 1, ELI: http://data.europa.eu/eli/reg/2001/2157/oj).
2 Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company
with regard to the involvement of employees (OJ L 294, 10.11.2001, p. 22,
ELI: http://data.europa.eu/eli/dir/2001/86/oj).
3 Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative
Society (SCE)( OJ L 207 18.8.2003, p. 1, ELI: http://data.europa.eu/eli/reg/2003/1435/oj).
4 Council Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative
Society with regard to the involvement of employees (OJ L 207, 18.8.2003, p. 25,
ELI: http://data.europa.eu/eli/dir/2003/72/oj).
EN 2 EN
(i) companies under Greek law known as ‘ανώνυμη εταιρεία’,·‘εταιρεία περιορισμένης
ευθύνης (Ε.Π.Ε.)’;
(j) companies under Spanish law known as: ‘sociedad anónima’, ‘sociedad comanditaria
por acciones’, ‘sociedad de responsabilidad limitada’, public law bodies which
operate under private law;
(k) companies under French law known as ‘société anonyme’, ‘société en commandite
par actions’, ‘société à responsabilité limitée’, ‘sociétés par actions simplifiées’,
‘sociétés d’assurances mutuelles’, ‘caisses d’épargne et de prévoyance’, ‘sociétés
civiles’ which are automatically subject to corporation tax, ‘coopératives’, ‘unions de
coopératives’, industrial and commercial public establishments and undertakings;
(l) companies under Italian law known as ‘società per azioni’, ‘società in accomandita
per azioni’, ‘società a responsabilità limitata’, ‘società cooperative’, ‘società di
mutua assicurazione’, and private and public entities whose activity is wholly or
principally commercial;
(m) under Cypriot law: ‘εταιρείες’ as defined in the Income Tax laws;
(n) companies under Latvian law known as: ‘akciju sabiedrība’, ‘komandītsabiedrība’,
‘pilnsabiedrība, ‘sabiedrība ar ierobežotu atbildību’;
(o) companies incorporated under the law of Lithuania;
(p) companies under Luxembourgish law known as ‘société anonyme’, ‘société en
commandite par actions’, ‘société par actions simplifiée’,‘société à responsabilité
limitée’, ‘société à responsabilité limitée simplifiée’, ‘société coopérative’, ‘société
coopérative organisée comme une société anonyme’, ‘association d’assurances
mutuelles’, ‘association d’épargne-pension’, ‘entreprise de nature commerciale,
industrielle ou minière de l’Etat, des communes, des syndicats de communes, des
établissements publics et des autres personnes morales de droit public’,
(q) companies under Hungarian law known as: ‘közkereseti társaság’, ‘betéti társaság’,
‘közös vállalat’, ‘korlátolt felelősségű társaság’, ‘részvénytár saság’, ‘egyesülés’,
‘szövetkezet’;
(r) companies under Maltese law known as: ‘Kumpaniji ta’ Responsabilita’ Limitata’,
‘Soċjetajiet en commandite li l-kapital tagħhom maqsum f’azzjonijiet’;
(s) companies under Dutch law known as ‘naamloze vennootschap’, ‘besloten
vennootschap met beperkte aansprakelijkheid’, ‘coöperatie’, ‘onderlinge
waarborgmaatschappij’, ‘fonds voor gemene rekening’, ‘vereniging op coöperatieve
grondslag’, ‘vereniging welke op onderlinge grondslag als verzekeraar of
kredietinstelling optreedt’, public law entities engaged in an enterprise;
(t) companies under Austrian law known as ‘Aktiengesellschaft’, ‘Gesellschaft mit
beschränkter Haftung’, ‘Versicherungsvereine auf Gegenseitigkeit’, ‘Erwerbs- und
Wirtschaftsgenossenschaften’, ‘Betriebe gewerblicher Art von Körperschaften des
öffentlichen Rechts’, ‘Sparkassen’, ‘Flexible Kapitalgessellschaft’;
(u) companies under Polish law known as: ‘spółka akcyjna’, ‘spółka z ograniczoną
odpowiedzialnością’, spółka komandytowo-akcyjna;
(v) commercial companies or civil law companies having a commercial form and
cooperatives and public undertakings incorporated in accordance with Portuguese
law;
EN 3 EN
(w) companies under Romanian law known as: ‘societăți pe acțiuni’, ‘societăți în
comandită pe acțiuni’, ‘societăți cu răspundere limitată’, ‘societăți în nume colectiv’,
‘societăți în comandită simplă’;
(x) companies under Slovenian law known as: ‘delniška družba’, ‘komanditna družba’,
‘komanditna delniška družba’, ‘družba z neomejeno odgovornostjo’, ‘družba z
omejeno odgovornostjo’;
(y) companies under Slovak law known as: ‘akciová spoločnosť’, ‘spoločnosť s ručením
obmedzeným’, ‘komanditná spoločnosť’, ‘jednoduchá spoločnosť na akcie’;
(z) companies under Finnish law known as ‘osakeyhtiö’/‘aktiebolag’,
‘osuuskunta’/‘andelslag’, ‘säästöpankki’/‘sparbank’ and
‘vakuutusyhtiö’/‘försäkringsbolag’;
(aa) companies under Swedish law known as ‘aktiebolag’, ‘bankaktiebolag’
‘försäkringsaktiebolag’, ‘ekonomiska föreningar’, ‘sparbanker’, ‘ömsesidiga
försäkringsbolag’, ‘försäkringsföreningar’, ‘tjänstepensionsaktiebolag, ‘ömsesidigt
tjänstepensionsbolag’, ‘tjänstepensionsförening’;
(bb) companies under Croatian law known as: ‘dioničko društvo’, ‘društvo s ograničenom
odgovornošću’, ‘jednostavno društvo s ograničenom odgovornošću’.’
EN 4 EN
ANNEX II
Annex I to Directive 2009/133/EC is amended as follows:
(1) Part A is replaced by the following:
‘ANNEX I
PART A
List of companies referred to in Article 2(a)(i) of the Directive
(a) companies incorporated under Council Regulation (EC) No 2157/2001 of 8 October
2001 on the Statute for a European company (SE) (5) and Council Directive
2001/86/EC of 8 October 2001 supplementing the Statute for a European company
with regard to the involvement of employees (6) and cooperative societies
incorporated under Council Regulation (EC) No 1435/2003 of 22 July 2003 on the
Statute for a European Cooperative Society (SCE) (7) and Council Directive
2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative
Society with regard to the involvement of employees (8);
(b) companies under Belgian law known as ‘société anonyme’/‘naamloze
vennootschap’, ‘société en commandite par actions’/‘commanditaire vennootschap
op aandelen’, ‘société privée à responsabilité limitée’/‘be sloten vennootschap met
beperkte aansprakelijkheid’, ‘société coopérative à responsabilité
limitée’/‘coöperatieve vennootschap met beperkte aansprakelijkheid’, ‘société
coopérative à responsabilité illimitée’/‘coöperatieve vennootschap met onbeperkte
aansprakelijkheid’, ‘société en nom collectif’/‘vennootschap onder firma’, ‘société
en commandite simple’/‘gewone commanditaire vennootschap’, public undertakings
which have adopted one of the abovementioned legal forms;
(c) companies under Bulgarian law known as: ‘събирателно дружество’, ‘командитно
дружество’, ‘дружество с ограничена отговорност’, ‘акционерно дружество’,
‘командитно дружество с акции’, ‘неперсонифицирано дружество’,
‘кооперации’, ‘кооперативни съюзи’, ‘държавни предприятия’ constituted under
Bulgarian law and carrying on commercial activities;
(d) companies under Czech law known as: ‘akciová společnost’, ‘družstvo’, ‘společnost
s ručením omezeným’;
(e) companies under Danish law known as ‘aktieselskab’ and ‘anpartsselskab’;
(f) companies under German law known as ‘Aktiengesellschaft’, ‘Kommandit-
gesellschaft auf Aktien’, ‘Gesellschaft mit beschränkter Haftung’,
‘Versicherungsverein auf Gegenseitigkeit’, ‘Erwerbs- und
5 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company
(SE)( OJ L 294 10.11.2001, p. 1, ELI: http://data.europa.eu/eli/reg/2001/2157/oj). 6 Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company
with regard to the involvement of employees (OJ L 294, 10.11.2001, p. 22,
ELI: http://data.europa.eu/eli/dir/2001/86/oj). 7 Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative
Society (SCE)( OJ L 207 18.8.2003, p. 1, ELI: http://data.europa.eu/eli/reg/2003/1435/oj).
8 Council Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative
Society with regard to the involvement of employees (OJ L 207, 18.8.2003, p. 25,
ELI: http://data.europa.eu/eli/dir/2003/72/oj).
EN 5 EN
Wirtschaftsgenossenschaft’, ‘Betriebe gewerblicher Art von juristischen Personen
des öffentlichen Rechts’;
(g) companies under Estonian law known as: ‘täisühing’, ‘usaldusühing’, ‘osaühing’,
‘aktsiaselts’, ‘tulundusühistu’;
(h) companies incorporated or existing under Irish law, bodies registered under the
Industrial and Provident Societies Act, building societies incorporated under the
Building Societies Acts and trustee savings banks within the meaning of the Trustee
Savings Banks Act, 1989;
(i) companies under Greek law known as ‘ανώνυμη εταιρεία’,·‘εταιρεία περιορισμένης
ευθύνης (Ε.Π.Ε.)’;
(j) companies under Spanish law known as: ‘sociedad anónima’, ‘sociedad comanditaria
por acciones’, ‘sociedad de responsabilidad limitada’, public law bodies which
operate under private law;
(k) companies under French law known as ‘société anonyme’, ‘société en commandite
par actions’, ‘société à responsabilité limitée’, ‘sociétés par actions simplifiées’,
‘sociétés d’assurances mutuelles’, ‘caisses d’épargne et de prévoyance’, ‘sociétés
civiles’ which are automatically subject to corporation tax, ‘coopératives’, ‘unions de
coopératives’, industrial and commercial public establishments and undertakings;
(l) companies under Italian law known as ‘società per azioni’, ‘società in accomandita
per azioni’, ‘società a responsabilità limitata’, ‘società cooperative’, ‘società di
mutua assicurazione’, and private and public entities whose activity is wholly or
principally commercial;
(m) under Cypriot law: ‘εταιρείες’ as defined in the Income Tax laws;
(n) companies under Latvian law known as: ‘akciju sabiedrība’, ‘komandītsabiedrība’,
‘pilnsabiedrība, ‘sabiedrība ar ierobežotu atbildību’;
(o) companies incorporated under the law of Lithuania;
(p) companies under Luxembourgish law known as ‘société anonyme’, ‘société en
commandite par actions’, ‘société par actions simplifiée’,‘société à responsabilité
limitée’, ‘société à responsabilité limitée simplifiée’, ‘société coopérative’, ‘société
coopérative organisée comme une société anonyme’, ‘association d’assurances
mutuelles’, ‘association d’épargne-pension’, ‘entreprise de nature commerciale,
industrielle ou minière de l’Etat, des communes, des syndicats de communes, des
établissements publics et des autres personnes morales de droit public’,
(q) companies under Hungarian law known as: ‘közkereseti társaság’, ‘betéti társaság’,
‘közös vállalat’, ‘korlátolt felelősségű társaság’, ‘részvénytár saság’, ‘egyesülés’,
‘szövetkezet’;
(r) companies under Maltese law known as: ‘Kumpaniji ta’ Responsabilita’ Limitata’,
‘Soċjetajiet en commandite li l-kapital tagħhom maqsum f’azzjonijiet’;
(s) companies under Dutch law known as ‘naamloze vennootschap’, ‘besloten
vennootschap met beperkte aansprakelijkheid’, ‘coöperatie’, ‘onderlinge
waarborgmaatschappij’, ‘fonds voor gemene rekening’, ‘vereniging op coöperatieve
grondslag’, ‘vereniging welke op onderlinge grondslag als verzekeraar of
kredietinstelling optreedt’, public law entities engaged in an enterprise;
EN 6 EN
(t) companies under Austrian law known as ‘Aktiengesellschaft’, ‘Gesellschaft mit
beschränkter Haftung’, ‘Versicherungsvereine auf Gegenseitigkeit’, ‘Erwerbs- und
Wirtschaftsgenossenschaften’, ‘Betriebe gewerblicher Art von Körperschaften des
öffentlichen Rechts’, ‘Sparkassen’, ‘Flexible Kapitalgessellschaft’;
(u) companies under Polish law known as: ‘spółka akcyjna’, ‘spółka z ograniczoną
odpowiedzialnością’, spółka komandytowo-akcyjna;
(v) commercial companies or civil law companies having a commercial form and
cooperatives and public undertakings incorporated in accordance with Portuguese
law;
(w) companies under Romanian law known as: ‘societăți pe acțiuni’, ‘societăți în
comandită pe acțiuni’, ‘societăți cu răspundere limitată’, ‘societăți în nume colectiv’,
‘societăți în comandită simplă’;
(x) companies under Slovenian law known as: ‘delniška družba’, ‘komanditna družba’,
‘komanditna delniška družba’, ‘družba z neomejeno odgovornostjo’, ‘družba z
omejeno odgovornostjo’;
(y) companies under Slovak law known as: ‘akciová spoločnosť’, ‘spoločnosť s ručením
obmedzeným’, ‘komanditná spoločnosť’, ‘jednoduchá spoločnosť na akcie’;
(z) companies under Finnish law known as ‘osakeyhtiö’/‘aktiebolag’,
‘osuuskunta’/‘andelslag’, ‘säästöpankki’/‘sparbank’ and
‘vakuutusyhtiö’/‘försäkringsbolag’;
(aa) companies under Swedish law known as ‘aktiebolag’, ‘bankaktiebolag’
‘försäkringsaktiebolag’, ‘ekonomiska föreningar’, ‘sparbanker’, ‘ömsesidiga
försäkringsbolag’, ‘försäkringsföreningar’, ‘tjänstepensionsaktiebolag, ‘ömsesidigt
tjänstepensionsbolag’, ‘tjänstepensionsförening’;
(bb) companies under Croatian law known as: ‘dioničko društvo’, ‘društvo s ograničenom
odgovornošću’, ‘jednostavno društvo s ograničenom odgovornošću’.’
(2) In Part B, the last indent ‘-corporation tax in the United Kingdom’ is deleted.
EN 7 EN
ANNEX III
Annex I to Directive 2011/96/EU is amended as follows:
(1) Part A is replaced by the following:
‘PART A
List of companies covered by Article 2(a)(i)
(a) companies incorporated under Council Regulation (EC) No 2157/2001 of 8 October
2001 on the Statute for a European company (SE) (1) and Council Directive
2001/86/EC of 8 October 2001 supplementing the Statute for a European company
with regard to the involvement of employees (2) and cooperative societies
incorporated under Council Regulation (EC) No 1435/2003 of 22 July 2003 on the
Statute for a European Cooperative Society (SCE) (3) and Council Directive
2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative
Society with regard to the involvement of employees (4);
(b) companies under Belgian law known as ‘société anonyme’/‘naamloze
vennootschap’, ‘société en commandite par actions’/‘commanditaire vennootschap
op aandelen’, ‘société privée à responsabilité limitée’/‘be sloten vennootschap met
beperkte aansprakelijkheid’, ‘société coopérative à responsabilité
limitée’/‘coöperatieve vennootschap met beperkte aansprakelijkheid’, ‘société
coopérative à responsabilité illimitée’/‘coöperatieve vennootschap met onbeperkte
aansprakelijkheid’, ‘société en nom collectif’/‘vennootschap onder firma’, ‘société
en commandite simple’/‘gewone commanditaire vennootschap’, public undertakings
which have adopted one of the abovementioned legal forms;
(c) companies under Bulgarian law known as: ‘събирателно дружество’, ‘командитно
дружество’, ‘дружество с ограничена отговорност’, ‘акционерно дружество’,
‘командитно дружество с акции’, ‘неперсонифицирано дружество’,
‘кооперации’, ‘кооперативни съюзи’, ‘държавни предприятия’ constituted under
Bulgarian law and carrying on commercial activities;
(d) companies under Czech law known as: ‘akciová společnost’, ‘družstvo’, ‘společnost
s ručením omezeným’;
(e) companies under Danish law known as ‘aktieselskab’ and ‘anpartsselskab’;
(f) companies under German law known as ‘Aktiengesellschaft’, ‘Kommandit-
gesellschaft auf Aktien’, ‘Gesellschaft mit beschränkter Haftung’,
‘Versicherungsverein auf Gegenseitigkeit’, ‘Erwerbs- und
Wirtschaftsgenossenschaft’, ‘Betriebe gewerblicher Art von juristischen Personen
des öffentlichen Rechts’;
1 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company
(SE)( OJ L 294 10.11.2001, p. 1, ELI: http://data.europa.eu/eli/reg/2001/2157/oj). 2 Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company
with regard to the involvement of employees (OJ L 294, 10.11.2001, p. 22,
ELI: http://data.europa.eu/eli/dir/2001/86/oj). 3 Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative
Society (SCE)( OJ L 207 18.8.2003, p. 1, ELI: http://data.europa.eu/eli/reg/2003/1435/oj).
4 Council Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative
Society with regard to the involvement of employees (OJ L 207, 18.8.2003, p. 25,
ELI: http://data.europa.eu/eli/dir/2003/72/oj).
EN 8 EN
(g) companies under Estonian law known as: ‘täisühing’, ‘usaldusühing’, ‘osaühing’,
‘aktsiaselts’, ‘tulundusühistu’;
(h) companies incorporated or existing under Irish law, bodies registered under the
Industrial and Provident Societies Act, building societies incorporated under the
Building Societies Acts and trustee savings banks within the meaning of the Trustee
Savings Banks Act, 1989;
(i) companies under Greek law known as ‘ανώνυμη εταιρεία’,·‘εταιρεία περιορισμένης
ευθύνης (Ε.Π.Ε.)’;
(j) companies under Spanish law known as: ‘sociedad anónima’, ‘sociedad comanditaria
por acciones’, ‘sociedad de responsabilidad limitada’, public law bodies which
operate under private law;
(k) companies under French law known as ‘société anonyme’, ‘société en commandite
par actions’, ‘société à responsabilité limitée’, ‘sociétés par actions simplifiées’,
‘sociétés d’assurances mutuelles’, ‘caisses d’épargne et de prévoyance’, ‘sociétés
civiles’ which are automatically subject to corporation tax, ‘coopératives’, ‘unions de
coopératives’, industrial and commercial public establishments and undertakings;
(l) companies under Italian law known as ‘società per azioni’, ‘società in accomandita
per azioni’, ‘società a responsabilità limitata’, ‘società cooperative’, ‘società di
mutua assicurazione’, and private and public entities whose activity is wholly or
principally commercial;
(m) under Cypriot law: ‘εταιρείες’ as defined in the Income Tax laws;
(n) companies under Latvian law known as: ‘akciju sabiedrība’, ‘komandītsabiedrība’,
‘pilnsabiedrība, ‘sabiedrība ar ierobežotu atbildību’;
(o) companies incorporated under the law of Lithuania;
(p) companies under Luxembourgish law known as ‘société anonyme’, ‘société en
commandite par actions’, ‘société par actions simplifiée’,‘société à responsabilité
limitée’, ‘société à responsabilité limitée simplifiée’, ‘société coopérative’, ‘société
coopérative organisée comme une société anonyme’, ‘association d’assurances
mutuelles’, ‘association d’épargne-pension’, ‘entreprise de nature commerciale,
industrielle ou minière de l’Etat, des communes, des syndicats de communes, des
établissements publics et des autres personnes morales de droit public’,
(q) companies under Hungarian law known as: ‘közkereseti társaság’, ‘betéti társaság’,
‘közös vállalat’, ‘korlátolt felelősségű társaság’, ‘részvénytár saság’, ‘egyesülés’,
‘szövetkezet’;
(r) companies under Maltese law known as: ‘Kumpaniji ta’ Responsabilita’ Limitata’,
‘Soċjetajiet en commandite li l-kapital tagħhom maqsum f’azzjonijiet’;
(s) companies under Dutch law known as ‘naamloze vennootschap’, ‘besloten
vennootschap met beperkte aansprakelijkheid’, ‘coöperatie’, ‘onderlinge
waarborgmaatschappij’, ‘fonds voor gemene rekening’, ‘vereniging op coöperatieve
grondslag’, ‘vereniging welke op onderlinge grondslag als verzekeraar of
kredietinstelling optreedt’, public law entities engaged in an enterprise;
(t) companies under Austrian law known as ‘Aktiengesellschaft’, ‘Gesellschaft mit
beschränkter Haftung’, ‘Versicherungsvereine auf Gegenseitigkeit’, ‘Erwerbs- und
Wirtschaftsgenossenschaften’, ‘Betriebe gewerblicher Art von Körperschaften des
öffentlichen Rechts’, ‘Sparkassen’, ‘Flexible Kapitalgessellschaft’;
EN 9 EN
(u) companies under Polish law known as: ‘spółka akcyjna’, ‘spółka z ograniczoną
odpowiedzialnością’, spółka komandytowo-akcyjna;
(v) commercial companies or civil law companies having a commercial form and
cooperatives and public undertakings incorporated in accordance with Portuguese
law;
(w) companies under Romanian law known as: ‘societăți pe acțiuni’, ‘societăți în
comandită pe acțiuni’, ‘societăți cu răspundere limitată’, ‘societăți în nume colectiv’,
‘societăți în comandită simplă’;
(x) companies under Slovenian law known as: ‘delniška družba’, ‘komanditna družba’,
‘komanditna delniška družba’, ‘družba z neomejeno odgovornostjo’, ‘družba z
omejeno odgovornostjo’;
(y) companies under Slovak law known as: ‘akciová spoločnosť’, ‘spoločnosť s ručením
obmedzeným’, ‘komanditná spoločnosť’, ‘jednoduchá spoločnosť na akcie’;
(z) companies under Finnish law known as ‘osakeyhtiö’/‘aktiebolag’,
‘osuuskunta’/‘andelslag’, ‘säästöpankki’/‘sparbank’ and
‘vakuutusyhtiö’/‘försäkringsbolag’;
(aa) companies under Swedish law known as ‘aktiebolag’, ‘bankaktiebolag’
‘försäkringsaktiebolag’, ‘ekonomiska föreningar’, ‘sparbanker’, ‘ömsesidiga
försäkringsbolag’, ‘försäkringsföreningar’, ‘tjänstepensionsaktiebolag, ‘ömsesidigt
tjänstepensionsbolag’, ‘tjänstepensionsförening’;
(bb) companies under Croatian law known as: ‘dioničko društvo’, ‘društvo s ograničenom
odgovornošću’, ‘jednostavno društvo s ograničenom odgovornošću’.’;
(2) in Part B, the last indent ‘- corporation tax in the United Kingdom’ is deleted.
EN EN
EUROPEAN COMMISSION
Brussels, 24.6.2026
SWD(2026) 560 final
COMMISSION STAFF WORKING DOCUMENT
Subsidiarity Grid
Accompanying the document
Proposal for a COUNCIL DIRECTIVE
amending Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164,
(EU)2017/1852, (EU) 2025/50 as regards the simplification of the Union framework on
direct taxation and supporting growth and competitiveness of the EU
{COM(2026) 560 final} - {SEC(2026) 560 final} - {SWD(2026) 561 final} -
{SWD(2026) 562 final}
1
Subsidiarity Grid
1. Can the Union act? What is the legal basis and competence of the Unions’ intended action?
1.1 Which article(s) of the Treaty are used to support the legislative proposal or policy initiative?
Article 115 of the Treaty on the Functioning of the European Union (TFEU) constitutes the legal base for legislative initiatives in the field of direct taxation. Although there is no explicit mention of direct taxation, Article 115 refers to issuing directives for the approximation of national laws as those that directly affect the establishment or functioning of the internal market. This is why it is essential that all initiatives proposed under this legal base bear a cross-border element and have an impact on the functioning of the internal market. The form of the current initiative as an Omnibus legal instrument, which amends existing rules laid down in Directives proposed under the legal base of Article 115 TFEU, does not leave a doubt that the legal base should be the one that was also used for the directives under amendment.
1.2 Is the Union competence represented by this Treaty article exclusive, shared or supporting in nature?
In the case of direct taxation and, as far as the proposals relate to the establishment or functioning of the internal market, the Union’s competence is shared.
Subsidiarity does not apply for policy areas where the Union has exclusive competence as defined in Article 3 TFEU1. It is the specific legal basis which determines whether the proposal falls under the subsidiarity control mechanism. Article 4 TFEU2 sets out the areas where competence is shared between the Union and the Member States. Article 6 TFEU3 sets out the areas for which the Unions has competence only to support the actions of the Member States.
2. Subsidiarity Principle: Why should the EU act?
2.1 Does the proposal fulfil the procedural requirements of Protocol No. 24: - Has there been a wide consultation before proposing the act? - Is there a detailed statement with qualitative and, where possible, quantitative
indicators allowing an appraisal of whether the action can best be achieved at Union level?
The proposal fulfils the procedural requirement of Protocol No. 2, as shown below. In general, there has been an extensive consultation in preparation of the proposal. The following steps have been pursued in order to determine the best way forward: - Call for Evidence, published on 16 February 2026, open for consultation until 30 March
2026, which received 117 contributions, from business associations and companies, citizens, academic institutions, non-governmental organisations, and trade unions;
- Numerous consultations of all EU Member States, through bilateral meetings, joint dedicated meetings of the Commission Working Party IV (direct taxation) and within the Council High-Level Working Party (HLWP);
- Bilateral consultations in the form of interviews were conducted with over 75 key stakeholders, including businesses of different sizes operating in different sectors;
1 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E003&from=EN 2 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E004&from=EN 3 https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E006:EN:HTML 4 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12016E/PRO/02&from=EN
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- The Platform on Tax Good Governance was used for discussions in an expert group composed of Member States, business and the civil society;
- Input from various other sources. Among others, the Commission has relied on publicly available information and OECD reports and on the expertise of its Joint Research Centre, which used the CORTAX model to study the possible impacts of the initiative.
Stakeholders converged on the necessity for EU action during the consultations. Overall, stakeholders fully supported the initiative to simplify existing EU tax rules with a view to improving the functioning of the internal market and ensuring Europe’s attractiveness as a place to invest and do business. There is some divergence of views on how simplification could best be achieved in terms of specific initiatives. The Impact Assessment report accompanying the proposal considers all contributions received. It includes a synopsis report of the stakeholder consultation in Annex 2, which details the profiles of the respondents and the input received.
2.2 Does the explanatory memorandum (and any impact assessment) accompanying the Commission’s proposal contain an adequate justification regarding the conformity with the principle of subsidiarity?
The explanatory memorandum and the impact assessment contain adequate justification regarding the conformity of the proposal with the principle of subsidiarity. The proposal complies with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union (TEU). The proposal amends existing EU directives in the field of EU direct taxation, which apply to intra-EU cross-border activity. The cross-border nature of the problems at stake calls for common initiatives across the internal market, which requires amending existing EU direct tax directives. By definition, this is only possible by way of a Commission proposal for a Council directive. In addition, by reason of the scale or effects of the proposed action, the objective pursued can be better achieved at an EU level. The proposal will remove overlapping or superfluous EU rules, streamline and simplify procedures, further reduce instances of double taxation and mitigate market distortions, enhance legal certainty, eliminate outdated provisions, and address the inconsistent or divergent application of rules across Member States. It will thus be less costly for businesses to operate across multiple Member States. This will boost EU competitiveness, by making it a more attractive place to establish businesses and invest. For tax administrations, clearer EU-wide rules would simplify compliance checks and tax audits, reduce disputes and lower administrative burden.
2.3 Based on the answers to the questions below, can the objectives of the proposed action be achieved sufficiently by the Member States acting alone (necessity for EU action)?
The objectives of the proposal cannot sufficiently be achieved by the Member States acting alone because the initiative aims to simplify and clarify existing EU directives, in order address identified challenges, and in accordance with the Treaties only an EU legislative proposal can amend the EU direct tax acquis. Beyond the purely legal aspect which is a direct reflection of the supremacy of EU law, individual action by Member States at national level would not only fail to meet the objectives of the initiative but would additionally compromise what has so far been achieved through initiatives at EU level, as it would fragment the landscape and give rise to inconsistencies.
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These initiatives are therefore in line with the principle of subsidiarity, as laid down in Article 5(3) TEU, considering that their objectives cannot be achieved by each Member State alone, and a common approach for all Member States would have the highest chances for a successful outcome.
(a) Are there significant/appreciable transnational/cross-border aspects to the problems being tackled? Have these been quantified?
All Member States have their own domestic tax systems which are determined by different economic approaches, financial needs and policy choices. However, today’s business models increasingly involve economically integrated groups that operate globally, including across more than one Member State within the EU. Consequently, groups have to comply with (up to) 27 different corporate tax systems in the EU. This often creates impediments to business activity in the internal market, as compliance with different country-specific rules implies costs for businesses that operate cross-border. This may involve a large administrative burden coupled with tax uncertainty, which can discourage cross-border commercial activity, in particular for SMEs, which are more acutely affected by tax compliance costs in proportion to other businesses. Accordingly, in some cases, it has become apparent that EU action is necessary to ensure the functioning of the internal market and the effectiveness of the fundamental freedoms. This is, for example, the case with the Interest & Royalties Directive (IRD) and the Parent- Subsidiary Directive (PSD) which were adopted to ensure equal tax treatment of dividends, royalties and interests when these payments are carried out between taxpayers in different Member States. In the same vein, the Tax Merger Directive (TMD) provides for a tax deferral and thereby ensures that tax rules applicable to cross-border intra-EU business operations, like mergers, divisions, transfers of assets, and exchange of shares, concerning taxpayers of different Member States are neutral to business decisions in the internal market. The Anti- Tax Avoidance Directive (ATAD) introduced a set of common anti-tax avoidance rules to address certain aggressive tax planning practices leading to base erosion and profit shifting. These are often caused or aggravated by mismatches or fragmentation between the tax systems of the Member States. The Directive on Dispute Resolution Mechanisms (DRM) establishes rules for resolving disputes that arise from the interpretation and application of double tax treaties among EU Member States. The impact assessment report attempts to quantify and describe this. For instance, reference is made to a comprehensive survey-based study which presents extensive analysis of the administrative costs for compliance with tax obligations (tax compliance costs). The study has been carried out on behalf the European Commission (2022, see Impact Assessment): on average, EU businesses incur annual costs in meeting their tax compliance obligations equivalent to almost 2% of their total turnover.
(b) Would national action or the absence of the EU level action conflict with core objectives of the Treaty5 or significantly damage the interests of other Member States?
National actions would not be sufficient to address the problems as their origin, to a significant extent, stems from individual uncoordinated implementation and interpretation of the EU direct tax acquis by the Member States, as well as outdated or overlapping rules in the EU direct tax legislation. Amending EU law which, all the more so, deals with tackling
5 https://europa.eu/european-union/about-eu/eu-in-brief_en
4
problems of cross-border nature, requires coordinated action from the EU as a whole. Only an EU legislative proposal can amend the existing EU direct tax acquis in accordance with the Treaties, to simplify and clarify the common rules as well as address identified challenges. As a result, the objectives of the Tax Omnibus cannot be achieved by the Member States acting alone.
(c) To what extent do Member States have the ability or possibility to enact appropriate measures?
In the first place, it is the responsibility and competence of the Member States to simplify their domestic tax rules. However, insofar as the issues are related to the existing EU direct acquis or have a cross-border nature that cannot be sufficiently addressed at national level, as explained above, only action at EU level can bring a positive outcome (through enacting appropriate measures). In such cases, the outcome of individual actions by the Member States would not be relevant or would constitute another layer in the fragmented EU tax environment and cannot improve the business tax environment in the internal market.
(d) How does the problem and its causes (e.g. negative externalities, spill-over effects) vary across the national, regional and local levels of the EU?
The identified problems do not bear any regional or local characteristics, which would give rise to variations within a single Member State. They arise from the transposition, interpretation and application of EU rules, which takes place at national level. Yet, while specific problems may therefore vary depending on the national approach of specific Member States, its causes are of a general nature as they are related to the state of the EU direct tax acquis, which leaves options and some uncertainty and obstacles for cross- border business activity.
(e) Is the problem widespread across the EU or limited to a few Member States?
By definition, as the identified problems are related to the existing common EU legislation, it is inevitable that these are widespread across the EU and albeit in different ways, affect taxpayers in all Member States.
(f) Are Member States overstretched in achieving the objectives of the planned measure?
The proposal only seeks to amend the existing EU direct tax acquis where this is necessary to achieve the envisaged objectives. The proposal thus simply builds on existing rules and policies. Member States will have to implement some legislative amendments, which will eventually mean that tax systems would become more efficient, and both taxpayers and tax administrations would have lighter compliance and administrative burdens respectively.
(g) How do the views/preferred courses of action of national, regional and local authorities differ across the EU?
Member States were consulted at a bilateral level, as well as in dedicated meetings at technical level in Working Party IV and at the High-Level Working Party (HLWP). It can be concluded that, while views differ primarily amongst Member States on the specific design of the main features of the initiative, there is a broad consensus on the problems and convergence on the need for EU action to simplify the EU direct tax environment. The
5
collected views reflect the state of play at national level and there is no indication that within a single Member State, there is divergence of approach, depending on the region.
2.4 Based on the answer to the questions below, can the objectives of the proposed action be better achieved at Union level by reason of scale or effects of that action (EU added value)?
Action at EU level would bring significant benefits to both businesses and tax administrations. The Omnibus on Taxation will be designed to tackle problems in the existing Directives in the field of direct taxation. The proposal will remove overlapping or superfluous already existing EU rules, streamline and simplify procedures, further reduce instances of double taxation and mitigate market distortions, enhance legal certainty, eliminate outdated provisions, and address the inconsistent or divergent application of rules across Member States. It will thus be less costly for businesses to operate across multiple Member States. This will boost EU competitiveness, by making it a more attractive place to establish businesses and invest. For tax administrations, clearer EU-wide rules will simplify compliance checks and tax audits, reduce disputes and lower administrative burden. It follows that if such action had to be undertaken independently by each Member State, the outcome would not fully achieve the objective, as individual action would not effectively tackle the identified problems of fragmentation and divergent interpretation/application. The Omnibus on Taxation proposal should also be seen in conjunction with the DAC Recast, which entails simplification of certain reporting obligations and procedures. Altogether, the initiatives would entail coordinated and comprehensive actions ensuring that both material tax rules and the exchange of information framework are up-to-date and fit for purpose.
(a) Are there clear benefits from EU level action?
The impact assessment includes a cost-benefit analysis of the initiative, which is expected to be positive. The benefits mainly arise from the simplifications that the initiative will introduce which can significantly reduce tax compliance costs for EU taxpayers. Concretely, as explained in the impact assessment report, this involves a direct reduction of tax-related compliance costs for cross-border operating companies, cost savings in legal advice and litigation procedures concerning dispute resolution and business reorganisations, EU competitiveness through exemption from WHT on intra-EU cross-border interest, royalty and dividend payments and through simpler, common and more beneficial tax depreciation treatment for investments in the area of research and development (R&D). The impact assessment report sets out the potential cost savings for businesses and the economy in the EU as a result of potential reductions of current tax compliance costs, as well as in the context of the broader, longer-term macro-economic impact. It concludes that the preferred option is the Comprehensive Omnibus. This option is roughly estimated to reduce compliance and financial costs by about EUR 6.6 billion per year, out of which recurrent costs related to cutting down on administrative burden is EUR 2 billion per year. Some of its individual measures are estimated to increase EU GDP by roughly 0.04% (exemption from withholding tax) and 0.2% (immediate expensing of certain R&D assets) in the long run.
(b) Are there economies of scale? Can the objectives be met more efficiently at EU level (larger benefits per unit cost)? Will the functioning of the internal market be improved?
6
By decreasing compliance costs and tax obstacles, the initiatives will in turn foster foreign and domestic investment as well as capital mobility in the EU, both for large groups and SMEs with cross-border presence or plans to expand abroad. Thus, businesses operating in different Member States will be able fully benefit from the freedom of establishment and the free movement of capital without being hindered by tax regulatory obstacles. In addition, as explained as part of the impact assessment, studies show that investment within the EU internal market is usually more efficient than purely domestic investment because market integration improves capital allocation, increases competition, enables economies of scale, and facilitates knowledge spillovers, thereby raising productivity and returns on investment. The proposal specifically aims to support such investments across EU borders and cross-border business activity across the internal market, by simplifying and improving the applicable EU-wide tax framework. Hence, it is expected that there will be economies of scale and that the objectives can be met more efficiently at EU level.
(c) What are the benefits in replacing different national policies and rules with a more homogenous policy approach?
Overall, the proposal does not replace different national policies and rules with a more homogenous policy approach, given that the proposal amends existing EU law. Instead, the proposal aims to materialise a more consistent interpretation and application of the common rules as well as provide legal certainty to taxpayers across the internal market. The envisaged revisions will facilitate cross-border investment by increasing tax certainty and reducing compliance costs and disputes both for taxpayers and tax administrations. This will allow the EU’s economy to grow and be more competitive vis-à-vis other big markets, while maintaining high tax standards and continuing the fully respect national tax sovereignty.
(d) Do the benefits of EU-level action outweigh the loss of competence of the Member States and the local and regional authorities (beyond the costs and benefits of acting at national, regional and local levels)?
The proposal aims to amend the EU direct tax acquis by simplifying or clarifying existing tax rules at EU level. There is no aim of adding new fields to the EU acquis in direct taxation. It therefore follows that Member States’ (or local/regional) competences are not affected as a matter of principle.
(e) Will there be improved legal clarity for those having to implement the legislation?
This is precisely one of the key objectives of the Simplification initiative. The measures contained in the proposal will make the applicable EU tax rules, both substantive and related procedural requirements, simpler and clearer. Several rules will be updated or streamlined with other rules, to rectify overlaps and avoid confusion. The proposal specifically addresses issues related to diverging implementation or interpretation across EU Member States, by opting for a single EU approach. This enhanced clarity is expected to result in lower compliance and administrative burdens for taxpayers and tax administrations.
3. Proportionality: How the EU should act
3.1 Does the explanatory memorandum (and any impact assessment) accompanying the Commission’s proposal contain an adequate justification regarding the proportionality of the
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proposal and a statement allowing appraisal of the compliance of the proposal with the principle of proportionality?
The proposal is limited to targeted amendments necessary to simplify existing Union tax legislation and improve its coherence and effectiveness. It does not go beyond what is necessary to achieve these objectives. In particular, it preserves the core objectives and safeguards of the existing directives while updating, streamlining or simplifying specific provisions that have been identified as generating unnecessary complexity, administrative burdens, legal uncertainty or disproportionate compliance costs. It therefore strikes an appropriate balance between simplification, legal certainty and the preservation of the original objectives of the revised legal instruments. In this way, it is ensured that the initiative maintains the high degree of protection against tax avoidance in the internal market, as this was attained over the last decade.
3.2 Based on the answers to the questions below and information available from any impact assessment, the explanatory memorandum or other sources, is the proposed action an appropriate way to achieve the intended objectives?
The proposal will focus on the simplification of existing EU rules that are linked to identified problems and can only be addressed through legislative action, exclusively at EU level. The consultations and the ATAD evaluation also identified problems e.g., related to beneficial ownership or the interaction between the General-Anti Abuse Rule (GAAR) in ATAD and the specific anti-tax abuse rules in the PSD/IRD/TMD, which could be addressed by soft law initiatives, such as administrative guidance, in the future. As part of this initiative, EU action will thus be limited to what is necessary for the functioning of the internal market.
(a) Is the initiative limited to those aspects that Member States cannot achieve satisfactorily on their own, and where the Union can do better?
Yes, the initiative is limited to amending the EU direct tax acquis, which by definition relates to objectives that Member States cannot achieve on their own, whereas the Union can do better by centrally simplifying, clarifying or in cases, extending or streamlining the existing EU framework.
(b) Is the form of Union action (choice of instrument) justified, as simple as possible, and coherent with the satisfactory achievement of, and ensuring compliance with the objectives pursued (e.g. choice between regulation, (framework) directive, recommendation, or alternative regulatory methods such as co-legislation, etc.)?
Considering the legal base of the initiative (i.e. Article 115 TFEU) and the fact that the proposal will be an act amending existing EU tax directives, the only permissible legal instrument under the specific legal base is a Directive.
(c) Does the Union action leave as much scope for national decision as possible while achieving satisfactorily the objectives set? (e.g. is it possible to limit the European action to minimum standards or use a less stringent policy instrument of approach?)
Although the proposal removes some of the minimum standards and replaces them with harmonised rules, these cases are all justified by empirical evidence which arose during the extensive consultation process. Namely, their feature of minimum standard compromised the effectiveness of these rules and gave rise to a fragmented landscape, which is the result of having various available options. These eventually created a barrier to trade. This point emerges recurrently and consistently in all interactions with stakeholders.
8
(d) Does the initiative create financial or administrative cost for the Union, national governments, regional or local authorities, economic operators or citizens? Are these costs commensurate with the objective to be achieved?
No financial or administrative cost is expected for the Union. Regarding national authorities, the impact assessment report estimates that related financial or administrative costs will be none, marginal or not relevant. For certain measures, it is expected that these will reduce the workload for tax authorities, but quantitative projection is difficult, given that there is no empirical data to assess the potential cost implications – whether strictly from an IT or human resource (adaptation, personnel) point of view.
(e) While respecting the Union law, have special circumstances applying in individual Member States been taken into account?
n/a
EN EN
EUROPEAN COMMISSION
Brussels, 24.6.2026
SWD(2026) 561 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT REPORT
Accompanying the document
Proposal for a COUNCIL DIRECTIVE
Amending Council Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164,
(EU) 2017/1852, and EU 2025/50 as regards the simplification of the Union framework
on direct taxation and supporting growth and competitiveness of the EU
{COM(2026) 560 final} - {SEC(2026) 560 final} - {SWD(2026) 560 final} -
{SWD(2026) 562 final}
Table of contents
1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 1
2. PROBLEM DEFINITION .................................................................................................................... 2
3. WHY SHOULD THE EU ACT? .........................................................................................................13
4. OBJECTIVES: WHAT IS TO BE ACHIEVED? ................................................................................15
5. WHAT ARE THE AVAILABLE POLICY OPTIONS? .....................................................................17
6. WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ............................................................39
7. HOW DO THE OPTIONS COMPARE? .................................................................................................62
8. PREFERRED OPTION .......................................................................................................................68
9. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?...................................73
ANNEX 1: PROCEDURAL INFORMATION .............................................................................................76
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) .................................................80
ANNEX 3: WHO IS AFFECTED AND HOW? ...........................................................................................85
ANNEX 4: ANALYTICAL METHODS ......................................................................................................90
ANNEX 5: COMPETITIVENESS CHECK ...............................................................................................106
ANNEX 6: SME CHECK ...........................................................................................................................107
ANNEX 7: TIMELINE OF EU DIRECTIVES IN DIRECT TAXATION ................................................110
Glossary
Term or acronym Meaning or definition
ATAD Anti-Tax Avoidance Directive
BEPS Base Erosion and Profit Shifting
CJEU Court of Justice of the European Union
CFC Controlled Foreign Company
CIT Corporate Income Tax
DAC Directive on Administrative Cooperation
Direct taxation Tax concept where taxes are imposed directly on the
taxpayer, e.g., a business, and cannot be shifted to others
DTA Double Tax Agreement
DRM Dispute Resolution Mechanisms Directive
EBITDA Earnings before interest, tax, depreciation and
amortisation
EFTA The European Free Trade Association
ETR Effective tax rate
EU The European Union
EU tax rules Rules deriving from the Directives adopted by the
Council of the European Union in the area of direct
taxation
Existing Directives Directives adopted by the Council of the European
Union in the area of direct taxation
FASTER Directive on faster and safer relief of excess withholding
taxes
FDI Foreign direct investment(s)
GDP Gross Domestic Product
HOT Head Office Taxation
IIR Income Inclusion Rule under Pillar 2
ILR Interest Limitation Rule
IRD Interest and Royalties Directive
JRC The Joint Research Centre
MAP Mutual Agreement Procedure
MNE(s) Multinational Enterprise(s)
OECD The Organisation for Economic Co-operation and
Development
Pillar 2 OECD framework aiming at establishing a global
minimum effective tax rate for multinational enterprises
Pillar 2 Directive Directive on ensuring a global minimum level of
taxation for multinational enterprise groups and large-
scale domestic groups in the Union
PSD Parent-Subsidiary Directive
QDMTT Qualified Domestic Minimum Top-up Tax under Pillar 2
R&D Research and Development
SbS Side-by-Side system under Pillar 2 that introduces safe-
harbours to reduce compliance burdens for MNEs in
jurisdictions with qualifying domestic tax regimes as of
1 January 2026.
SME(s) Small and Medium-sized Enterprise(s)
TEC Treaty establishing the European Community
TEU Treaty on the European Union
TFEU Treaty on the Functioning of the European Union
Third-party loan A loan provided by an external lender who is not directly
involved in the ownership or operations of the
borrower’s business or personal finances
TMD Tax Merger Directive
UN The United Nations
UTPR Under-Taxed Profit Rule under Pillar 2
WHT Withholding tax(es)
Zero-tax jurisdiction Third country that does not levy corporate income tax or
applies a zero corporate income tax rate
1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT
In the Political Guidelines for the European Commission1, President Von der Leyen stressed the
Commission’s commitment to make business easier and faster in Europe. Simplification of EU
policies and laws, and ensuring their better implementation is essential to attaining these objectives
and to strengthening European competitiveness.
Accordingly, the President has tasked each Commissioner to focus on simplification, i.e., less red
tape, more trust, better enforcement, and faster permitting. Concretely, the Commission has set a
target of reducing administrative burden by at least 25% for all businesses, and by at least 35% for
SMEs, by the end of the mandate, without undermining the policy objectives of the revisited
initiatives.
On this basis, the Commission committed to make proposals to simplify, consolidate and codify
legislation to eliminate any overlaps and contradictions, while maintaining high standards.2 Already
in 2025, the Commission proposed ten omnibus proposals, e.g., in the area of environment,
investment, and digitalisation, that reduce recurrent administrative costs by EUR 11.9 billion.3
In accordance with the mission letter to the Commissioner for Climate, Net Zero and Clean
Growth, Wopke Hoekstra,4 and as outlined in the 2026 Commission Work Programme5, the present
proposal for an Omnibus on Taxation aims to simplify, streamline and clarify existing directives in
the area of direct taxation: the Interest and Royalties Directive (IRD)6, the Parent-Subsidiary
Directive (PSD)7, the Tax Merger Directive (TMD)8, the Anti-Tax Avoidance Directive (ATAD)9,
and the Dispute Resolution Mechanisms Directive (DRM)10 (collectively the ‘Directives’).
The corporate tax directives (IRD, PSD and TMD) aim to eliminate double taxation on cross-border
dividend, interest and royalty payments and to ensure tax neutrality for cross-border corporate
reorganisations. The ATAD seeks to prevent aggressive tax planning within the EU, and, in turn,
the DRM aims to ensure effective resolution of cross-border tax disputes that involve double
taxation or arising from double taxation conventions. The broad objectives of these critical
Directives remain valid, although the means and detailed rules through which these objectives are
to be met require adjustments to adapt to a changing tax landscape, as well as economic and market
developments. In preparation of this proposal, this impact assessment report considers the issues at
stake and different policy options. This analysis is mainly based on the experience and challenges
1 Political Guidelines 2024 -2029. 2 Political Guidelines 2024-2029. 3 Simplification - European Commission 4 President von der Leyen’s mission letter to Wopke Hoekstra; Mission-letter-Wopke-Hoekstra.pdf 5 Commission work programme 2026 - European CommissionCommission work programme 2026 - European
CommissionCommission work programme 2026 - European CommissionCommission work programme 2026 -
European Commission 6 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty
payments made between associated companies of different Member States. 7 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of
parent companies and subsidiaries of different Member States. 8 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers,
divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member
States and to the transfer of the registered office of an SE or SCE between Member States. 9 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly
affect the functioning of the internal market. 10 Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union.
from applying these Directives in practice, as well as their interaction with more recent EU and
international tax developments, such as the newly adopted Pillar 2 Directive11.
Simplification efforts in the area of taxation do not only include the Omnibus on Taxation, on
which this impact assessment focuses; they also include a separate proposal amending and recasting
all the Directives on Administrative Cooperation (DAC 1-9), which is prepared in parallel. The
proposal for a DAC Recast aims to simplify the administrative framework in tax matters and to
enhance clarity and effectiveness in administrative tax cooperation among EU Member States. An
individual impact assessment report has been prepared for the DAC Recast.
The importance of the work in this area has been confirmed by the Council of the European Union
in its conclusions on a tax decluttering and simplification agenda, which contributes to the EU’s
competitiveness.12
2. PROBLEM DEFINITION
This section defines and analyses the problems and their drivers and assesses the evolution of such
problems in the absence of EU policy intervention. The ‘Problem tree’ in Figure 1 presents the
context, the drivers, the problems and the negative consequences that the Omnibus on Taxation will
aim to address.
Figure 1: Problem Tree
2.1. What are the problems?
Tax systems in the Member States consist of national rules. In specific fields of a primarily cross-
border nature, these national rules are juxtaposed with tax measures that transpose EU directives.
The EU acquis in direct taxation represents a significant achievement for the EU. The relevant
Directives have successfully facilitated the EU internal market by establishing common rules at EU
level. These common rules help taxpayers expand their commercial activity across borders in the
11 Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for
multinational enterprise groups and large-scale domestic groups in the Union. 12 Taxation: Council sets tax decluttering and simplification agenda - Consilium
internal market. Cross-border operations have been facilitated in many ways, notably by
eliminating withholding taxes and relieving double taxation on cross-border intra-group
transactions, deferring the tax liability on capital gains in the case of restructurings, and ensuring a
more consistent anti-tax avoidance framework as opposed to disparities and mismatches amongst
national tax systems in the Member States.
Since the adoption of these Directives, the legal, economic and geopolitical landscape has
significantly evolved. Among others, globalisation and digitalisation have further materialised and
inevitably, resulted in rendering some of the older rules outdated. Additionally, increasing external
competition is putting pressure on Europe’s tax base and the attractiveness of the internal market is
being jeopardised. In this context, the EU and more than thirty other countries worldwide have
implemented global minimum taxation (Pillar 2), based on an internationally agreed common
approach within the OECD/G20 Inclusive Framework. Pillar 2 creates a necessary safety net, but
adds an additional layer of rules for businesses and tax administrators to apply.
The Omnibus on Taxation must be considered in this context where four main problems have been
identified on the basis of extensive consultations with Member States, private stakeholders,and the
results of the ATAD evaluation13:
2.1.1. Tax compliance requirements that are disproportionate
The multilayered tax landscape, combined with recent developments, have led to significant
complexity. The amount of applicable tax rules has accumulated, making tax compliance more
complicated than necessary. Research done by or for other EU institutions, such as the European
Parliament, points out that the tax compliance costs have more than doubled since 2014, and that
corporate tax has been identified amongst those areas with the highest compliance burden.14 On
average, EU businesses incur annual costs in meeting their tax compliance obligations equivalent to
almost 2% of their total turnover, placing a particularly heavy burden on smaller businesses.15 It has
been estimated the current corporate tax compliance cost for companies with cross-border activities
are annually EUR 3,308 for SMEs and EUR 8,266 for larger businesses.16
In the Call for Evidence, it was pointed out by approximately 68% of the 117 respondents,
including all businesses and business associations, that tax compliance requirements in the EU have
become disproportionate.17 For example, while the IRD and the PSD harmonise the tax treatment of
interest, royalty, and dividend payments within the EU, the procedures for obtaining the tax
exemption are mainly determined by the Member States (Box 1). During the targeted consultations,
many businesses voiced concerns about the complexity and, consequently, the significant
13 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market. 14 European Parliamentary Research Service, Tax compliance costs in the EU: Striking the right balance p. 1; Study
requested by the FISC Subcommittee, European Parliament, Removal of taxation-based obstacles and distortions in the
Single Market in order to encourage cross border investment, p. 9-11. 15 VVA/KPMG (2022), Tax compliance costs for SMEs: An update and a complement Final Report KPMG/VVA 2022. 16 Impact Assessment Report Accompanying the proposal for a Council Directive establishing a Head Office Taxation
(HOT) system (2023), eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX%3A52023SC0308. 17 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report
compliance burden they face when operating cross-border. It was noted that unwieldy procedures
for obtaining the tax exemption in certain Member States may often discourage companies from
applying the IRD and PSD, as the burdens outweigh the benefits. Similar views were expressed in
the Call for Evidence where approximately 67% of the 117 respondents identified issues related to
the withholding tax relief, including the procedures, under the IRD and PSD18.
Box 1: Withholding taxes on interests, royalties, and dividends
As a general rule, a company located in one state, which makes an interest, a royalty, or a
dividend payment to an associated company, i.e., another company where it holds a
significant degree of influence, control, or ownership, in another state, would pay a
withholding tax on the transaction in the state where the payor is located (taxation at
source). In some cases, the transaction would also be taxable as income in the state of the
receiving company. The IRD and the PSD exempt these payments between associated
companies in the EU from withholding taxes and eliminate double taxation. Although the
IRD and PSD pursue similar objectives, the requirements for applying the Directives
differ, as explained in Section 5.1, and the procedures for enforcing the withholding tax
exemption are broadly left for the Member States to decide. While the FASTER Directive
streamlined withholding tax procedures for certain cross-border portfolio investments, its
scope is limited to publicly traded securities and does not extend to all payments covered
by the IRD and the PSD.
Furthermore, the adoption of the Pillar 2 Directive, which introduces a global minimum corporate
tax rate of 15% for MNEs to ensure a level playing field across jurisdictions, is an addition of a
new system of international tax rules layered on top of the existing rules. A recent study estimates
that the total aggregate one-off compliance costs related to Pillar 2 are about EUR 1.2 billion and
recurring annual costs for the companies in scope of about EUR 517 million.19
While the importance of Pillar 2 is indisputable, it has inevitably increased the density of the tax
architecture. Therefore, it is necessary to consider whether other pre-existing rules on tackling tax
avoidance behaviours remain relevant, or whether their objectives are effectively achieved by Pillar
2. For instance, in the Call for Evidence, approximately 68% of the respondents found that Pillar 2
and the Controlled Foreign Company (CFC) rules in ATAD pursue, to a certain extent, similar
objectives in ensuring that multinational groups pay a fair level of tax. Although the rules differ in
mechanism and scope, this dual effort may cause some degree of overlap (Box 2Box 2). This issue
was also emphasised in the ATAD evaluation, as businesses often regard the CFC rules as being
obsolete for companies in scope of Pillar 2.20
Box 2: Taxation of low-taxed foreign entities
CFC rules are designed to prevent companies from using foreign subsidiaries in low-tax
18 Ibid. 19 OECD Pillar 2 Compliance Costs. A Quantitative Assessment for EU-Headquartered Groups (2025), Sean Bray,
Daniel Bunn, Johannes J. Gaul, Christoph Spengel, DP 25-053. 20 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 37.
jurisdictions to avoid paying taxes in their home country. Under CFC rules, if the
undistributed profits of a foreign subsidiary are low-taxed (usually less than half of the
applicable national statutory rate), the EU parent company of the subsidiary will be
additionally taxed on this income at an appropriate level (usually the national statutory rate of
its Member State). Undistributed profits which are taxed under CFC rules often relate to
passive income. Pillar 2 rules ensure that multinational enterprises (MNEs) in scope pay a
minimum level of tax in each jurisdiction where they operate at an effective rate of 15% on a
broader tax base comprising passive and active income. This tax can apply at the level of the
shareholder under the income inclusion rule or at the level of the CFC under the qualified
domestic top-up tax. The parallel application of CFC rules and the Pillar 2 framework may
result not only in economic double taxation but also duplicative and complex compliance
obligations for MNE groups, which are required to perform overlapping calculations and
reporting under both sets of rules.
In the Call for Evidence, it has also been pointed out by approximately 45% of the respondents that
the CFC rules, and other rules in ATAD, such as the Interest Limitation Rule and the Hybrid
Mismatch Rules, are insufficiently targeted leading to heavy compliance burdens, particularly for
SMEs21. This burden related to CFC rules and the Interest Limitation Rule can be considered
disproportionate for SMEs as these businesses face high administrative costs associated with
applying the rules, although they are less likely to engage in aggressive tax planning practices.22
For the Hybrid Mismatch Rules, and particularly the rules on imported mismatches, it was
highlighted by approximately 43% of the respondents in the Call for Evidence that the rules are
overly complex.23 This was identified in the ATAD evaluation as a cause of heavy administrative
and compliance burdens for both businesses and tax authorities.24 Overall, it has been found that
MNEs’ compliance with ATAD rules may annually amount to up to EUR 100,000 per company
depending on the size and corporate complexity.25
2.1.2. Legal uncertainty due to unclear tax rules and terms
Ambiguity in the legal wording can cause lingering doubt on the meaning of certain EU tax rules,
leading to legal uncertainty which way pointed out as a problem by approximately 73% of the
respondents in the Call for Evidence. Legal uncertainty and an increased risk of disputes distort
investment decisions and makes it difficult for EU companies to navigate their tax obligations
across the EU.
For example, as the holding requirements in the PSD and IRD are not interpreted in the same way
in all Member States (Box 33), companies may be left uncertain about whether they will be able to
avail of the tax exemption in one country or another. Consequently, companies are required to
21 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report 22 Base erosion and profit shifting (BEPS) | OECD and Commission Staff Working Document: Evaluation of Council
Directive 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the
internal market, p. 39. 23 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stake holder consultation synopsis report 24 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 48. 25 Ibid., p. 29.
acquire country-specific knowledge when they intend to establish entities or carry out business
activities across borders.
Box 3: Holding requirements under IRD and PSD
The IRD is applicable to interest and royalty payments between associated companies in the
EU. For companies to be associated, the IRD requires that a company has a holding of
minimum 25% in capital or voting rights of another company. As the IRD does not specify
whether the minimum holding has to be direct or indirect, the requirement has been
interpretated differently in the Member States. In addition, the PSD contains a similar
requirement as the PSD is applicable to dividend payments between associated companies,
i.e., parent companies and subsidiaries, in the EU. However, for companies to be associated
in this regard, a company must have a direct or indirect minimum holding of 10 % in capital
or voting rights of another company.
Legal uncertainty has also been identified in relation to the DRM. The lack of clear terms and
requirements, e.g., with regard to the admission criteria and deadlines, was criticised by
approximately 38% of the respondents in the Call for Evidence who found that dispute resolution in
the EU remain too slow and complex, leading to high compliance costs and underuse of the internal
market.26
2.1.3. Different tax treatment depending on national specificities
Not all existing Directives have been implemented consistently due to various options or differing
interpretations of the same rules and terms. This has led to different tax treatment of businesses
depending on the national approach to specific EU tax provisions and has been identified as a
problem by approximately 73% of the respondents in the Call for Evidence.27
The ‘minimum standard’ approach to ATAD, leaving a wide range of national discretion to
Member States in their implementation of the Directive, was criticised by approximately 67% of
the respondents in the Call for Evidence. Similar findings are presented in the ATAD evaluation.28
For example, CFC rules, which are applicable to EU businesses with certain low-taxed subsidiaries,
are implemented differently across the EU based on two different ‘models’ which are presented
ATAD. This is also the case for the Interest Limitation Rule in the ATAD which, according to the
ATAD evaluation, has been considered as offering extensive flexibility that has resulted in
fragmented implementation across the EU29 (Box 44) causing high compliance costs and underuse
of the internal market.
Box 4: Interest Limitation Rule in ATAD
The Interest Limitation Rule caps the amount of interest that corporate taxpayers are entitled
26 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report 27 Ibid. 28 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 46-47 29 Ibid., p. 46-47
to deduct in a tax year. The purpose of this rule is to limit deductible interest expenses which
can be strategically used by taxpayers to place excessive debt in high-tax jurisdictions in
order to reduce their tax liability. However, this rule has not put an end to the fragmentation
in the internal market as its transposition varies strongly from one Member State to another.
This is a result of the ATAD offering a number of transposition options related to: i) the
deductibility limit, ii) a de minimis safe harbour, iii) a standalone entity exemption, iv) a
grandfathering clause, v) an infrastructure exemption, vi) a group escape, vii) carry forward
and carry back options, and viii) an exclusion of financial undertakings. According to the
ATAD evaluation, the various options have led to excessive fragmentation. For instance, 6
Member States adopted safe harbours lower than the minimum standard of EUR 3 million
established in the ATAD, and 7 did not exclude the application of the rule to loans used to
fund long-term public infrastructure projects.30
In addition, for a variety of reasons that may have been justified at the time, some legal texts were
not sufficiently aligned with other legal acts when the Directives were drafted or negotiated. Such
lack of consistency is, for example, the case for the definitions of eligible companies in the PSD,
IRD, and TMD. These differences in eligibility requirements create problems, as they entail
inconsistent access for businesses to the benefits of the IRD, PSD and TMD. This results in
increased risks of disputes, competitiveness concerns and, ultimately, underuse of the potential of
internal market.
2.1.4. Tax barriers on cross-border business activities
While the existing Directives have improved the functioning of the internal market by removing
certain distortions caused by diverging national tax treatments, approximately 70% of the
respondents in the Call for Evidence still identified tax barriers in the internal market as a factor for
preventing businesses to engage more extensively in cross-border activities.31
In this regard, studies done by or for the European Parliament have criticised Member States for
finding it much easier to agree on curbing international tax planning, including implementing rules
agreed at OECD level, such as ATAD and Pillar 2, than on reducing tax and administrative barriers
in the internal market, resulting in what one study, for instance, calls a ‘complexity explosion’.32
According to the Tax Complexity Index, tax rules and procedures are generally more complex in
the EU than in other big economies, such as the United States and China.33
Tax obstacles, including complexity, cause underuse of the potential of internal market and
competitiveness concerns. For instance, the IRD and PSD only exempt certain intra-group
payments from withholding tax, subject to specific conditions and procedural restrictions (Box 5).
This means that national withholding taxes still apply to many cross-border business transactions in
30 Ibid., p. 12-14. 31 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report 32 European Parliamentary Research Service, Tax compliance costs in the EU: Striking the right balance p. 1; Study
requested by the FISC Subcommittee, European Parliament, Removal of taxation-based obstacles and distortions in the
Single Market in order to encourage cross border investment, p. 9-11. 33 Tax Complexity Index; In 2024, 13 Member States are found to have higher tax complexity than the US and 20
Member States are found to have higher tax complexity than China.
the EU and are coupled with different procedures while interacting with applicable tax treaties. As
a result, businesses operating across borders generally face more cumbersome rules than purely
domestic companies. This limits business prospects for expansion within the internal market and,
consequently, economic growth.
Box 5: Scope of IRD and PSD
The IRD does not cover interest and royalty payments made between companies of different
Member States that directly hold less than 25% in the capital or voting rights. The PSD, on
the other hand, does not cover profit distributions paid to companies that hold less than 10%
of the capital or voting rights. In addition, payments of interests, royalties, and dividends,
which are made to a company that takes a form which is not explicitly covered by each
Annex respectively, are not entitled to benefit from the tax exemptions provided by the IRD
and PSD (the European Court of Justice (CJEU) has ruled that the Annex to the PSD provides
for an exhaustive list of companies34). Accordingly, many cross-border payments remain
subject to withholding taxation, insofar they are not already exempt by bilateral tax treaties
between EU Member States.
Another remaining barrier, which was pointed out by businesses in the targeted consultations, was
disparities in the scope of the TMD and Company Law Merger Directive as amended by the
Mobility Directive. As the type of restructurings that are recognised under EU company law are
broader than the ones recognised in the TMD, there is a mismatch in the EU acquis which limits the
possibilities of carrying out restructurings in the internal market without triggering immediate
capital gains or other tax liabilities. This issue was also identified by approximately 38% of the
respondents in the Call for Evidence35 causing competitiveness concerns and underuse of the
internal market.
However, tax barriers do not only exist due to limited scopes of existing Directives. Other research
indicates that a comprehensive harmonisation of Member States’ tax systems by way of positive
integration would be necessary to sustainably eliminate tax obstacles to cross border business
activities.36 In addition, in the Call for Evidence, approximately 61% of the respondents called for
simplification beyond the existing Directives,37 a clear signal that the current landscape of
fragmented national tax rules imposes unnecessary complexity on businesses operating across
borders and restricts cross-border investments.
An easily identifiable tax barrier is the divergent approach to the tax treatment of research and
development (R&D) activities. Businesses investing in R&D across the internal market face a
fragmented landscape of national regimes, e.g., divergent eligibility criteria, definitions of
qualifying expenditure, incentive rates, deductibility rules and periods; all of which complicates
cross-border investment decisions, raises compliance costs, and makes it harder to plan and develop
R&D activities across the internal market. Stakeholders have noted that this fragmentation creates a
34 Judgment of the Court (First Chamber) of 1 October 2009, Gaz de France - Berliner Investissement SA v
Bundeszentralamt für Steuern, Case C-247/08, ECLI:EU:C:2009:600. 35 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report 36 Study requested by the FISC Subcommittee, European Parliament, Removal of taxation-based obstacles and
distortions in the Single Market in order to encourage cross border investment, p. 17. 37 Ibid.
major barrier for scaling38. Accordingly, this also undermines the EU’s attractiveness as a location
for innovation-driven investment vis-à-vis major international competitors, such as the United
States.
The growing regulatory fragmentation and administrative complexity across Member States is a
structural factor contributing to the EU’s widening innovation gap. As highlighted in the Draghi
Report39, Europe’s current R&I framework is not sufficiently coordinated to support breakthrough
innovation, resulting in firms concentrating on mature technologies with limited disruptive
potential.
This is reflected in the persistent underinvestment in research and innovation. EU companies spent
approximately EUR 270 billion less than their US counterparts in 202140. The lack of a genuinely
integrated approach weakens scale effects, slows diffusion of innovation, and limits the ability to
translate research into globally competitive technologies.
In addition, divergent national definitions of qualifying R&D expenditure across Member States
create a specific and identifiable compliance cost burden for cross-border operators41 and the
absence of greater coordination in the tax treatment of R&D across the EU risks undermines the
common market42. This makes the tax treatment of R&D expenditure a particular issue that a
common EU approach would be well-placed to address.
R&D is critical for innovation; yet the EU falls behind its key global trading partners. Based on
2024 figures in purchasing power parity–adjusted terms, R&D expenditure in the United States and
China amounted to approximately USD 1 trillion, compared to roughly USD 600 billion in the EU
(thus about 60% of the United States’ level, marking a 10 percentage point decrease from 70% in
2014).43
More specifically, the EU’s R&D intensity gap relative to its main global competitors is primarily
driven by lower levels of private-sector investment. In 2020, China surpassed the EU for the first
time in R&D intensity (2.4%), while the EU’s R&D intensity stood at 2.3% in 2021 and declined
further to 2.2% in 2022, remaining well below that of the United States (3.5%), Japan (3.3%), and
South Korea (4.9%).
Although the EU has increased its R&D investment over the past two decades, a significant gap
persists compared with its principal international competitors, and its relative share of global R&D
activity continues to decline. Furthermore, evidence suggests that the overall reduction in
38 Communication from the Commission to the European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions (Commission Staff Working Document), The EU Startup and Scaleup
Strategy, COM(2025)270 final, pages 53 and 54.
39 M. Draghi, The future of European competitiveness (Part A, A competitiveness strategy for Europe), September
2024.
40 Ibid, p. 6.
41 European Law Institute, For a European Approach to R&D Tax Incentive(s), 2021.
42 D. D’Andria, D. Pontikakis, A. Skonieczna, Towards a European R&D Incentive? An assessment of R&D
Provisions under a Common Corporate Tax Base, Working Paper No 69 – 2017, p. 4. 43 OECD R&D statistics released on 31 March 2026, cf. https://www.oecd.org/en/data/insights/statistical-
releases/2026/03/oecd-overall-rd-growth-stable-government-rd-budgets-decline-and-reorient-towards-defence.html.
government support for private R&D within the EU has been partly driven by a decline in tax-
based support measures.44
While taxation is not the sole determinant of R&D investment decisions, it plays an important
enabling role. It is therefore closely linked to the objectives of reducing tax-related barriers within
the internal market, promoting simplification, and strengthening competitiveness.
2.2. What are the problem drivers?
The problems identified in the previous section have two main drivers: The first driver is the
inconsistent application of the EU direct tax acquis. The second is the existence of outdated and
overlapping rules.
The inconsistent implementation and application of the EU direct tax acquis relate to the
current fragmentation of the internal market. The EU tax framework has grown over decades and
while old directives remain in place, new anti-abuse layers were added. Member States have also
implemented EU rules differently and added additional rules or obligations.Inconsistency and
fragmentation were pointed to as the root of the identified problems by 77% of the respondents in
the Call for Evidence. The inconsistencycannot be solved by infringement procedures, guidance or
other tools, since the existing Directives themselves provide for several options, and include
undefined terms or constructively ambiguous wording. Hence, there are several inconsistencies that
can only be sufficiently addressed by legislative action. Firstly, certain provisions provide options
to Member States, to choose the most appropriate implementation at national level. ATAD, for
example, allows Member States to choose between several options for the application of the
Interest Limitation Rule and CFC taxation. Consequently, the limited degree of harmonisation has
proven insufficient, and the EU framework remains fragmented, with a costly compliance burden,
legal uncertainty, different tax treatment and tax barriers for taxpayers as a result. These findings
reflect the conclusion in the ATAD evaluation which indicates that the excessive flexibility of the
rules causes problems, despite the overall positive assessment that the ATAD remains fit for
purpose.45
Moreover, inconsistent applications have even occasionally lead to problems concerning provisions
that do not include options for implementation. This has occurred in some instances where the legal
texts are not fully aligned. For example, there are differences in the holding requirements for
entitlement to the IRD and PSD. In others, a lack of precision or the flexible nature of certain rules
has led to divergent interpretations of the Directives, fuelled by unintended inconsistencies. By way
of example, where variations in the interpretation of certain provisions of the DRM exist – such as
the admission criteria and imposed deadlines – have been demonstrated to contribute to legal
uncertainty.46
The existing direct taxation Directives have been adopted over the past 35 years (Annex 7) and
most of these Directives have undergone only very limited amendments since. Consequently,
outdated and overlapping rules cause problems in the internal market. Attempts to revisit their
content have previously been made, for example, with the IRD recast in 2011, but this attempt did
44 Science, Research and Innovation performance of the EU 2024 report, Chapter 2, cf.
https://op.europa.eu/en/publication-detail/-/publication/c683268c-3cdc-11ef-ab8f-01aa75ed71a1/language-en 45 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 46-48. 46 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report
not advance in Council. As a result, certain provisions in the existing direct taxation Directives do
not sufficiently reflect economic reality. In the Call for Evidence, issues related to the IRD and the
PSD were pointed out by approximately 67% of the respondents who inter alia identified outdated
requirements, which are not flexible enough to include new company forms, as a cause. Concerning
the ATAD Interest Limitation Rule, approximately 52% of the respondents in the Call for Evidence
noted problems, e.g., because the rule was designed at a time where the macroeconomic
environment was characterised by a prolonged period of historically low interest rates, before the
significant changes observed in more recent years.47
It is important to also consider that subsequent global and EU tax developments have resulted in the
further extension of a complex international tax architecture over time. This has inevitably created
some overlaps between different sets of rules, which pursue similar objectives or have a
comparable scope, as it is further explained below. Such duplications, or layering, make tax
compliance more burdensome than necessary for businesses. In the Call for Evidence,
approximately 68% of respondents identified overlaps, especially between ATAD and Pillar 2, as a
problem driver.48
2.3. How likely is the problem to persist?
In the absence of EU policy action, businesses operating across the EU internal market will
continue to face high compliance costs, increased risks of disputes, and it will be more difficult for
EU businesses to make use of the opportunities of the internal market and compete globally.
During targeted consultations, many key stakeholders voiced concerns about the significant and
growing compliance burden they face when operating in the internal market and called for
enhanced clarity and certainty around different concepts as well as for simplifying procedures
going forward. While there is significant progress on simplifying rules and procedures in some
other areas, complexity and fragmentation remain very substantial in direct taxation.
If no action is taken at EU level, the identified problems are expected to persist and worsen as long
as tax rules are added, but not revised, replaced or repealed. Research done by or for other EU
institutions, such as the European Parliament, also conclude that some of the fundamental tax
obstacles and distortions, such as complexity, in the internal market can only be addressed by a
substantial harmonisation of corporate taxation in the EU.49 Similar views were expressed by
approximately 77% of respondents in the Call for Evidence who called for enhanced tax
harmonisation at EU level.50
While Member States can embark on initiatives to simplify their national tax rules, unilateral
actions cannot achieve the general interest objectives of ensuring that obstacles do not restrict
businesses activities in the internal market, facilitate more efficient operations and compliance,
particularly in a cross-border context, or impose heavy administrative burdens on the tax
administrations. In addition, it should be recalled that some problems are related to complexity and
fragmentation in the area of direct taxation. Action at the individual Member State level would only
aggravate the complexity in adhering to and applying EU tax rules. Such individual actions would
47 Ibid. 48 Ibid. 49 European Parliamentary Research Service, Tax compliance costs in the EU: Striking the right balance p. 1; Study
requested by the FISC Subcommittee, European Parliament, Removal of taxation-based obstacles and distortions in the
Single Market in order to encourage cross border investment p. 9-11. 50 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report
cause impediments to cross-border operations, increase the compliance burden on taxpayers, and
undermine the level playing field. As the tax landscape keeps on evolving, the problems are only
expected to grow, and the current state of play will be aggravated over the years to come.
3. WHY SHOULD THE EU ACT?
The Union can only act in areas where the Treaties confer competence to it. In areas not falling
under its exclusive competence, it must be established that the objectives of a Union action cannot
be sufficiently achieved by independent action of individual countries without equal action by other
Member States (principle of subsidiarity). Consequently, this section will scrutinise the legal basis
and the principle of subsidiarity regarding the Omnibus on Taxation.
3.1. Legal basis
The proposal for an Omnibus on Taxation is intended to amend existing EU direct taxation
Directives which have been adopted over the last 35 years (Annex 7) on the basis on Article 115
TFEU (ex Article 94 TEC). This provision allows for the approximation of laws of the Member
States, which directly affect the establishment or functioning of the internal market. On this basis,
the overall objective of the existing Directives is to ensure that business activities, which are carried
out between taxpayers of different Member States, are not subject to more, or less, favourable tax
conditions than those applied to business activities carried out between companies of the same
Member State.
Article 115 TFEU will also be the legal basis for the Omnibus on Taxation proposal that entail
adoption through the special legislative procedure, requiring unanimous vote in Council and
consultation of the European Parliament and Economic and Social Committee. The Omnibus on
Taxation will, by amending existing EU Directives, have an impact on cross-border business
activities with a view to enhance the functioning of the internal market by making the common
rules on direct taxation clearer, simpler and up to date.
3.2. Subsidiarity: Necessity of EU action
EU competence in the area of direct taxation is shared with the Member States on the basis of
Article 115 TFEU. In accordance with the subsidiarity principle laid down in Article 5(3) TFEU,
action at EU level should be taken only when the envisaged objectives cannot be achieved
sufficiently by Member States acting alone and in addition, by reason of the scale or effects of the
proposed action, can be better achieved by the EU.
On this basis, all Member States have their own domestic tax systems which are determined by
different economic approaches, financial needs and policy choices. However, in some cases, it has
become apparent that EU action is necessary to ensure the functioning of the internal market and
the effectiveness of the fundamental freedoms. This is, for example, the case with the IRD and PSD
which were adopted to ensure equal tax treatment of dividends, royalties and interests when these
payments are carried out between taxpayers in different Member States. In the same vein, the
TMD, ensures that tax rules applicable to business operations, like mergers, divisions, transfers of
assets, and exchange of shares, concerning taxpayers of different Member States are neutral and
non-decisive for business decisions in the internal market. ATAD introduced a set of common anti-
tax avoidance rules to address base erosion and profit shifting, often caused or aggravated by
mismatches or fragmentation between the tax systems of the Member States. The DRM establishes
rules for resolving disputes that arise from the interpretation and application of double tax treaties
among EU Member States.
Although the application of these Directives remains crucial for the good functioning of the internal
market, the EU faces new challenges. Enhanced globalisation, economic developments, and an
increasingly complex international tax architecture have made it necessary to revisit the functioning
of established rules. This issue is not specific to the EU, but burdensome regulation and
administration are a clog on EU growth and EU competitiveness vis-à-vis third countries. While it
would be for the Member States to simplify domestic tax rules, only an EU action can amend the
existing EU direct tax acquis in accordance with the Treaties, to simplify and clarify the common
rules, address identified challenges, and thus enhance the competitiveness of EU businesses. As a
result, the objectives of the Omnibus on Taxation cannot be achieved sufficiently by the Member
States acting alone.
Finally, in accordance with the principle of proportionality, the Omnibus on Taxation will focus on
the simplification of existing EU rules that are linked to identified problems (Section 2.1) which
could only be addressed by legislative action. Other problems that have been identified in the
stakeholder consultations or in the ATAD evaluation, e.g., related to Exit Taxation Rules or the
General-Anti Abuse Rule (GAAR) in ATAD,51 which could be addressed by soft law initiatives,
such as administrative guidance, will not be considered further in this respect. EU action will thus
be limited to what is necessary to ensure the functioning of the internal market.
3.3. Subsidiarity: Added value of EU action
Action at the EU level would bring significant benefits to both businesses and tax administrations.
The Omnibus on Taxation will be designed to tackle problems with the existing direct taxation
Directives which were identified in extensive consultations with Member States and private
stakeholders,and it will build on the results of ATAD evaluation52. The intention is to remove
overlapping or potentially now superfluous rules, streamline procedures, further prevent and
address instances of double taxation and distortions, clarify concepts, eliminate outdated
provisions, and address the inconsistent or divergent application of certain tax rules across the
Member States.
On the basis of the Omnibus on Taxation proposal, EU tax rules and procedures should become
clearer and simpler making it easier and, thereby, less costly for businesses to operate or expand
cross-border. This would allow for a better utilisation of the potential of the internal market and
should also make it more attractive to establish businesses and invest in businesses in the internal
market. For tax administrations, simpler rules and streamlined procedures should ease their work
related to tax controls and audits and, ultimately, lead to fewer disputes and a reduction in
administrative costs.
The Omnibus on Taxation proposal should also be seen in conjunction with the DAC Recast, which
entails simplification of certain reporting obligations and procedures. Altogether, the initiatives
would entail coordinated and comprehensive actions ensuring that both material tax rules and the
exchange of information framework are up-to-date and fit for purpose.
51 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report and
Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 19-43. 52 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market.
4. OBJECTIVES: WHAT IS TO BE ACHIEVED?
This section outlines the general objectives, which are the treaty and policy-based objectives that
the Omnibus on Taxation aims to contribute to, and the specific objectives, which set out concretely
what the initiative is meant to achieve. The ‘Intervention Logic’ in Figure 2 presents these
objectives jointly with the drivers and the problems that the Omnibus on Taxation aims to address.
Figure 2: Intervention Logic
4.1. General objectives
The general objectives of the Omnibus on Taxation must be seen in the light of the simplification
agenda set by the Commission which is generally linked to improving the functioning of the
internal market.
Firstly, the Omnibus on Taxation will seek to simplify existing EU direct tax rules with a view to
boost EU competitiveness and, thereby, making the environment for doing business in the EU
more attractive. The Draghi Report on EU Competitiveness53 pointed out that internal barriers and
lack of coordination between different rules and policies constitute an obstacle to EU
competitiveness. Consequently, complexity, uncertainty, fragmentation, and trade barriers impede
the proper functioning of the internal market and hamper the prospect for achieving its full
potential. In this regard, the Omnibus on Taxation should contribute to the Commission’s overall
target of reducing administrative burdens by at least 25% for all businesses, and by at least 35% for
SMEs.
53 The Draghi report on EU competitiveness
Secondly, the Omnibus on Taxation will ensure that high tax standards in the EU are
maintained. The original objectives of the existing Directives, such as removing double taxation,
ensuring tax neutrality, establishing a common framework for dispute resolution, and tackling tax
avoidance and evasion in the internal market, remain valid today and should not be substantially
affected by the Omnibus on Taxation. Therefore, the Omnibus on Taxation should seek to improve
the effectiveness and efficiency of the existing Directives without deregulating or recreating
loopholes, which can be used for tax avoidance and evasion, or in any other way undermine the
achievements at EU and international level in the area of taxation. Such actions would deteriorate
the functioning of the internal market rather than improve it and, thereby, be contrary to the EU
simplification policy.
4.2. Specific objectives
The specific objectives of the initiative contribute to achieving the general objectives.
Firstly, in line with the Commission’s target to reduce red tape, the Omnibus on Taxation
purposefully aims to eliminate disproportionate EU tax compliance burdens. The current
cumulative effect of application of EU tax rules imposes disproportionate compliance costs for EU
businesses to the detriment of their competitiveness.
Secondly, the Omnibus on Taxation aims to introduce clear and predictable EU tax rules and
terms where needed. Ambiguities in legal drafting lead to divergent national interpretations,
complex heterogeneous administrative practice, double taxation, increased litigation risks, and
precautionary over-documentation, causing legal uncertainty which adversely affect tax standards
and business decisions in the internal market.
Thirdly, the initiative also aims to improve consistency in the application of the existing tax
Directives. Discretionary implementation has resulted in significant fragmentation in the
application of the EU tax rules, undermining the original objectives for having the existing
Directives, such as equal tax treatment across the EU. Substantial and procedural inconsistencies in
the application of different Directives also hinder their effective application.
Finally, the initiative should reduce remaining tax obstacles to cross-border investment and
commercial activity. Limitations in the current level of harmonisation of the EU tax rules are
counterproductive for making business in the EU easier. Lack of coordination in the Member States
puts EU businesses in a worse competitive position than other businesses operating in big,
comparable market jurisdictions and weakens the growth prospects of the internal market, which
makes it less attractive to investment in the EU.
5. WHAT ARE THE AVAILABLE POLICY OPTIONS?
This section outlines the EU acquis in the area of direct taxation focusing on a number of existing
rules that can be linked to the problem drivers, i.e., inconsistent application and outdated or
overlapping rules, which the Omnibus on Taxation seeks to address. The rules in question have
been selected on the basis of thorough analysis, positions shared by Member States, a dedicated
evaluation, and feedback gathered through different stakeholder consultations, including the main
business associations. Consequently, this section will focus on the current rules that are linked to
identified problems which could only be addressed by legislative action. Other problems that have
been identified e.g., in the stakeholder consultations or in the ATAD evaluation, that could be
addressed by soft law initiatives, such as administrative guidance, will not feature in the report.
After the presentation of the current rules linked to the identified problems (the baseline), different
options for simplification of the rules will be presented.
5.1. What is the baseline from which options are assessed?
5.1.1. Withholding tax exemption for payments of interests, royalties and dividends
According to the IRD, interest and royalty payments arising in one Member State are exempt from
taxes imposed in that State provided that the beneficial owner is an associated company from
another Member State or a permanent establishment situated in another Member State.
The PSD also exempts dividends and other profit distributions paid by subsidiaries to parent
companies in different Member States from withholding taxes at source and eliminates double
taxation of such income at the level of the parent company (participation exemption or relief by
credit).
5.1.1.1. Eligible companies
The IRD and PSD only apply to companies of a Member State. To be considered a ‘company of a
Member State’, three cumulative conditions have to be fulfilled: (i) the company must take one of
the legal forms which are listed in the Annex to each Directive, (ii) the company must be tax
resident in a Member State, and (iii) the company must be subject to corporate tax in a Member
State.
Regarding the eligible forms of companies listed in the Annexes of the PSD, the European Court of
Justice (CJEU) has ruled that the Annex to the PSD provides for an exhaustive list of companies.54
Considering the similarity of requirements, this interpretation has been extended to the IRD.
Consequently, payments of interests, royalties, and dividends, which are made to a company that
takes a form which is not explicitly covered by each Annex respectively, are not entitled to benefit
from the tax exemptions provided by the IRD and PSD. This limits the scope of the IRD and the
PSD and makes the application non-flexible and outdated as there is currently opportunity to
include new legal forms of companies constituted under the laws of the Member States.
Although these requirements seem alike in the IRD and the PSD, they differ in substance as the
company forms listed in the Annex to each Directive are not aligned. Inconsistencies can, for
example, be found concerning the European Company (EC) and the European Cooperative Society
(ECS)55, as well as for some company forms in certain Member States, which makes the application
of the Directives complex. These differences in eligibility requirements would continue to create
problems, as they entail inconsistent access for businesses to the benefits provided for in the
Directives. It should also be mentioned that the TMD also includes a definition of ‘eligible
companies’ which differs in substance from the IRD and PSD and creates further complexity.
Without action, the inconsistency in the application of the Directives may increase as the list of
eligible companies are not drafted in a dynamic way. While company legal forms may continue to
develop, in most cases, the scope of the Directives remain the same.
5.1.1.2. Material scope
The IRD and PSD only apply to associated companies, i.e., businesses linked through significant
ownership or common corporate control. The IRD is only applicable to interest and royalty
54 Judgment of the Court (First Chamber) of 1 October 2009, Gaz de France - Berliner Investissement SA v
Bundeszentralamt für Steuern, Case C-247/08, ECLI:EU:C:2009:600. 55 Council Regulation (EC) N 2157/2001 of 8 October 2001 on the Statute for a European company and Council
Regulation (EC) N 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society.
payments made between associated companies of different Member States. The concept of an
‘associated company’ requires a direct minimum holding of 25% of the capital, or a minimum
holding of 25% of the voting rights. The PSD is applicable to profit distributions paid by subsidiary
companies to their parent company. The concept of ‘parent company’ requires a minimum holding,
either direct or indirect, of 10% in capital, with the option to replace it, by means of bilateral
agreements, with that of a minimum holding of voting rights.
Accordingly, the material scope of the IRD and the PSD differ. While the benefits of the IRD apply
only to direct holdings of 25% in capital or voting rights, the benefits of the PSD apply to holdings,
either direct or indirect, of 10% in capital or voting rights. Therefore, not only the percentage of
holding differs, but also the nature of the holding (direct vs. indirect).
In 2011, the Commission presented a report on the functioning of the IRD which inter alia
concluded that the holding requirement had been implemented in different ways in the Member
States.56 Some allowed for indirect holdings to be taken into account in determining eligibility,
while others limited the application to direct holdings. This leaves companies uncertain about
whether they will be able to avail themselves of the tax exemption in one country or another and
can constitute a tax obstacle to cross-border activities. Missing alignment between the IRD and
PSD regarding holding requirements will also continue to result in higher than necessary
compliance costs for companies involved in cross-border operations. This will continue to produce
incongruous results.
5.1.1.3. Procedural aspects
Under the IRD, the procedures to obtain the tax exemption in the Member States can either be
designed on the basis of the attestation procedure, which is laid down directly in the IRD, or as a
fully national procedure. Irrespective of the procedure, the source Member State must repay any
excess tax withheld within one year. The PSD does not include any procedural rules for entitlement
to the benefits. Each Member State may establish its own procedure to ensure that eligible
companies can benefit from the rules.
In practice, the majority of Member States have not implemented any upfront requirement or
procedure for companies to benefit from the tax exemptions under the IRD and the PSD, although
some Member States have chosen to apply a variation of the attestation procedure.
During targeted consultations, many private stakeholders voiced concerns about the excessive
procedural complexity in certain Member States in order to gain entitlement to the withholding tax
exemption of dividends, interests and royalties under the IRD and the PSD. In this regard, it was
pointed out that the length of the administrative procedures, sometimes up to 24 months, and
complex procedural requirements for obtaining the benefit usually cause delays. In certain cases,
the procedures even have a deterrent effect as it may be more cost-efficient for the companies to
pay the withholding tax than claiming the exemption.
More recently, to address such issues, the EU adopted the FASTER Directive, which, among other
measures, introduces standardised fast-track procedures. These procedures can take the form of
relief at source, quick refund, or a combination of both, as determined by each Member State. The
56 Report from the Commission to the Council in accordance with Article 8 of Council Directive 2003/49/EC on a
common system of taxation applicable to interest and royalty payments made between associated companies of
different Member States, COM/2009/0179 final.
scope of these fast-track procedures is limited to dividends on publicly traded shares, while relief
for interest on publicly traded bonds remains optional for Member States. Additionally, the
Directive allows Member States to deny, completely or partially, the application of these
standardised fast-track procedures where an exemption from withholding tax is claimed. As a
result, Member States may exclude payments exempted under the IRD and PSD from the benefit of
these fast-track procedures.
5.1.2. Taxation of Controlled Foreign Companies
The ATAD provides for rules on the taxation of controlled foreign companies (CFCs) which aim to
tackle profit shifting towards lower tax jurisdictions within a multinational group. These tax
avoidance practices erode the tax base of the jurisdiction of origin of these flows, typically the one
of residence of the parent company, through the transfer of profit to a CFC, i.e. subsidiary or a
permanent establishment in another jurisdiction. The CFC rules generally attribute certain income
from a CFC to be included in the parent company’s taxable base when the tax imposed on the CFC
is significantly lower, i.e., the tax paid in the entity jurisdiction is less than 50% of what would be
paid in the parent jurisdictions.
5.1.2.1. Implementation options
When transposing the CFC rules, Member States are offered different options to mitigate the
differing Member State views and legal traditions and is accommodated due to the Directive’s
design as a minimum standard. For example, Member States may choose between two different
approaches to define what income of a CFC is subject to tax:
Model A targets non-distributed passive income of a CFC, such as interest, royalties and dividends,
if the CFC is in a low-tax jurisdiction. While relatively mechanical in its application, the CJEU has
ruled that Model A includes a substance clause limiting the scope of application of the CFC rule to
wholly artificial arrangements within the EU.57
Model B targets non-distributed income arising from non-genuine arrangements specifically
designed to obtain a tax advantage to be calculated in accordance with the arm’s length principle.
To reduce the compliance burden under Model B, Member States may adopt de minimis thresholds
to exclude lower-risk entities with limited accounting profits and non-trading income from the rule.
According to the ATAD evaluation, 17 Member States opted to implement Model A, while 8 chose
Model B, including one or both de minimis thresholds. Additionally, 2 Member States decided to
adopt a variant of the rule that encompasses both models.58 Consequently, the implementation of
the ATAD varies widely across Member States. If not addressed, this will continue to result in
fragmentation and inconsistent compliance requirements. This would then continue to contribute to
legal uncertainty for businesses operating across borders. Retaining differences in key elements,
such as the criteria for CFC status, would uphold the additional administrative burdens and related
costs.
57 Judgment of the Court (Grand Chamber) of 12 September 2006, Cadbury Schweppes plc and Cadbury Schweppes
Overseas Ltd v Commissioners of Inland Revenue, Case C-196/04. ECLI:EU:C:2006:544. 58 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 14-15.
This is consistent with findings of the Draghi report59 and it was confirmed by stakeholders who, in
the targeted consultations, expressed that the CFC rules generate a significant administrative burden
in compliance, while their impact on Member States’ tax bases is considered to be rather modest.
5.1.2.2. Interaction with Pillar 2
Since the adoption of the ATAD, the legal environment at both the EU and international level has
evolved significantly, particularly as a result of the OECD global minimum tax for MNEs (Pillar 2)
which has been implemented in the EU through a Pillar 2 Directive.
By using some of the same mechanisms as the CFC rules, i.e., attributing low-taxed income of a
subsidiary to the taxable base of a parent company, Pillar 2 ensures that large MNEs pay at least a
15% tax on profits in each jurisdiction they operate. Member States agreed at the OECD/G20
Inclusive Framework to the Pillar 2 rules, which accommodate CFC legislation by taking the
relevant tax charges into account in the design of the global minimum tax. Yet, this does not change
the fact that CFC rules share similar objectives to Pillar 2 and in practice, the interaction between
the two sets of rules leads to duplication. It is now clear that this approach may create a risk of
over-taxation.
As Pillar 2 was recently transposed by the Member States, the actual effects of the interaction
between the two sets of rules are not yet possible to assess in a reliable manner. However, the
theoretical consequences of applying Pillar 2 and CFC rules in parallel, i.e., the application of a
Qualified Domestic Minimum Top-up Tax (QDMTT) at the level of a low-taxed CFC and the CFC
tax imposed at the level of its shareholders, would be likely to result in economic double taxation,
which is not in line with the intent of ATAD.
On this basis, businesses generally regard the two sets of rules as overlapping, causing double
taxation and creating unnecessary administrative burden. During the targeted consultations,
businesses overwhelmingly argued that the CFC rules have become redundant for MNEs in scope
of Pillar 2. These views find support in the ATAD evaluation, which concludes that the
implementation of the Pillar 2 Directive addresses similar risks through a global minimum tax and
has weakened the rationale for maintaining the CFC rule for MNEs in scope of Pillar 2.60 As such,
upholding both sets of rules in parallel risks entailing future compliance costs above what is
needed.
5.1.2.3. Application to SMEs
The CFC rules apply to all taxpayers that are subject to corporate tax in one or more Member
State(s), including permanent establishments in one or more Member State(s) of entities resident
for tax purposes in a third country, irrespective of their size.
In the EU, 99.8% of businesses are SMEs. However, only (i) 10% of them have cross-border
activities, and (ii) 2% have subsidiaries outside of the EU. 42% of SMEs are standalone entities, i.e.
59 Draghi Report – The Future of European Competitiveness, Part B, p. 320;
https://commission.europa.eu/document/download/ec1409c1-d4b4-4882-8bdd-
3519f86bbb92_en?filename=The%20future%20of%20European%20competitiveness_%20In-
depth%20analysis%20and%20recommendations_0.pdf#page=320 60 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 36-38 and 47.
not part of a group and without associated enterprises.61 The ATAD evaluation finds that CFC rules
are costly.62 Certain businesses may need to conduct an analysis or tick a box for internal control
purposes even when they are effectively not affected by the rules. This may put a disproportionate
administrative burden on smaller corporate taxpayers, as they need to rely on external expertise,
even in the absence of risky arrangements. Consequently, while relatively few SMEs are in a
position to engage in cross-border aggressive tax planning, they nonetheless face an administrative
burden associated with applying CFC rules. If not addressed, this will continue to act as a barrier on
SME growth.
5.1.3. Expensing of assets related to research and development (R&D)
As set out in Section 2.1.4, not all tax barriers have been removed for EU businesses operating in
the internal market. One such issue, which has come into sharper focus in recent years as a result of
the EU and global implementation of Pillar 2, is the treatment of R&D assets for tax depreciation
purposes.
While the UK and the United States generally allow the full cost of R&D assets to be deducted in
the year an investment is made – so-called immediate expensing – this is not the general rule in EU
Member States. This is regrettable, because, as the Commission already stated in its
Recommendation of 2 July 2025 on tax incentives to support the Clean Industrial Deal, immediate
expensing carries important benefits for investment decisions by allowing taxpayers to recognise
the full depreciable amount as a deduction in the tax year in which the investment is made.
The introduction of Pillar 2 has emphasised the need for a harmonised EU tax policy in this area.
While the global minimum tax will generally improve the level playing field for EU businesses
globally, it does not address differences of this kind, as Pillar 2 does not take into account
temporary book–tax timing differences that arise from immediate expensing. As a result,
divergences in the timing and design of R&D tax incentives remain outside its scope. These
national distortions put EU businesses at a competitive disadvantage when performing an activity
that is inherently international in nature, and makes the internal market less attractive for
investments, as opposed to, for instance, research carried out in bigger markets with more growth
potential, such as the United States.
5.1.4. Interest Limitation Rule
As a general rule, expenses incurred by a company in the context of its economic activity are tax-
deductible. However, certain expenses may be disallowed or have a partial deduction, particularly
if they can be linked to risks of abuse. Article 4 of the ATAD introduces an Interest Limitation Rule
in the EU which restricts the deductibility of a company’s interest expenses. The purpose of the rule
is to limit the extent to which companies in high-tax jurisdictions with excessive debt can benefit
from tax deductions for interest payments which can significantly erode their tax base.
Under the Interest Limitation Rule, businesses are generally entitled to deduct net borrowing costs,
i.e., net interest expenses, up to 30% of their earnings before interest, tax, depreciation and
amortisation (‘EBITDA’). Nonetheless, Member States are permitted to adopt lower deductibility
limits when transposing the rule. The ATAD also allows Member States to choose from several
61 VVA/KPMG, Tax compliance costs for SMEs: An update and a complement Final Report KPMG/VVA 2022. 62 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 47.
options regarding safe harbours, carve-outs, and exceptions, thus allowing for significant flexibility
in the implementation.
According to the ATAD evaluation, the Interest Limitation Rule is widely considered to be the
ATAD provision that has had the most impact. Not only is it affecting the largest number of
companies, but it also emerges as the rule generating the strongest effects on taxpayer behaviour
and on protecting Member States’ tax bases. At the same time, it is often viewed as insufficiently
targeted and the extensive flexibility afforded to Member States has created an excessive
fragmentation in the implementation of the rule. While the minimum standard in ATAD leaves
room for Member States to choose different options and apply supplementary rules to support
domestic policy goals, such practices cause additional and avoidable regulatory and compliance
cost.63 Moreover, in line with the findings of the evaluation, it appears that the Interest Limitation
Rule may continue to disadvantage capital-intensive sectors such as real estate, infrastructure, and
innovative start-ups that rely on long-term debt financing, as it fails to acknowledge changes in the
economic environment, particularly in a context of increasing interest rates.64
5.1.5. Hybrid mismatches
The ATAD establishes rules to neutralise hybrid mismatches, i.e., situations where the
qualification of a cross-border transaction between associated enterprises differs between the
relevant jurisdictions, resulting in a tax treatment that creates double non-taxation: (i) a double
deduction or (ii) a deduction without inclusion. In its current form, ATAD addresses different types
of mismatches, including both intra-EU arrangements and structures involving third countries.
According to the ATAD evaluation, rules on hybrid mismatches reinforce tax base protection,
although they remain complex and highly technical, posing challenges for both tax authorities and
smaller companies. The rules include intricate definitions, e.g., imported mismatches, structured
arrangements, and layered compliance requirements, e.g., tracing multi-tier supply chains, that
create excessive complexity and generate burdens for both taxpayers and tax authorities.65 This is
particularly the case of imported mismatches.
Standard hybrid mismatches arise from a direct inconsistency in the legal treatment of a certain
transaction between two jurisdictions. An imported mismatch arises where an EU company makes
a regular non-hybrid payment to a group company, or under a structured arrangement, and that
payment funds a hybrid mismatch that occurs outside of the EU. In that case, double non-taxation is
the result of the lack of hybrid rules in third states and takes place outside of the EU. As a result,
the EU company is not directly implicated in the mismatch. Based on the evidence from the
extensive stakeholder consultations, it appears that these arrangements are causing severe
difficulties for tax authorities, given that their EU footprint is a subsidiary that is normally deprived
of the necessary information which would allow identification of the imported mismatch.66
Identifying imported hybrid mismatches thus requires information and evidence of aggressive tax
63 Draghi Report – The Future of European Competitiveness, Part B, p. 320;
https://commission.europa.eu/document/download/ec1409c1-d4b4-4882-8bdd-
3519f86bbb92_en?filename=The%20future%20of%20European%20competitiveness_%20In-
depth%20analysis%20and%20recommendations_0.pdf#page=320 64 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 46-47. 65 Ibid., p. 48. 66 Simplifying EU rules on direct taxation – omnibus; Annex 2: Stakeholder consultation synopsis report.
schemes enacted in jurisdictions outside the EU to which national tax administrations do not have
ready or easy access. This would continue to considerably limit effective enforcement in the future.
5.1.6. Tax mergers
Under the TMD, companies engaging in cross-border mergers or reorganisations within the EU can
defer taxation on capital gains resulting from restructuring transactions, until the actual disposal of
the underlying assets. The TMD applies to companies listed in the annex to the TMD and covers a
number of pre-defined restructuring transactions, such as mergers, divisions, partial divisions, and
transfers of assets.
In addition, the Company Law Merger Directive67 contains a section on cross-border mergers of
limited liability companies. The scope and definitions of this part are generally aligned (with
possible slight wording differences) with content of the TMD. However, since its update through
the so-called ‘Mobility Directive’ in 201968, the Company Law Merger Directive introduced
additional transactions which are not covered by, or differ from, the TMD, namely: (i) simplified
mergers, (ii) divisions by separation, and (iii) cross-border conversions. As simplified mergers and
divisions by separation are not mentioned in the TMD, the tax treatment of these restructuring
operations is not covered therein, leaving it to Member States to decide how they should be taxed.
With respect to the cross-border conversion, the TMD only covers transfers of registered offices of
a European Company (Societas Europaea) or European Cooperative Society (Societas Cooperativa
Europaea). Consequently, the transfer of registered office following a conversion is not covered by
the TMD, leaving it also to Member States to decide how they should be taxed.
5.1.7. Dispute resolution mechanisms
Economic double taxation constitutes an important obstacle to the proper functioning of the EU
internal market, as it increases the tax burden on cross-border activities and creates uncertainty for
businesses operating in more than one Member State. Economic double taxation arises when the
same economic profit is taxed in two jurisdictions without a corresponding relief, for example
where a transfer pricing adjustment made by one tax administration is not matched by a
corresponding adjustment in the other jurisdiction.
To eliminate double taxation, taxpayers may rely on the Mutual Agreement Procedure (MAP), a
dispute resolution mechanism provided for in bilateral Double Tax Agreements (DTAs) on the
basis of Article 25 of the OECD Model Tax Convention69, under which the competent authorities
of the countries concerned seek to resolve the dispute by mutual agreement. Within the EU,
taxpayers also have access to two additional instruments: the EU Arbitration Convention and the
DRM.
The DRM was introduced to implement OECD BEPS action 14 and to address the limitations of
the Arbitration Convention by expanding the scope of covered disputes and strengthening the role
of taxpayers in the procedure. In particular, it allows taxpayers to trigger the arbitration phase
where tax administrations fail to reach an agreement within the prescribed timeframe, thereby
67 Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects
of company law. 68 Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive
(EU) 2017/1132 as regards cross-border conversions, mergers and divisions. 69 OECD (2025), The 2025 Update to the OECD Model Tax Convention, OECD Publishing, Paris,
https://doi.org/10.1787/5798080f-en.
helping to prevent cases of double taxation from remaining unresolved due to administrative
inertia.
Experience with the DRM remains relatively limited. This is partly because the DRM only applies
to complaints submitted from 1 July 2019 onwards and concerns disputes relating to income or
capital earned in tax years starting on 1 January 2018. In addition, tax disputes typically arise
several years after the relevant tax year, following audits and the completion of domestic
administrative procedures. Nonetheless, available figures suggest that the uptake of the DRM has
been slower than initially expected. In 2024, for example, 761 new complaints were filed under the
EU Arbitration Convention compared to 192 under the DRM, indicating that taxpayers still tend to
rely more frequently on the Arbitration Convention than the DRM.
A targeted public consultation conducted in 2024, together with extensive consultations with
Member States and private stakeholders, suggests that interpretative divergences may be
contributing to the limited use of the mechanism. For example, the DRM requires taxpayers to
submit the complaint simultaneously to all relevant competent authorities, but the text does not
define what ‘simultaneously’ means. As a result, some tax administrations interpret this
requirement strictly, i.e., requiring submission on the same day, while others accept complaints
submitted within a shorter time span, such as within the same week or month. This divergence
creates uncertainty for taxpayers that may discourage the use of the mechanism.
5.2. Description of the policy options
As the Omnibus on Taxation has a singular overarching objective – i.e., simplification – the options
analysed below represent different means or ways of achieving the goal. Some of the policy options
thus feature alternative measures, i.e., where a choice can be made between two options. In other
cases, there is only one option which serves to achieve simplification. In this case, the alternative
would be to uphold the status quo as described in the baseline.
5.2.1. Withholding tax exemption for payments of interests, royalties and dividends
To address the issues related to the application of the IRD and the PSD, particularly as regards
eligible companies, the material scope, and the procedural aspects as outlined in Section 5.1, two
alternative options should be considered. Option 1A regarding procedural aspects would not only
require amendments to the IRD and PSD, but also to the FASTER Directive, in order to facilitate
the functioning of the IRD and PSD.
Figure 3: Simplification options for IRD and PSD
5.2.1.1. Option 1A: Full tax exemption accompanied by procedural adjustments
This Option aims to extend the material scope of the IRD and PSD by providing an exemption from
withholding tax for payments of interest, royalties and dividends, regardless of holding percentage,
between companies within the EU.70
In parallel, the Annexes to each Directive listing eligible companies would be updated and aligned.
Ideally, the wording should accommodate future forms and make it easier for businesses to
determine whether they fall in or out of the scope of the Directives. This would be a direct response
to many private stakeholders who emphasised the need for consistency on entitlement and
explicitly referred to certain business forms which are currently not covered by all Directives.
Several Member States also agreed that additional forms should be included in the Annexes.
In this way, cross-border payments of interest, royalties and dividends within the EU would be
more attractive and the compliance burden for businesses would be reduced by eliminating some of
the existing requirements, notably the holding percentage71.
Option 1A would be paired with a protective measure aimed to prevent instances of double non-
taxation on interest and royalty payments made outside of the Union, i.e., from an EU Member
State to a third country. As a matter of principle, Member States would continue to apply their
national rules, including those resulting from applicable tax treaties, to interest and royalty
payments made to third countries. However, the protective measure would be triggered where the
third country in which the recipient is established does not levy corporate income tax or applies a
zero corporate income tax rate (‘zero-tax jurisdiction’) and in addition, no withholding tax is levied
in the EU Member State.
The objective of this measure would be to ensure that interest and royalties are subject to taxation at
least once. The measure would take the form of either a mandatory withholding tax on such
payments at a rate chosen by each Member State individually or the denial of deductibility for tax
purposes at source. No similar measure would be necessary to address risks of double non-taxation
as regards profit distributions (dividends), as these are already taxed within the EU. A more
consistent system of withholding taxes on royalties and interest payments towards low-tax
jurisdictions will lower the likelihood of profit shifting by MNEs.
Compliance rules would also be put in place to ensure that the exemption does not require any
unnecessary compliance. Currently, Member States often impose burdensome upfront procedures
as a condition for accessing the benefits of the IRD and PSD. The extension of the scope of the IRD
and the PSD should therefore be accompanied by a prohibition for Member States to impose any
upfront procedures. The paying company would have to assess whether the conditions to benefit
from the exemption are fulfilled by the beneficiary, and tax authorities would control a posteriori
whether such conditions are actually met. However, for publicly traded securities, portfolio
investors whose ownership of the paying company is below 5% are usually unknown to the paying
company because shares are commonly held in nominee-registered accounts (investors are only
required to disclose ownership above 5%). As a result, the paying company would not be able to
assess whether the conditions of the PSD and IRD are met by the investor, and the exemption
70 For these purposes, the concept of company should be interpreted in accordance with the definitions and scope set
out in the Interest and Royalties Directive and the Parent and Subsidiary Directive. 71 Today, 14 Member States already give exemption from withholding tax on the basis of bilateral DTAs or national
legislation for intra-EU interest payments, 8 for royalties, and 9 for dividends.
cannot be applied upfront. In such cases, the FASTER Directive could bring simplification through
its standardised fast-track procedures. (i.e., ‘relief at source’ procedure or ‘quick refund’
procedure). Yet, in its current wording, the FASTER Directive allows Member States to deny,
completely or partially, the application of the standardised fast-track procedures where an
exemption from withholding tax is claimed. This wording would, de facto, prevent the benefit of
these fast-track procedures to eligible payments exempted under the IRD and PSD. Therefore, the
changes to the IRD and PSD would also be accompanied by an extension of the scope of the
FASTER Directive to the latter. Otherwise, registered investors will not always be able to rely on
the procedures provided under the FASTER Directive. The existing option in the PSD which allows
Member States to limit the participation exemption to 95% would be limited to holdings exceeding
10% of the capital. The reason for this 10% holding condition is that management costs related to
the holding of shares would mostly be incurred in cases where the participation is substantive, not
for portfolio investments. It follows that the participation exemption would be full (100%) for
holdings below 10%.
All in all, this option would provide for a more facile treatment of interest, royalties and dividends
in the internal market, supporting investment and helping advance key objectives of the Savings
and Investment Union.72
5.2.1.2. Option 1B: Alignment of scope and procedures
Under Option 1B, the corporate tax directives would maintain minimum holding requirements for
the benefit of withholding tax exemptions. However, to improve consistency, the holding
requirement of the IRD would be aligned with that of the PSD, i.e., the holding percentages would
be adjusted to 10% and the IRD would be extended to include indirect holdings. In addition, and
similar to Option 1A, the Annexes of both directives listing eligible companies would be updated
and aligned. In this way, corporate tax directives would have a common and consistent approach to
companies that can benefit from the withholding tax exemption.
Similarly to Option 1A, the procedural rules for obtaining the tax exemption under the IRD and
PSD would be adjusted to ensure that Member States do not impose any upfront procedures as a
condition for accessing the exemption from withholding taxes. Here again, the taxpayers would
self-assess that it is within the scope and meets the conditions of the PSD and IRD and would apply
the exemption directly, as the case may be. Under this option, however, the FASTER Directive
would not be amended, since the withholding tax exemptions set out in the IRD and PSD would not
extend to investors holding less than 5% of publicly traded securities.
5.2.2. Taxation of Controlled Foreign Companies (CFCs)
To address the issues related to the application of the CFC rules in the ATAD, which are outlined in
Section 5.1, several options could be considered.
72 Among those objectives is the breaking down of barriers to integrated financial markets and supporting productive
investments, as explained here: https://finance.ec.europa.eu/regulation-and-supervision/savings-and-investments-
union_en#what
Figure 4: Simplification options for CFC rules in ATAD
5.2.2.1. Option 1: Reduce implementation options
In the transposition of the CFC rules in the ATAD, Member States can choose between Models A
or B, or a combination of Models A and B, to determine what type of low-taxed CFC income
should be attributed to the parent company.
Overall, Model A is generally more stringent and seen as providing greater legal certainty, while
Model B is criticised by civil society organisations for being easier to circumvent, less legally
certain and more complex. In addition, Model B, by and large, basically applies transfer pricing
adjustments. It therefore has little added value, considering that Member States already apply
transfer pricing, and its effectiveness is highly dependent on the features of the (diverging) national
transfer pricing norms and practices of application. This was observed in Belgium which had
implemented Model B in 2017 but found it inefficient as it did not add much to the transfer pricing
rules. Belgium then switched over to Model A in 2019.73
On this basis, Option 1 entails making CFC rules based on Model A mandatory, meaning Member
States will no longer be able to apply Model B for CFC purposes. This option would provide
simplification in the application of CFC rules within the EU while still ensuring to maintain the
highest level of protection for EU Member States.
5.2.2.2. Option 2: Address overlap with Pillar 2 rules
As described in Box 2 and Section 5.1.2.2, CFC rules and Pillar 2 use similar mechanisms to
capture and tax low-taxed profits within company group structures. Although their design differs in
several ways, the parallel application of the two sets of rules results in economic double taxation
and duplicative administrative burdens. To address this, two options could be considered:
2A. Carve-out of Pillar 2 companies
Option 2A introduces a carve-out from CFC legislation only for MNEs whose (low-taxed) CFCs
are fully subject to Pillar 2. If a group is headquartered in a Side-by-Side (SbS) jurisdiction
(currently, only the United States), the Income Inclusion Rule (IIR) and Under-Taxed Profit Rule
(UTPR) which are used to reallocate taxable income from a low-taxed entity to another entity in the
group, will not apply to any of its subsidiaries. As such, the policy rationale would not apply to
these structures in the same way, as it does for other entities in scope of the Pillar 2 Directive. To
avoid jeopardising the level of protection imposed under ATAD, the CFC carveout would therefore
73 Deloitte (2023), Belgium parliament adopts law introducing model A CFC rules.
only be extended to entities that are part of SbS groups where the relevant low-taxed subsidiary is
subject to QDMTT.
2B. Inclusion of QDMTT in CFC calculation
Under Option 2B, Member States would take into account the QDMTT liability, in conjunction
with corporate income tax, to determine whether an entity is a low-taxed CFC and, consequently,
whether the application of the CFC rules is triggered.
Adding the QDMTT to the corporate tax liability would reduce the number of cases in which CFC
rules are triggered. CFC rules would continue to apply where Member States operate a higher CFC
effective tax rate. In those cases, credit would be granted for the QDMTT tax due, thereby ensuring
that the simultaneous application of QDMTT and CFC legislation does not result in double
taxation. Such approach is also consistent with the OECD Guidance on this topic, which does not
allow a pushdown of the CFC tax when computing the effective tax rate for the purpose of applying
QDMTT.
5.2.2.3. Option 3: Carve-out of SMEs
CFC taxation is justified only insofar as it targets arrangements lacking genuine economic
substance. Subjecting small businesses to complex foreign-income imputations, despite low
structural aggressive tax planning, risks overshooting that anti-abuse purpose. Compliance costs are
especially heavy on SMEs. Therefore, in line with similar exemptions in this initiative and in other
areas of taxation and EU law, this Option proposes to also carve out SMEs from the scope of CFC
rules in the EU.
5.2.3. Expensing of assets related to research and development (R&D)
To address issues related to expensing of assets related to R&D as set out in Section 5.1.3, two
options could be considered:
Figure 5: Simplification options for expensing of R&D assets
5.2.3.1. Option 1A: Immediate expensing in the EU
The diverging national tax depreciation treatments for assets related to R&D create an obstacle to
cross-border activity in the internal market and bring unwelcome compliance costs for EU
businesses. Taken together with the harmonised treatment of such measures under Pillar 2 and the
more beneficial outcomes in key partner economies, such as the UK and the United States, this
fragmentation also undermines the EU’s broader competitiveness objectives. Yet, despite the
clearly cross-border and international dimension of R&D activity, no common EU framework
currently exists to address it.
Against this background, and in line with the objectives of simplification and competitiveness, the
Option would establish a common minimum framework at EU level for the tax treatment of capital
expenditure on tangible assets used for R&D. It would, allow EU businesses to fully deduct the cost
of qualifying R&D-related tangible assets in the year the expenditure is incurred, rather than
depreciating the costs over time.
In particular, while immediate expensing of R&D expenditure strengthens innovation incentives by
allowing firms to deduct the full cost of research investments in the year they are incurred, standard
depreciation rules that spread deductions over multiple years erode the present value of those
deductions once adjusted for inflation and the opportunity cost of capital. The Option directly
addresses this limitation.
Furthermore, immediate expensing of R&D expenditure improves cash flow at precisely the stage
when firms are often most financially constrained, thereby easing financing conditions for high-
risk, long-gestation research projects. This effect is particularly consequential for early-stage and
pre-revenue companies, whose ability to sustain investment in innovation frequently depends on
maintaining adequate liquidity throughout extended development periods prior to the generation of
taxable income.
The Option would define the scope of qualifying expenditure and set out harmonised rules on the
timing of the deduction, including the possibility to claim it in the year that the expenditure is
incurred or to carry it forward over a defined period. It would also introduce safeguards to prevent
misuse of the allowance, including minimum use requirements for R&D purposes and a clawback
mechanism where assets are disposed of.
The Option would contribute to simplification by removing a tax obstacle in the internal market,
thereby lowering compliance burdens, increasing predictability for investors, and facilitating the
scaling-up of R&D activities within the internal market. At the same time, the measure would
strengthen the EU’s competitiveness, including vis-à-vis major international partners such as the
United States and the UK, by ensuring that all businesses benefit from a baseline tax environment
supportive of innovation, while still allowing Member States to maintain or introduce more
favourable regimes to attract and retain high-value R&D investment in an increasingly competitive
international environment.
The question of whether to cover both tangible and intangible assets was examined. But extending
the measure to intangibles would require a significantly more far-reaching intervention in the
current tax landscape, given the wide variety of instruments Member States currently apply in that
area (in addition to the full deductibility of researchers’ salaries, there are measures such as lower
tax rates, super-deductions, or tax credits). A broader measure covering both tangible and
intangible assets would also entail substantially higher revenue implications for Member States.
The targeted approach, limited to tangible assets, is therefore both proportionate and more
politically feasible, while still delivering a meaningful simplification and improvement in the
operating environment for EU businesses.
Besides, accelerated depreciation and immediate expensing schemes for tangible assets are
unaffected by Pillar Two. Against this background, these tax incentives could then help sustain
investment after Pillar Two is implemented.74
Overall, this approach would ensure a coherent common baseline for the tax treatment of capital
expenditure on tangible R&D assets in the internal market, reducing compliance complexity for
businesses operating cross-border, strengthening the EU's competitiveness vis-à-vis its international
partners. It would also allow Member States to maintain or further develop broader innovation
incentives within a coordinated framework, thereby respecting key messages, such as strengthening
competitiveness while keeping flexibility and simplicity, expounded by the Member States in the
Council Conclusions on tax incentives to support the Clean Industrial Deal.75
5.2.3.2. Option 1B: Keep R&D expensing defined strictly at national level
The alternative option would be to maintain the status quo – i.e., continue to allow Member States
to operate their own national frameworks for the tax treatment of capital expenditure on tangible
R&D assets. This would, however, retain an entirely fragmented approach across the EU and
sustain the possible disadvantage that currently exists when compared to other global economies
who enact a more unified jurisdictional approach to R&D incentives. As a result, such option would
fall short of the objectives of simplification and competitiveness, as administrative complexity for
cross-border activities would remain unchanged and divergences in the tax treatment of R&D
investment within the internal market would be maintained.
5.2.4. Interest Limitation Rule
To address the issues related to the application of the Interest Limitation Rule in the ATAD, which
are outlined in Section 5.1, several options could be considered.
74 Heckemeyer, J. H., Nicolay, K., Spengel, C., Steinbrenner, D., and Wickel, S., 2025, Tax
Incentives and Investments in the EU: Best Practices and Ways to Stimulate Private Investments
and Prevent Harmful Tax Practices, Publication for the Subcommittee on Tax Matters, Policy
Department of the Directorate for Economy and Growth) , Directorate-General for Economy,
Transformation and Industry, European Parliament, Luxembourg.
75 Council conclusions on tax incentives to support the Clean Industrial Deal, ST 13501/25;
https://data.consilium.europa.eu/doc/document/ST-13501-2025-INIT/en/pdf
Figure 6: Simplification options for the Interest Limitation Rule in ATAD
5.2.4.1. Option 1: Carve-out of SMEs
As most SMEs would tend to have borrowing costs below the EUR 3 million threshold annually,
Option 1 could propose to make the de minimis safe harbour mandatory and, thereby, de facto
carve out most SMEs from the application of the Interest Limitation Rule. This would differ from
the status quo, which allows Member States a more stringent application of this rule, and would
thus allow most SMEs to fully deduct their exceeding borrowing costs, while also ensuring a
consistent approach across the Single Market.
In order to balance the simplification objective with the need to maintain the high level of
protection created by the ATAD rules, the carve-out would only be applicable to SMEs as they
have few incentives and/or resources to engage in tax planning using interest payments. According
to the ATAD evaluation, larger businesses, especially MNEs, are more likely to engage in
aggressive tax planning due to their scale and global operations, which provide more opportunities
to exploit tax arbitrage opportunities. The data gathered for the ATAD evaluation shows that the
largest MNEs are responsible for the majority of shifted profit. In particular, 60% of the total profit
identified as shifted (EUR 159 billion out of EUR 270 billion) relates to the largest 10% of MNEs
covered by this dataset.76
Considering that inflation may increase future borrowing costs, the de minimis safe harbour could
also include a mechanism to regularly update the threshold based on economic indexes, and a pre-
agreed formula, as is foreseen by the OECD BEPS Action 4. In such way, the de minimis safe
harbour would be made dynamic and automatically adjusted.
5.2.4.2. Option 2: Mandatory application of 30% EBITDA cap
Under this option, the 30% EBITDA cap would be the only possible fixed ratio for deductibility of
interest expenses. As it currently stands, business may deduct up to 30% of their EBITDA. By
setting a fixed ratio for the maximum deductible interest expense, clarity and equal treatment would
be improved with a common standard rather than different variations across the EU.
The current interest limitation set at 30% of a company’s EBITDA is designed in a way which
ensures that most companies are able to fully deduct their third-party interest expenses. The fixed
76 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market, p. 39.
ratio rule stems from the OECD’s BEPS Action 4, where it is recommended to set a coordinated
fixed ratio benchmark to reduce the risk that countries will be driven to apply a ratio which is too
high to address base erosion and profit shifting risks. On this basis, in 2016, the OECD
recommended applying a net interest/EBITDA ratio set at fixed ratio within a corridor of 10% to
30%. Once a benchmark fixed ratio exceeds 30%, the rate at which more groups are able to deduct
all of their net third party interest expense increases more slowly.77
More recent data shows that a 30% threshold would allow most groups to fully deduct their third-
party interest expenses. As a result, the is no need to adjust the 30% threshold to retain its objective.
5.2.4.3. Option 3: Reduce implementation options
This option would seek to limit the implementation variations of the Interest Limitation Rule by
making two or three of the current options mandatory.
Firstly, the group escape rule would be mandatory. As it currently stands, Article 4(5) of the
ATAD provides Member States with the option to introduce a group escape rule for taxpayers that
are members of a consolidated group for financial accounting purposes. This exclusion can take
either of the two following forms: (i) the equity escape rule, under which the Interest Limitation
Rule does not apply if the company can demonstrate that its equity over total assets ratio is broadly
equal to, or higher than, the equivalent group ratio, or (ii) the group ratio rule, under which a
taxpayer can deduct higher amounts of exceeding borrowing costs, taking into account the
indebtedness of the overall group at worldwide level.
Secondly, the carry-forward mechanism would be mandatory to ensure that the rule
accommodates fluctuations in taxpayer’s profitability and offers support to startups.
Thirdly, the exclusion for long-term public infrastructure projects could be reconsidered. It
could, for instance, also be possible to exclude social housing activities. Some Member States have
already introduced a similar exclusion. Providing legal clarity on this possibility would contribute
to the Commission’s policy on addressing the housing crisis and ensure coherence of the approach
across Member States, which would significantly facilitate operations on a cross-border basis for
companies supporting this critical policy area. In addition, there could be a separate, mandatory
exclusion to cover the defence sector, which would also be in line with the Commission’s policies
on addressing security and defence challenges, and be consistent with the European Council’s call
to accelerate the work on all strands to decisively ramp up Europe’s defence readiness within the
next five years78. In light of that very call, this particular exclusion would, however, be applied on a
temporary basis, allowing for the EU to review whether targeted support of this policy remains of
equal priority over the long-term.
By making such rules mandatory, this option would make the application of the Interest Limitation
Rule clearer and more streamlined across the EU, thus addressing some of the issues linked to the
current flexibility of the overall rule which were identified in the ATAD evaluation while
preserving the anti-BEPS effect and well-functioning of the rule.
77 OECD (2016), Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4 - 2016
Update: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris,
https://doi.org/10.1787/9789264268333-en. 78 Council Conclusions of 20 March 2025 (document EUCO 1/25)
5.2.4.4. Option 4: Carve-out of low-risk third-party loans
The current interest limitation set at 30% of a company’s EBITDA is determined in a way that
should ensure that most third-party debt is deductible as loans between independent parties
generally cause little to no risk of tax speculation. Under this option, the deductibility of third-party
debt could be extended by a carve-out from the scope of the Interest Limitation Rule.
To preserve the objective of the Interest Limitation Rule, i.e., to limit the extent to which groups
can use intragroup interest expense to claim total net interest deductions in excess of their net third
party interest expense, a restrictive definition of third-party loans would be introduced. Under this
definition, the creditor should not be an associated enterprise or an entity of the same consolidated
group for financial accounting purposes of the debtor, and the debtor should use the debt to finance
its own activities, with no possibility of on-lending within the group.
Finally, an exclusion of third-party loans would also have automatic implications on the treatment
of standalone entities, since these entities, by definition, exclusively borrow from third parties.
Standalone entities would thus be de facto out of scope of the ATAD, which would make it
redundant to maintain the optionality of the current exclusion.
5.2.4.5. Option 5: Exemption in case of profitability shock
To ensure that the Interest Limitation Rule does not impact taxpayers beyond its objective, notably
by placing additional pressure on industries in situations of economic distress, a safety net could be
introduced: if a taxpayer’s EBITDA is reduced by a certain percentage (e.g. 50%) in a year, no
Interest Limitation Rule applies to this taxpayer in that year. The EBITDA reduction would be
assessed at entity level.
5.2.5. Hybrid mismatches
To address the issues related to the excessive complexity and burden arising from hybrid
mismatches, which are described in Section 5.1.5, two options could be considered.
Figure 7: Simplification options for rules on hybrid mismatches
5.2.5.1. Option 1A: Remove imported mismatches
The ATAD rules on imported mismatches are rarely applied due to the difficulties that tax
authorities encounter in obtaining the necessary information to identify the actual mismatch. This is
because the EU footprint of these arrangements is limited, as most of the steps take place in
jurisdictions outside the EU. There is therefore minimal access to information to sustain findings.
On this basis, keeping the rule on imported mismatches would maintain an administrative
obligation in force for taxpayers without, in practice, contributing to sustaining the current level of
protection against tax planning practices in the EU.
5.2.5.2. Option 1B: Keep imported mismatches
The alternative option would be to maintain the status quo – i.e., continue to apply the rules on
imported mismatches. This would, however, imply a compliance burden on businesses and tax
administrations to sustain a rule that is rarely applied, given the challenges already explained
above, and which is therefore ineffective in practice.
5.2.6. Tax mergers
To facilitate the functioning of the tax neutrality for mergers etc. within the EU, two alternative
options could be proposed:
Figure 8: Simplification options for TMD
5.2.6.1. Option 1A: Dynamic Reference to the Mobility Directive
Option 1A would introduce a dynamic link with the Company Law Merger Directive as amended
by the Mobility Directive would allow for a full alignment of the Directives and prevent any
mismatches should the Company Law Merger Directive be further amended in the future.
Concretely, the TMD would include a direct cross-reference the Company Law Merger Directive.
On the one hand, the option would ensure that there is no immediate taxation when the new
restricting transactions, i.e., simplified mergers, divisions by separation, and cross-border
conversions, are carried out in the internal market. This would provide for a uniform tax treatment
of all restructuring transactions that are allowed under the Company Law Merger Directive as
amended by the Mobility Directive. On the other hand, this option could lead to uncertainty in the
future, leaving the TMD too open to any future changes to the Company Law Merger Directive,
including changes which may not always be adequate or necessary from a tax point of view.
5.2.6.2. Option 1B: Addition of new restructuring transactions to the TMD
Option 1B would extend the scope of the TMD by including the new restructuring transactions, i.e.,
simplified mergers, divisions by separation and cross-border conversions, which can be found in
the Company Law Merger Directive as amended by the Mobility Directive.
The introduction of cross-border conversions would effectively broaden the scope of the existing
rules on transfers of office, ensuring that all transfers are governed by a uniform framework. This
would apply regardless of the company’s legal form (where covered in the annex) and irrespective
of whether a prior legal form conversion is required beforehand.
Similar to Option 1A, Option 1B would provide for a uniform tax treatment of all restructuring
transactions that are allowed under the Company Law Merger Directive as amended by the
Mobility Directive. In addition, this option would cater for specific tax needs, while providing legal
certainty to operators across the internal market.
5.2.7. Dispute resolution mechanisms
As outlined in Section 5.1.7, the use of the DRM is affected by a number of divergent interpretative
issues that create tax uncertainty. Two simplification options could therefore be considered:
Figure 9: Simplification options for DRM
5.2.7.1. Option 1: Targeted legislative amendments to clarify procedural rules
This option would propose targeted legislative amendments to address the identified interpretative
issues where amendments to the text of the DRM are needed to better clarify concepts and increase
the tax certainty of the procedure. The targeted amendments would mainly focus on clarifying key
procedural aspects of the complaint phase, including the meaning of the requirement to submit
complaints “simultaneously” (Art. 3(1)), the consequences of failing to do so (Art. 3(1)), the
possibility for taxpayers to remedy or resubmit incomplete complaints (Art. 3(4)), and the
identification of the “affected person” required to lodge a complaint in multi-entity situations (Art.
3(1)). Further amendments would address the interaction between the DRM procedure and other
ongoing dispute resolution procedures (Art. 16(5)), and procedural aspects of the dispute resolution
stage, such as objections to the appointment of a person of standing (Art. 8(4–5)). Overall, these
amendments would aim to remove ambiguities in the DRM and ensure a clearer and more
predictable application of the procedure across Member States.
5.2.7.2. Option 2: Use of Council implementing acts
For issues that are inherently more complex and where uniform application cannot be achieved
without binding rules, Council implementing acts could be used as a more appropriate tool. This
would concern cases in which interpretative difficulties cannot be resolved through targeted
legislative amendments alone but require more detailed binding provisions to ensure consistent
implementation across Member States.
As a result, this option would include a provision empowering the Council to adopt Council
implementing acts to ensure a more uniform implementation of the DRM and to clarify certain
operational aspects of the procedure laid down in the DRM , including: (1) the communication flow
between competent authorities; (2) the application of the simplified procedure for SMEs; and (3)
the interaction between procedures under the DRM and proceedings before national courts.
5.3. Options discarded at an early stage
5.3.1. Abolish CFC rules
According to the ATAD evaluation, the rationale for retaining the CFC rules in a post-Pillar 2
environment is weakened. For groups within the scope of Pillar 2, the introduction of the Pillar 2
global minimum tax makes CFC rules partially redundant, despite differences in scope and
functioning mechanisms. For smaller groups, outside the scope of Pillar 2, i.e., with a global
turnover below EUR 750,000,000, academic literature suggests that tax avoidance is primarily
concentrated among the largest and more complex structures, thereby calling into question the
proportionality and effectiveness of maintaining the CFC rules in ATAD. Therefore, the possibility
of discontinuing the CFC rules in ATAD could be considered79.
However, this option has been discarded. While the introduction of Pillar 2 global minimum tax
rules and the concentration of tax avoidance among larger and more complex MNE groups call into
question the current scope of CFC rules in ATAD, a complete abolition of such rules would create
a significant gap in the EU anti-avoidance framework. While tax avoidance risk may be limited for
SMEs, full abolition of CFC rules would remove a key safeguard for MNE groups not effectively
covered by the scope of Pillar 2 either due to their relatively smaller size, i.e., with a global
turnover close to but still below EUR 750,000,000, or specific structure. This option would,
therefore, not be fully in line with the general objective of maintaining high tax standards in the
EU.
5.3.2. Abolish hybrid mismatches for Pillar 2 companies
During the stakeholder consultations, some businesses argued that the rules on hybrid mismatches
in the ATAD should be abolished for companies within the scope of Pillar 2, as consistent
treatment in accounting should ensure sufficient taxation at 15%. On this basis, the abolishment of
the rules on hybrid mismatches for Pillar 2 companies could be considered.
However, this option has been discarded. Pillar 2 may ensure that the companies in scope pay a
minimum level of tax but does not rectify the underlying differences in how financial instruments,
entities, or transfers are treated under national tax rules. As a result, without the rules on hybrid
mismatches, some groups of companies in scope of Pillar 2 may still have an incentive to exploit
these differences, in order to erode their tax base in Member States where they pay an effective tax
at a level which is above the minimum or to reduce the income included in the computation of the
top-up tax amount, where applicable. This option would, therefore, lower the current level of
protection against tax planning practices in the EU, which goes against the general objective of
maintaining high tax standards in the EU.
5.3.3. Abolish the Interest Limitation Rule for Pillar 2 companies
During the stakeholder consultations, some businesses argued that since Pillar 2 already neutralises
incentives for profit shifting through intra-group financing by ensuring a minimum 15% effective
tax rate, the Interest Limitation Rule in the ATAD could be abolished for Pillar 2 companies.
According to businesses, this would deliver important simplification and competitive gains without
undermining anti-avoidance objectives.
79 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules against tax
avoidance practices that directly affect the functioning of the internal market.
Nonetheless, this option has been discarded. The Interest Limitation Rule protects the tax base.
While Pillar 2 sets a minimum global tax rate, the Interest Limitation Rule ensures that the base to
which the minimum effective tax rate applies is not eroded through excessive interest expenses.
Consequently, the Interest Limitation Rule and Pillar 2 are not alternatives, and such option would
lower the current level of protection against tax planning practices in the EU, which goes against
the general objective of maintaining high tax standards in the EU. Moreover, removing the Interest
Limitation Rule only for large companies would thus also provide those entities with an advantage
over smaller competitors, who are generally already in less competitive financial positions and
would then additionally suffer more stringent borrowing conditions than larger competitors.
Accordingly, this would negatively impact the level playing field in the EU.
5.3.4. Carve Pillar 2 companies out of the ATAD
During the stakeholder consultations, businesses argued that the introduction of Pillar 2 ensures that
companies worldwide are subject to a baseline level of taxation. According to them, this
development creates redundancies in anti-abuse regulations, leads to unnecessary duplication,
heavier compliance burdens and competitive disadvantages for EU-based groups.
However, this option has been discarded. Although Pillar 2 and the ATAD share common
objectives, they differ in scope and do not necessarily address the same issues. As illustrated above,
even with the implementation of Pillar 2, certain ATAD measures remain necessary to ensure that
BEPS risks are minimised. A full exemption for Pillar 2 companies from the whole of the ATAD
would substantially lower the current level of protection against tax planning practices in the EU,
which goes against the general objective of maintaining high tax standards in the EU.
6. WHAT ARE THE IMPACTS OF THE POLICY OPTIONS?
6.1. The initiative to be assessed
As set out in the above chapters, the Omnibus on Taxation will cover all EU corporate tax
Directives80 and aims to potentially eliminate, amend or harmonise a wide array of tax rules. It will
bring simplification for EU taxpayers with the objective of significantly lowering compliance and
administrative costs, boosting EU competitiveness, and facilitating investment, while ensuring that
the EU’s high tax standards are maintained.
This Chapter explores the impact of the envisaged measures, which constitute responses to the
baseline and have been individually outlined in Chapter 5. It first assesses the economic impact of
the different policy options on the taxation of cross-border interest, royalty and dividend payments
(Section 6.2.1 below), and the taxation of controlled foreign companies (CFC) belonging to groups
subject to Pillar 2 (Section 6.2.2 below). The assessment is conducted both in terms of direct cost
savings and broader, long-term economic impact. In addition, the analysis covers the aggregate
impact in terms of compliance costs of the remaining options (Section 06.2.5 below) and the
economic impact of the envisaged immediate expensing of R&D-related assets (Section 6.2.3 0
below) as well as certain changes to the Interest Limitation Rule (Section 0 below). This analysis is
supported by the methodological and analytical approaches explained in Annex 4 to this report.
Finally, this Chapter provides general remarks on the limits assessing the impact of the Omnibus on
80 To recall, the Omnibus aims to amend the IRD, PSD, FASTER, ATAD (both directives), TMD, and DRM. The Pillar
2 Directive plays a key role, and interacts in some instances with these rules, but will not be amended.
tax administrations, and briefly explores potential environmental, social and fundamental rights
impacts.
In this way, the outcome of the analysis in this chapter can be used to compare the options, as
designed in three versions (Chapter 7), in order to subsequently determine the preferred way
forward for this initiative (Chapter 8).
6.2. Economic impacts of policy options
The impacts of the policy options are assessed based on the material (monetary) and administrative
impact for businesses, the EU and its Member States, in addition to, where possible, macro-
economic impacts. Several methods were used to analyse the impact of the different policy options,
namely desk research, stakeholder feedback through a call for evidence and extensive
individual/multilateral meetings, discussions with Member States, and own calculations. The
specific methodology and analysis used will either be explained directly in this Chapter or detailed
in Annex 4. Among others, the analysis also uses CORTAX computable general equilibrium (CGE)
modelling, provided by the JRC, to assess macro-economic impacts.
In brief, there are two types of data available, on the basis of which assessments of the policy
options and related considerations are conducted: macro data derived from official statistics and a
large database on individual companies (micro data).
However, the general scarcity of available data is a central problem that affects the ability to
accurately assess the impacts and revenues related to certain current policy options at a sufficiently
granular level. This is demonstrated in the difficulties to identify companies’ specific financial and
portfolio activities in a sufficiently segmented way – a way that would allow to assess the various
options under the Interest Limitation Rule in more detail, or to know the exact number of taxpayers
subject to CFC rules, and how often the CFC rules are therefore applied. In absence of such
granular data, the impact of the exemption from CFC rules for certain companies cannot be
estimated with greater precision.
More generally, a higher level of granularity would be needed to accurately quantify each problem
and its related impacts. Such data is, however, available only at the taxpayer level or, to a certain
extent, in the hands of national tax administrations; given the proprietary and confidential nature of
such data (e.g., to whom (how many companies), at what rate (in which jurisdiction), and how
many times CFC is applied, or the interest on loans that companies actually face and size of these
loans for the Interest Limitation Rule related analysis), it is not available to the Commission. The
Commission has thus sought data input from certain companies in order to conduct a reality-check
on certain assumptions, and in order to extrapolate this information to a broader taxpayer base
where possible. But this approach has its limitations. All estimates provided in this chapter must,
therefore, be interpreted with due care. As stated, details on the methodology used in various
calculations are further elaborated in Annex 4. Section 6.3 also addresses the limits of quantifying
the impact of the measures on tax authorities.
6.2.1. Withholding tax exemption for payments of interest, royalties and dividends
More detailed information on the methodology used and analysis for the measures proposed in
relation to withholding taxes can be found in Annex 4, Section 2 and Section 5.1.
6.2.1.1.Option 1A: Full exemption from withholding tax accompanied by
procedural adjustments
Impact on companies
In a first instance, the impact of the measure has been assessed from a micro-economic point of
view, taking into account both the direct compliance and administrative cost for corporate
taxpayers themselves, as well as the indirect impact in terms of opportunity costs and effects of
foregone tax payments. Section 2 of Annex 4 provides an overview in different steps of the
methodology used to calculate this81.
In brief, one of the specific objectives of the Omnibus on Taxation is to eliminate unnecessary EU
tax compliance burdens. To estimate the potential impact of this in relation to interest, royalties and
dividend flows in the EU, Annex 4 first describes the cost characteristics, before estimating the
importance of the respective flows. Next, the tax relief at stake and potential cost reduction from
the measure is calculated: in doing so, the analysis estimates that the direct cost relief from a full
exemption on interest, royalties and dividends would amount to annual savings of approximately
EUR 0.7 billion. This stems from the direct compliance cost savings as businesses would no longer
engage in complex refund procedures. Moreover, under the current WHT system, investors incur
opportunity costs because long procedures delay the refund of withholding taxes – money that
could have otherwise been invested in the interim. Introducing a full exemption from WHT would
correspond to important opportunity cost relief, leading to an estimated additional savings of
approximately EUR 0.7 billion per year for taxpayers.
Lastly, stakeholder feedback has confirmed that the complexity associated with seeking refunds for
withholding tax means that taxpayers often do not engage in these procedures, even in instances in
which they are entitled; this is referred to as foregone tax relief that would also no longer be
incurred. Introducing the exemption would correspond to additional estimated savings of about
EUR 3.8 billion, funds that would consequently remain with taxpayers. The calculations for these
respective estimates can be found in Section 2 of Annex 4, for interests/dividends and royalties
separately.
Overall, total cost reduction from the corporate taxpayer’s perspective (directly incurred costs,
opportunity costs, and savings on foregone tax relief) from the introduction of this option would
amount to an estimated EUR 5.34 billion per year for cross-border interest, dividend and royalty
payments within the EU, subject to the caveats as provided at the end of Section 2 of Annex 4.
Impact on tax administrations
Reducing, to zero, withholding taxes on intra-EU payments would also alleviate the administrative
burden for tax administrations. First and foremost, tax administrations would no longer need to
apply and manage multiple tax refund procedures tailored to different sets of international rules.
Today, refund procedures are cumbersome not only for companies to implement, but also for tax
administrations to enforce as they include receiving applications (often paper-based), verifying the
investor’s tax residence and his/her eligibility for refund, checking anti-abuse rules, coordinating
with other EU countries’ tax authorities, performing (re)payments and, possibly, handling
appeals/disputes. The introduction of this measure would thus significantly reduce the workload for
tax authorities, and substantially decrease their administrative costs and resource burden/efforts.
However, no quantitative projection is possible, given that costs related to certain administrative
81 See section “Cost estimates for companies: Full exemption of interest, dividend and royalty payments (Option 1A)”.
tasks/resource mobilisation inside the tax administrations are not publicly available, nor would they
be delineated by enforcement per specific legislative measure. Further details can be found under
Section 6.3 of this Chapter.
Impact on the economy
In addition to the above, the measure would have a long-term economic impact, which is simulated
using the macroeconomic model CORTAX. The model captures the long-run responses of
economic actors to changes in the tax environment and, therefore, allows the broader
macroeconomic effects of the reform to be taken into account. See Box 6 for a short description of
how the model works. In addition, Section 5.1 of Annex 4 also provides further information on the
use of CORTAX for modelling the tax exemption for interest, royalty and dividend payments and
lowering of compliance costs.
Box 66: Description of the CORTAX model
CORTAX is used for the macroeconomic impact analysis of various measures presented. It is a
computable general equilibrium model specifically designed to evaluate long-term economic
effects of corporate tax reforms in an international setting.82 Its main purpose is to simulate how
changes (policy shocks) in corporate taxation influence macroeconomic outcomes such as GDP,
investment, consumption, employment, as well as tax revenues. The model shows long-term
effects. This means that an initial equilibrium is ‘shocked’ by a policy measure, and the effects then
measured against the expectation that, in the long-term, the economy would converge towards a
new equilibrium. The macroeconomic outcome variables in the final steady state equilibrium are
then compared to the values in the initial equilibrium, i.e., before the policy measure was
introduced.
The model focuses particularly on the role of multinational enterprises and cross-border tax
planning, allowing researchers and policymakers to assess both national and international corporate
tax policy reforms. As such, CORTAX provides a comprehensive framework for analysing how
corporate tax policies, and changes to them, affect economic activity in an internationally integrated
economy. Its strength lies in its detailed modelling of multinational enterprises, profit shifting
behaviour and cross-border capital flows, which captures interactions between businesses,
households, and governments across multiple countries. The model is calibrated for thirty countries,
including the twenty-seven member states of the European Union, the United Kingdom, the United
States and Japan. In addition to these countries, the model includes a stylized tax haven that serves
as a destination for profit shifting.
CORTAX has been widely used in policy analysis, including by the European Commission, to
assess various economic, financial, and corporate tax initiatives.
Information on the use of CORTAX can also be found under Section 5.1 of Annex 4 to this report.
The simulation projects the abolition of the withholding taxes on the one hand, and the lowering of
compliance costs for companies, on the other. The lowering of withholding taxes could reduce CIT
revenue by an equivalent of -0.02% of GDP. However, the impact on overall tax revenue is a lot
82 For an overview see: CORTAX - Joint Research Centre - European Commission.
milder (-0.01% of GDP) due to the positive macroeconomic feedback effects of the measure. In
detail, this means that:
The proposed measure will stimulate overall economic activity, leading to an increase in the capital
stock (about +0.07%) and GDP (about +0.04%). Importantly, there will also be positive spillovers
for employment (about +0.02%). As economic activity expands, additional tax revenues are
generated from other sources, such as corporate income taxes and capital gains. This means that
any immediate revenue decline would be more than compensated by capital gains, investment,
growth, and increased revenue streams over time. The ensuing lower tax burden will improve the
EU’s competitiveness as investment is expected to increase, which will trigger higher growth and
create more jobs. Figure 10 details the findings of the simulation for this measure in the first row
(Option 1A).
Figure 10: Long-term impact of the WHT exemption, simulation with CORTAX, % change relative to initial situation (EU-27)
Source: European Commission, Joint Research Centre
These effects could be interpreted as lower-bound estimates. The positive feedback could be
stronger as new tax revenue could also be expected from the new ‘protective’ measure, namely the
withholding tax levied upon outbound royalty and interest payments towards zero-tax third country
jurisdictions as explained under Section 5.2.1.1 above. This effect is, however, not included in the
simulation. Today, outbound payments to Offshore Financial Centres (OFC) 83 are significant
according to Eurostat’s balance of payments statistics.84 Much of it is likely used as vehicles for
profit shifting to OFCs. This has direct implications for growth that go beyond the direct effect of
resources shifted offshore. A more comprehensive system for the application of withholding taxes
on outbound payments could therefore lead to more productive allocation of intangible assets, more
innovation in the EU, and ultimately higher growth.
6.2.1.2.Option 1B: Alignment of scope (holding requirement) and procedures
Impact on companies
This Option would seek to align the material scope of the IRD and the PSD, lowering the holding
requirement of the IRD to 10%. It would also align the procedures for obtaining the withholding tax
exemptions under the Directives. The effect of lowering of the holding requirements in the IRD to
10% is simulated such that it would correspond to the 10% requirement stipulated in the PSD. As
laid out in detail in Annex 4, Section 2 85, this option could affect about 7% of interest and royalty
payments, as those are the estimated shares of companies with holdings between 10% and 25%.
The scope of Option 1B is therefore significantly smaller than Option 1A because it applies to
fewer companies, therefore covering significantly fewer payments (see Figure 11).
83 A list of about 40 countries that provide financial services at disproportionate scale, relative to the size of their
economy. They are often characterised by very low or zero taxes on corporate profit. 84 This data has substantive quality issues and missing data points, especially when it comes to outflows to zero-tax
jurisdictions. This renders an accurate quantification of the magnitude of the problem not possible. 85 See Section “Cost estimates for companies: Alignment of scope and procedures (Option 1B)”
Option GDP Capital
Employ-
ment Wages
CIT
revenue
Overall
tax
revenue
1A Full exemption of WHT 0.043 0.070 0.024 0.016 -0.750 -0.027
1B Alignment of holding requirements 0.011 0.020 0.005 0.005 -0.191 -0.006
Figure 11: EU located shareholders with EU subsidiaries (Orbis): different scope of Options 1A and 1B
Taxud illustration
Estimates based on this approach indicate that lowering the holding percentage requirement for
entitlement to the IRD could result in cost savings of about EUR 1.5 billion per year for taxpayers
across the EU (Annex 4, Section 2). That is, given a more muted impact on taxpayers than under
full exemption, estimated cost savings are significantly smaller than estimated above for
Option 1A.
Impact on tax administrations and the economy
As this option does not remove the withholding tax, but simply aligns existent holding requirements
and procedures, cumbersome refund procedures would remain applicable across the EU – despite
the facilitated approach established as a result of the future introduction of the FASTER Directive.
This also means that tax administration will continue to have to administer refund procedures,
conduct audits, etc. as is currently the case. This likely means little impact on administrations other
than adjusting to the slightly altered rules.
The results of the Cortax simulation are detailed in Figure 10 above for Option 1B (second row).
The effect is significantly lower than for Option 1A, given that Option 1B would not expand the
scope of IRD and PSD as widely as is the case for Option 1A (Figure 11). Consequently, the
positive macro-economic feedback would be much less pronounced. As above under option 1A,
Section 5.1 of Annex 4 provides further information.
6.2.1.3. Why simplifying taxation of intra-EU payments matters
Either policy option considered results in significant annual cost savings for taxpayers: of about
EUR 5.34 billion per year under Option 1A, or EUR 1.5 billion per year under Option 1B. The
capital that corporate taxpayers would consequently get to keep can then be engaged in new
investment, contributing to more economic growth and higher employment, and boosting
competitiveness at a company level and for the EU. Analysis demonstrates that removing
withholding taxes on all cross-border payments of interest, royalties and dividends within the EU
(Option 1A) leads to tax savings that have significant positive long-term macro-economic effects
on investment and growth.
However, the overall economic impact of major simplifications that come with these measures go
beyond these measurable monetary cost savings. They include the long-term positive impact of
higher legal certainty for investors and companies that comes with a more uniform approach to
withholding taxes (notwithstanding the level of these uniform taxes). In Option 1A, cross-border
payments within the EU would no longer be subject to a complex system of withholding taxes and
refund applications that comes with it. While even domestic withholding taxes differ a lot across
EU Member States, bilateral treaties between countries make the system even more difficult to
access and engage with. With a uniform system in place, investors would no longer need to
navigate through numerous sets of rules in bilateral tax treaties – and no longer engage in complex
compliance and cost-heavy refund procedures. This leads to a more straightforward compliance
framework, fewer errors and, importantly, fewer legal concerns linked to investment decisions.
.. Option 1A .. Option 1B .. Option 1A .. Option 1B
… below 10% x
… below 25% x
… between 10% and 25% x
Incresed coverage of IRD through… Increased coverage of PSD
through..Shareholders with a share …
10%
17%
7%
% of all shareholders (Orbis )
Studies confirm that tax complexity has a negative impact on FDI and investment in general.86
Simplifying cross-border tax rules will, therefore, create more confidence in future investment,
inducing more potential investors to actually realise cross-border investment. Moreover, it has been
shown that tax complexity has the potential to distort investment decisions.87 If the consequences of
a given investment become less predictable, investors may not only decide against it. They may
also eventually invest in projects which, from the point of view of expected return and future
productivity gains, may not be a first choice or first best. They may, for example, shy away from
investing cross-border and instead limit themselves to the domestic context, not taking advantage of
the Internal Market. This would be at the expense of economic growth. Studies show that
investment within the EU Internal Market is usually more efficient than purely domestic investment
because market integration improves capital allocation, increases competition, enables economies
of scale, and facilitates knowledge spillovers, thereby raising productivity and returns on
investment.88 These circumstances lead to inefficient allocation of resources across investment
projects which, in the long run, will be to the detriment of EU competitiveness and jobs.
Likewise, tax complexity reduces the effectiveness of tax policy measures designed to promote
investment. When it comes to investment, businesses react less sensitively to changes in corporate
tax rates if tax complexity is high. This will likely ‘undermine the ability of tax policy to affect
economic growth’.89 By introducing a significant simplification and harmonisation in the tax
framework applicable to cross-border operators, it could thus be expected that investment across
the internal market would be positively affected boosting competitiveness of EU businesses as well
as overall economic growth, and thus the EU as a whole. It is worth reiterating, however, that
equivalent positive effects would not ensue under Option 1B as under Option 1A, since the former
would retain the complexities associated with the application of withholding tax across the EU.
Impact on maintaining high tax standards
Not only are both options fully in line with the original objectives of the IRD and the PSD, but they
would also pursue to eliminate double taxation and facilitate cross-border investment and capital
flows in the EU to a greater extent than the current rules. Further, both options would preserve the
existing safeguards designed to mitigate and limit tax evasion and avoidance. A full withholding
tax exemption in the EU would be coupled with a protective measure to ensure that interest and
royalty payments are taxed when distributed from a Member State to a zero-tax jurisdiction. In
addition, a reduction or elimination of holding requirements, and the removal of any upfront
procedures for verifying whether the conditions for the exemptions are fulfilled at the time of
payment of the interest, royalties or distribution of profits (dividends), should not affect the powers
of Member States to carry out ex post controls and to apply national anti-abuse rules, including
86 Esteller-Moré et al (2021), The role of tax system complexity on foreign direct investment: Applied Economics: Vol
53 , No 45, find that tax complexity in a country leads to FDI outflow, Euler et al (2024), Tax Complexity and Foreign
Direct Investment - WU Vienna University of Economics and Business, confirm that tax framework complexity is a
deterrent for investment. This affects, inter alia, complex administrative procedures. Braun et al (2025), Tax
Complexity and Firm Value - WU Vienna University of Economics and Business, find (for the US) that tax complexity
reduces Tobin’s Q, a core indicator signalling investment incentive. 87 For example: Euler et al (2024), Tax Complexity and Foreign Direct Investment - WU Vienna University of
Economics and Business; Heckemeyer (2022), Removal of taxation-based obstacles and distortions in the Single
Market in order to encourage cross border investment. 88 See the seminal Cecchini-Report (1988), Europe 1992, or more recently: IMF (2024), esp. on fragmented markets:
Scaling up the single market to boost productivity; ECB (2025) on the untapped potential of the EU Single Market. 89 Amberger et al (2026), Corporate Tax System Complexity and Investment Sensitivity to Tax Policy Changes -
University of Iowa.
rules on beneficial ownership. Consequently, the anti-tax avoidance framework should remain
effective and robust.
6.2.2. Simplification in the context of the CFC rules
More detailed information can be found in Annex 4, Section 3, in particular as regards the potential
economic double taxation resulting from the simultaneous application of the CFC rules and Pillar 2.
6.2.2.1. Option 1: Reduce implementation options: Make “Model A” mandatory
Impact on companies
As explained in previous chapters, the ATAD allows for two CFC income definition models to be
implemented at national level, or a combination of both. Ten Member States have currently
implemented Model B or some hybrid version of the CFC income definition.90 If Model A were
mandatory, these Member States would also apply the same defined categories of passive income
of the controlled companies. Model A is simpler than Model B as it adds legal certainty to
taxpayers (Section 5.2.2.1). Moreover, with a uniform application of Model A, taxpayers would
face a consistent approach to CFC rules across all Member States. This harmonisation would lead
to simplified administrative processes, as tax reporting and compliance would be streamlined under
a single set of CFC rules. This could lead to lower administrative costs and a reduced need for
specialised tax advisory services.
As regards the number of companies affected, based on data available in Orbis, some 114,000
companies in the EU would be subject to the ATAD rules, from which about 40,000 companies are
located in the ten Member States that so far have not yet (fully) implemented Model A. These
companies can be the owners of entire groups, but most of them are owners of fewer entities.
As regards the costs involved, it is assumed that, on average, ATAD-related costs for MNEs are
EUR 33,000 per year. This is because compliance checks related to the application of CFC rules
would constitute only a part of the total compliance costs related to the ATAD rules as a whole.
Next, as explained in detail in Section 1 of Annex 4 (given the lack of available empirical data to
confirm the exact proportion), the current analysis uses an assumption that the CFC rules account
for one third of these ATAD-related costs, specifically.
As regards the compliance cost savings, there is no empirical data that would facilitate estimating
the actual savings per company. Assuming, therefore, that these companies would generate at least
10% compliance related savings as a result of the simplified and unified framework under which
they would then operate,91 it is estimated that relevant controlling companies could save an amount
of about EUR 45 million per year (≈33,000 EUR * 1/3 * 10% * 40,000 companies).
Impact on tax administrations
A single framework for CFC rules across the EU provides consistent criteria for enforcement,
eliminating the need to apply different models in different jurisdictions. Those jurisdictions not
currently applying Model A, and thus their administrations, will incur initial implementation costs
as they shift from the use of one or a hybrid approach to implementation of only Model A.
90 Eight Member States (Cyprus, Estonia, Hungary, Ireland, Latvia, Luxembourg, Malta, Slovakia) have adopted Model
B and two Member States (the Netherlands, Spain) adopted a combination of the two models. Source: ATAD
Evaluation. 91 The 10% possible savings is a hypothesis made on the basis of conservative assumptions following stakeholder
consultations that indicate this is one of the primary impediments when operating on a cross-border basis.
However, as further explained in Section 6.2.5 of this Chapter, these costs to administrations cannot
be quantified as there is no empirical data to assess the potential cost implications – whether strictly
from an IT or human resource (adaptation, personnel) point of view. On the other hand, with one
unified system of CFC rules, tax administrations across the EU can develop streamlined processes
and procedures, enhancing operational efficiency. This reduces the time and effort required to adapt
to varied frameworks and cuts down on administrative overhead. The efficiency gained from
enabling companies operating on a cross-border basis to use only one system could also result in
fewer mistakes and thus fewer instances of oversight and audit. Finally, an EU-wide standardised
system of training and guidance can be developed more easily.
Impact on the economy
Please refer to section 6.2.2.5.
6.2.2.2. Option 2A: Carving out Pillar 2 companies from CFC rules
Impact on companies
Section 3 of Annex 4 explains how this option would operate structurally and how this would
impact Pillar 2 companies from a tax obligation point of view.
As regards compliance cost savings, the following can then be deduced from this. According to the
company-level database Orbis, the number of MNEs present in the EU and in scope of Pillar 2 (i.e.,
those with a consolidated turnover of at least EUR 750 million) is estimated at approximately 4,700
companies. For those, the total cost related to ATAD is assumed to be EUR 100,000 based on what
the ATAD study 92 finds for large, complex MNEs. As for Option 1 above, it is assumed that a third
of these overall ATAD compliance costs are related to compliance with CFC-rules and related
activities (and likewise, the explanation for this assumption can be found in Section 1 of Annex to
this report). Doing away with CFC rules for these MNEs could save compliance costs of about
EUR 160 million (≈100,000 compliance cost per company * 1/3 * 4,700 companies).This could be
an upper-bound estimate because:
• Not all MNEs have subsidiaries in the EU of which they are shareholders, and not all MNEs
would benefit or fully benefit from the carveout as explained in Annex 4.
• Overlaps in the administrative actions linked to CFC and Pillar 2 compliance would imply
that savings would not amount to the full cost of CFC-related paperwork.
Impact on tax administrations
Excluding Pillar 2 companies from CFC rules would simplify the workload for tax administrations,
resulting in likely important resource savings; however, it is impossible to provide a quantification
of said savings in light of the lack of empirical evidence related to the internal costs of
applying/enforcing specific rules. By eliminating the overlap between CFC rules and Pillar 2
regulations, tax administrations will face a less complex regulatory environment for enforcement
purposes. The reduction in complexity could lead to more efficient processing of tax filings and
enquiries, and fewer audits, allowing administrators to carry out a narrower scope of compliance
checks. Overall, this should allow easing the burden on resources, personnel and technological
resources at the level of tax administration. These arguments also hold for Option 2B, below
92 Study prepared for the European Commission to support an evaluation of the Anti-tax Avoidance Directive (ATAD)
- Final Report (2025). Here: Volume 2, p. 38.
(accounting for QDMTT for CFC), albeit to a lesser extent as fewer companies would be relieved
from CFC.
Impact on the economy
Please refer to section 6.2.2.5.
6.2.2.3. Option 2B: Inclusion of QDMTT in CFC calculation
Impact on companies
As for Option 2A, Section 3 of Annex 4 provides an analysis of how this option would affect Pillar
2 companies from a tax point of view, which will be more targeted and technical. As a result, it is
likely that compliance cost savings would not be as significant as in Option 2A because CFC rules
would continue to apply where Member States operate a higher CFC effective tax rate. CFC rules
would still apply if the effective tax rate of an MNE subgroup (the entities of a group in a certain
country) was at least 15%. In all other cases, QDMTT would be triggered – and CFC would not be
triggered in order to prevent double taxation.
We analysed the option using an Orbis sample of about 88,000 subsidiaries of EU shareholders, all
part of groups whose consolidated turnover is EUR 750 million or above. QDMTT may be
triggered for about 46,000 of these entities as they show an effective tax rate below 15%. These
represent 53% of all in-scope entities. Under Option 2B, CFC rules would therefore not be
triggered for these entities.
It is thus assumed that the compliance cost savings under this option would amount to only about
one half (53%) of those estimated for Option 2A. Consequently, estimates for Option 2B indicate a
potential cost savings of about EUR 84 million (≈ EUR 160 million * 53%).
Impact on tax administrations
Please refer to similarities under section 6.2.2.2 above.
Impact on the economy
Please refer to section 6.2.2.5.
6.2.2.4. Option 3: Carve-out of SMEs
Impact on companies
As a starting basis, this option would carve out SMEs, which would be identified based on the
Eurostat definition, widely used across EU legislation, taking into account only those companies
with a turnover of EUR 50 million or less. A micro-analysis conducted based on the Orbis
company database estimates that the number of shareholders with foreign subsidiaries and a
turnover below EUR 50 million is estimated at 55,000. On the basis of a recent study, estimates
indicate that the CIT-related compliance costs of ‘medium’-sized enterprises could amount to
around EUR 4,700 per entity.93 Here too, one can assume that only a fraction of these compliance
costs is devoted to CFC-compliance or related activities, considering that for an SME, the control
of other entities is a burdensome task. However, given the lack of precise empirical evidence, the
analysis uses the same assumption as under options 1 and 2 above, i.e., that CFC compliance costs
would amount to approximately one third. The analysis estimates that this option would amount to
93 VVA/KPMG, Tax compliance costs for SMEs: An update and a complement Final Report KPMG/VVA 2022.
about EUR 90 million (≈ 55,000 companies * 4,700 compliance cost per entity * 1/3) in CFC-
related cost savings as a result of carving out SMEs.
Impact on tax administrations
SMEs account for over 99% of businesses in the EU.94 However, only around 10% have cross-
border activities,95 and only about 5% of SMEs are part of a group.96 It therefore follows that CFC
legislation is relevant to an extremely small population out of the overall number of SMEs. Firstly,
the vast majority of these SME groups do not operate on a cross-border basis and therefore do not
have operating structures that would avail themselves of controlled foreign companies; or possess
limited resources for engaging in cross-border aggressive tax planning. On this basis, it appears
inefficient for tax administrations to bear the responsibility for, and dedicate resources to, enforcing
the CFC rules in this limited context, especially considering that anecdotal evidence from several
EU Member States indicates that CFC rules are rarely in effect applied to SMEs.
Impact on the economy
Please refer to Section 6.2.2.5.
6.2.2.5. Why simpler CFC rules matter
Reduced costs for companies
The above analyses demonstrate that under all circumstances, simplifying the application of CFC
rules for the EU results in important cost savings, irrespective of the policy option or combination
chosen. This is because any more unified and potentially simpler approach for implementing CFC
rules across the EU would result in an easier operating environment, with savings redirected
towards investment in new projects, expansion, and innovation. To that end, Option 1 would, by
making Model A mandatory, provide clearer EU-wide rules-based taxation of CFCs, as opposed to
having to impose and enact an always case-by-case assessment. Under the second set of options,
sub-Option 2A (carveout of Pillar 2 companies from CFC) would significantly reduce the
administrative burden for shareholding entities of the 4,700 MNEs in scope of Pillar 2 present in
the EU as it would eliminate their compliance obligations in the context of CFCs. Whereas for
Option 2B, the reduction would be lower, as fewer companies would be relieved form CFC rules.
Both options would thus reduce the regulatory fragmentation of CFC-rules, enabling companies to
reduce operational costs in significant ways. The associated cost savings of, for example,
combining option 1 with 2A could amount to approximately EUR 205 million (EUR 45 million and
EUR 160 million, respectively). Whereas combining Option 1 with 2B would achieve fewer
savings of about EUR 129 million (EUR 45 million and EUR 84 million, respectively).
Reduced costs for tax administrations
Option 1 (harmonise implementation of Model A across the EU) could entail some potential costs
as a result of the change in the administrative approach. However, overall cost savings for tax
administrations from the proposed changes in the application of CFC rules would likely be
94 Small and medium-sized enterprises | Fact Sheets on the European Union | European Parliament 95 European Commission (2023), Proposal for a Council Directive on Business in Europe: Framework for Income
Taxation (BEFIT) and Proposal for a Council Directive on Transfer Pricing SWD(2023) 308 final (p. 41). This
information is based on data from: VVA/KPMG (2022), Tax compliance costs for SMEs: An update and a complement
Final Report KPMG/VVA 2022. 96 Eurostat Statistics Explained: SMEs - independent and in enterprise groups - Eurostat
important and stem from enacting simpler and less burdensome enforcement obligations as fewer
companies would have to be checked (see each option for details above).
Positive impact on the economy
The long-term macroeconomic effects will, on the other hand, go far beyond the primary savings of
administrative costs from both a corporate taxpayer and tax administration point of view. This
conclusion is in line with the economic rationale outlined in the context of tax exemptions for
outbound payments (see Section 6.2.1.3): when businesses have clarity and predictability regarding
tax obligations stemming from income of CFCs, they are more likely to invest abroad. Large MNEs
would feel more encouraged to invest in the EU, as this investment would not trigger additional
CFC-related compliance obligations (Option A). Moreover, unified EU-wide CFC rules that apply
in all Member States provide businesses with the certainty they need to make informed, long-term
financial decisions and level the playing field for potential investment in an EU country (Option B).
As a result, the EU would become a more attractive place to invest.
Impact in terms of maintaining high tax standards
At the same time, it is important to note that removing the CFC rules for either Pillar 2 companies
or SMEs (options 2A and 3 above) would not compromise the standard in the fight against tax
avoidance and evasion, as objectively sought under the ATAD. As previously noted, information as
to the number of times CFC rules are applied, across which EU jurisdictions and to which specific
companies is not available. However, when it comes to option 2A, the Pillar 2 Directive enacts
rules that ultimately ensure that companies pay a real effective tax rate as well as introduces
safeguards that limit risks associated to how that effective rate is achieved. When it comes to option
3, exclusion of SMEs, anecdotal evidence from several Member States indicates that
administrations have had almost no CFC cases related to SMEs in the nearly ten years since ATAD
started to apply. This indicates that these rules are rarely triggered for SMEs, possibly because
these companies’ operating structures are less apt to expand abroad and to engage in aggressive tax
planning. CFCs and have no or little cross-border activity. Their exclusion would thus not hinder
anti-avoidance and evasion or aggressive tax planning efforts. Rather, it would bring significant
cost and resource savings, and thus benefits, to both companies and tax administrations
6.2.3. Immediate expensing of assets related to research and development (R&D)
Impact on companies
As a first consideration, the possibility to immediately expense R&D related tangible assets
simplifies the accounting and tax compliance process. Traditionally, R&D costs may need to be
capitalised and depreciated over a number of years, which involves calculations and ongoing
record-keeping. Immediate expensing allows taxpayers to deduct these costs one-off, in the year
that these are incurred, streamlining the accounting process. This relief from recurrent compliance
actions can result in lower administrative and compliance costs, enabling taxpayers to allocate
resources more efficiently. In particular, immediate expensing aligns the tax treatment of
companies’ actual expenditure to the point in time where companies actually take the risk to invest.
Immediate expensing thus allows more efficient sharing of risks with the government.97 In other
words, taxation will become less distortive with respect to companies’ decision to accept risks
when investing.
97 This argument was put forward by Musgrave and Domar in their seminal work on taxing risky investment as early as
1944. See Domar, E. D., and R. A. Musgrave. “Proportional Income Taxation and Risk-Taking.” The Quarterly Journal
of Economics 58, no. 3 (1944): 388–422.
The measure would benefit all companies in the EU, also SMEs. Commission analysis revealed that
CIT-related compliance costs in the EU could amount to about EUR 53 billion, of which EUR 48
billion could fall on SMEs.98 Total compliance costs are usually linked to different activities, and
there is no empirical information as to what share of total compliance costs could fall on
calculations related to tax depreciation, especially not depreciation in the context of R&D. In the
absence of statistical information, a conservative informed assumption is taken (given the likely
relative ease of a change in procedures) which is based on the relative importance of R&D-related
in total costs as observed in the firm-database Orbis.99 It is assumed that 0.5% of total CIT
compliance costs could be saved. If so, savings would amount to around EUR 265 million (≈
EUR 53 billion * 0.5%).
Impact on the economy and public finances
Allowing businesses to fully deduct the cost of qualifying R&D-related tangible assets in the year
that the investment is made, rather than depreciating the costs over time, is a matter of fairness as it
allows deducting expenses when they actually happen. The measure will have significant positive
impact on the capital costs of businesses.
This implies a reduction in corporate income tax (CIT) revenues by about 1.9%.100 However, the
impact on overall rax revenue is almost neutral due to significant positive macroeconomic feedback
effects that trigger tax expenditure other than CIT. What this means in sum, can be detailed as
follows:
Although the compliance cost reduction may be relatively limited (analysed above), the positive
impact of faster R&D depreciation on capital formation will be significant. This is because the
policy change lowers the after-tax financing constraints and reduces the cost of capital. It is well
documented that accelerated depreciation promotes innovation.101
By allowing companies to immediately deduct expenditures on equipment, machinery and
buildings used for R&D, the reform lowers the after-tax cost of investment and therefore
strengthens incentives to invest. To best capture that main impact, a general equilibrium model
simulation was performed (using CORTAX) that focuses on the long-term impact of lowering the
cost of capital, taking account of allowances that may already be in place in Member States. The
results are detailed in Figure 12, row 1.
98 European Commission (2023), Proposal for a Council Directive on Business in Europe: Framework for Income
Taxation (BEFIT) and Proposal for a Council Directive on Transfer Pricing SWD(2023) 308 final (p. 41). This data is
based on a study for the European Commission: VVA/KPMG (2022), Tax compliance costs for SMEs: An update and a
complement Final Report KPMG/VVA 2022. 99 The assumption is compatible with the cost-structure of EU companies. In Orbis, for companies with information
about R&D costs, their share in total costs is about 2.5%. Extrapolating this value to all companies (assuming zero
R&D costs for companies with no information) would result in average R&D costs accounting for 0.5% of total costs
on average for all companies in the EU. 100 Comparable magnitudes of CIT revenue effects have been observed in other contexts. For example, the introduction
of full expensing in the UK has been estimated by the Institute for Fiscal Studies (IFS) to reduce long-run CIT revenues
by up to around 3.7%, illustrating that relatively pronounced impacts on CIT revenues are not uncommon in the context
of investment tax incentives. Source: Institute for Fiscal Studies, Full expensing and the corporate tax base, IFS Green
Budget, October 2023. 101 For example: Huang and Liu (2024): Structural tax reduction, financing constraint relief and enterprise innovation
efficiency - ScienceDirect.
Figure 12: Immediate expensing of R&D assets, simulation with CORTAX, % change relative to initial situation (EU-27)
Source: European Commission, Joint Research Centre
In the simulation, this more generous tax treatment leads businesses to increase investment now and
in the future, as they anticipate the lowering of capital cost also for future investment. This will
raise the overall capital stock in the economy by about 0.4%. A larger capital stock increases
workers’ productivity, which translates into higher wages (around +0.1%) and higher employment
(about +0.04%). Through these channels, the reform also stimulates economic activity more
broadly, resulting in an increase in EU27 GDP of roughly 0.17% per annum in the long run. This
would imply that, after implementing immediate R&D expensing, GDP would be higher by an
equivalent, in 2025 values, of EUR 32 billion per annum than if the EU continues without the
measure.
Therefore, the expansion of economic activity largely compensates for the short-term CIT loss.
Higher wages and employment increase revenues from labour income taxes, while higher
consumption raises indirect tax revenues. As a result of these feedback effects, the overall impact
on total tax revenues in the longer run is effectively neutral, with total revenues declining by only
about 0.02%.
The simulation was also run for an option that would expand the R&D immediate expensing to
include all fixed assets – i.e., also intangibles (results detailed in Figure 2, row 2). As CORTAX,
however, does not distinguish tangible from intangible assets, the measure was scaled by
introducing the share of tangibles in all R&D expenditure into the model (about 50%.). The
analysis shows that in such case, all macroeconomic effects could be expected to double in size.
What this demonstrates is that an expansion of the scope of the measure to include also intangible
assets would significantly increase the revenue impact, rendering the measure further away from
budget neutrality. More technical details about the simulation can be found in Annex 4, Section 5.2.
Impact on maintaining high tax standards
The measure would be designed in accordance with international tax standards, as the option
includes a definition of qualifying R&D expenses, and the application would take inspiration from
similar legislation adopted by other like-minded international partners.
6.2.4. Simplification in the context of the Interest Limitation Rule
The following subsections assess the individual impacts of certain options under the Interest
Limitation Rule as outlined in Chapter 5. However, given the interlinked and inter-dependent
nature of some of the design options, several are assessed in aggregate (under ‘Options quantified
in aggregate’ of Section 6.2.4.6). This section is based on a detailed analysis, the methodology and
approach behind which is presented in Annex 4, Section 4.
6.2.4.1. Option 1: Carve-out of SMEs (making the de mimimis of EUR 3
million mandatory)
Impact on companies
Immediate expensing of… GDP Capital
Employ-
ment Wages
CIT
revenue
Overall
tax
revenue
1 Tangible fixed assets 0.17 0.43 0.04 0.10 -1.94 -0.02
2 All fixed assets (incl. intangibles) 0.31 0.79 0.07 0.20 -3.77 -0.04
The analysis presented in detail in Annex 4, Section 4.1, shows why the ATAD de minimis rule
agreed in 2016 ensures that small entities today rarely see any restriction on their ability to deduct
their interest expenses. This is specifically intended, and the measure was designed with this
objective in mind, given that third-party loans is the most important source of funding investment
for SMEs. The analysis in Annex 4, Section 4.1, is based on a large sample of unconsolidated
accounts from the firm database Orbis. The vast majority from that sample stems from SMEs. It is
estimated that about 96% of these companies in the EU are already de facto carved out by the de
minimis rules currently being implemented. In reality, this percentage is likely higher as small
entities are underrepresented in the sample. Notwithstanding these uncertainties, the estimate for
the sample will increase to over 99% if the de minimis of EUR 3 million becomes mandatory in all
EU Member States. This means that nearly all SMEs will be carved out with the revised de minimis
threshold, allowing the sample to save about EUR 900 million per year on corporate tax
expenditure.
Due to the underrepresentation of especially small entities in Orbis, the number of SMEs so far
limited in their interest deduction that would be carved out with the mandatory de minimis cannot
be estimated with exact precision. In the Orbis sample, this would affect an estimated 63,000 firms
(3.4% of the sample), see Annex 4, Section 4.1. These companies would no longer have to bear
compliance costs related to the Interest Limitation Rule. In light of Orbis’ coverage issues, the
number must also be seen as a lower-bound estimate.
A study specifically on the tax compliance costs of SMEs in the EU has found that CIT-related
costs could amount to EUR 3,300 per year on average.102 One third of these compliance costs could
be related to the Interest Limitation Rule.103 With these assumptions, compliance cost savings for
SMEs could amount to at least EUR 69 million (≈ 63,000 firms * 3,300 EUR * 1/3).
Impact on tax administrations
Please refer to section 6.2.4.8. and Annex 4, Section 4.3.
Impact on the economy
Please refer to section 6.2.4.7.
6.2.4.2.Option 2: Mandatory 30% EBITDA threshold
Impact on companies
Implementing a unique EBITDA threshold would affect Member States that currently apply a
threshold lower than 30%, namely: the Netherlands (24.5%) and Finland (25%). These countries
would have to increase their respective EBITDA thresholds by 5.5 and 5 percentage points,
respectively. There is no individual cost estimate for this measure. Its compliance cost savings are
included under ‘Options quantified in aggregate’ below in Section 6.2.4.6.
Impact on tax administrations
Setting the threshold to 30% in those two countries will result in no or very little impact on tax
administrations. This is because today, tax authorities are already responsible for the
102 This information is based on the underlying data from: VVA/KPMG (2022), Tax compliance costs for SMEs: An
update and a complement, Final Report. It is the average for cross-border working SMEs in EU-27. 103 See Annex 4, Section 1 for this assumption.
implementation and enforcement of these measures (e.g., in case of audits, etc.). Establishing a
harmonised threshold would require no change in how the measure is assessed or enforced in a
national context.
Impact on the economy
Please refer to section 6.2.4.7.
6.2.4.3. Option 3: Reducing implementation options
The proposed reduction of implementation measures would (1) make the group-escape rule, (2)
carry-forward mechanisms and (3) the exclusion of defence related projects mandatory, further
unifying EU tax law. There is no individual cost estimate for this measure. Its compliance cost
savings are included under ‘Options quantified in aggregate’ below in Section 6.2.4.6. At the same
time, these changes are likely to result in no or very little impact on tax administrations. This is
because tax authorities are already responsible for the implementation and enforcement of these
measures (e.g., in case of audits, etc.). A change in the rules themselves would not entail a change
in resources to continue current practices; if anything, streamlining of the rules and limiting options
could facilitate implementation and ease the audit burden on authorities.
Impact on the economy
Please refer to section 6.2.4.7.
6.2.4.4. Option 4: Carve-out of low-risk third-party loans
Impact on companies
This option is analysed on a sample of companies, the details of which are also presented in Annex
4, Section 4.2. The analysis shows that the share of groups that cannot (fully) deduct their low-risk
third-party interest expenses from their tax base due to the Interest Limitation Rule could be 8.5%
(of all groups). This non-deduction affect mainly large groups, which thus leads to an assumption
that ATAD-related compliance costs could amount to EUR 100,000 on average for these groups,
and that one third of these ATAD-costs are related to the Interest Limitation Rule.104 Note that an
estimated 151,000 groups currently operate in the EU (and EFTA).105 Under these assumptions, the
overall compliance cost savings could then be estimated to be around EUR 430 million per year
(≈100,000 EUR * 1/3 * 8.5% * 151,000 groups).
Impact on tax administrations and public finances
Please refer to section 6.2.4.8. and Annex 4, Section 4.3.
Impact on the economy
Please refer to section 6.2.4.7.
6.2.4.5. Option 5: Exemption in case of a profitability shock
If a taxpayer’s EBITDA is reduced by a certain percentage (e.g. 50%) in a year, the measure would
foresee that no Interest Limitation Rule applies to this taxpayer in that year. There is no individual
104 See Annex 4, Section 1 for these assumptions. 105 151 004 multinational enterprise groups in EU and EFTA - News articles - Eurostat.
cost estimate for this measure. Its compliance cost savings are included under ‘Options quantified
in aggregate’ below.
6.2.4.6. Options quantified in aggregate
Impact on companies
There are several other simplifications related to the Interest Limitation Rule that are considered,
single options identified in Chapter 5, but which are analysed in aggregate. For example, an Option
2: mandatory application of an EU-wide (30%) EBITDA threshold (Section 6.2.4.2); Option 3:
Reducing implementation options (Section 6.2.4.3); Option 5: Exemption in case of a profitability
shock (Section 6.2.4.5). All these measures would limit the currently large variation of the
implementation of the Interest Limitation Rule across the EU. They would standardise the Interest
Limitation Rule across Member States, thereby contributing to a more consistent interpretation of
legal terms. Exemptions in the case of profitability shocks from one year to another would
smoothen the impact of the Interest Limitation Rule on interest expense deductibility, also
simplifying the Interest Limitation Rule and facilitating compliance.
It is well established that, from the perspective of internationally active companies, standardisations
and simplifications would directly reduce compliance costs.106 The measures proposed here would
eliminate the need for businesses to navigate varied implementation rules across the Member
States, such as different thresholds and escape rules. They could therefore reduce compliance cost
of all MNE groups operating in the EU. However, there is no empirical precedent or quantitative
data that one could use to estimate the cost reduction a company could realise due to the measures.
In the absence of any information in that context, we assume that the cost of complying with the
Interest Limitation Rule could be reduced by 5% per group on average. The assumption could then
result in savings of EUR 80 million per year (≈ 33,000 EUR * 1/3 * 5% * 151,000 groups). This
would imply overall ATAD-related compliance costs per group of EUR 33,000, and that one third
of these costs relate to the Interest Limitation Rule (see Annex 4, Section 1 for these assumptions).
Impact on the economy
Please refer to section 6.2.4.7.
6.2.4.7. Why simplifying the Interest Limitation Rule matters
The estimates on the direct reduction of compliance costs presented in the sections above
demonstrate that the reduction resulting from proposed measures to amend the Interest Limitation
Rule can free up financial resources for companies to invest in growth, innovation, and expansion,
benefiting overall economic activity. This is particularly relevant for SMEs as they are, relative to
their size, disproportionally affected by the cost of tax compliance.107
However, as stated earlier, the direct compliance cost reduction does not capture the full long-term
potential of reducing complexity, especially when it comes to the deductibility of interest.
Standardisation of international tax law will contribute to greater legal certainty (Section 6.2.1.3),
making it easier to predict the future cost of investment, ultimately generating higher confidence in
investment. Reducing implementation options (Option 2), installing a unique EU-wide EBITDA
106 For example: European Parliament, Overview on the tax compliance costs faced by European enterprises. 107 VVA/KPMG (2022), Tax compliance costs for SMEs: An update and a complement Final Report KPMG/VVA
2022.
threshold (Option 3), and better absorption of economic shocks for interest deduction (Option 5)
would all serve that purpose.
A certain positive long-term impact can be expected from Option 4 (taking out the current
restriction for low-risk third-party interest payments) in particular. As on-lending of third-party
loans within the group would be excluded, such loans would not facilitate profit shifting as they are
negotiated at arm’s length and typically used to finance investment projects of group members.
Exempting third-party interest payments from the Interest Limitation Rule would, therefore, leave
more room for productive cross-border investment (FDI) today. It is well documented that FDI in
the EU is one of the major drivers of innovation, mainly through the diffusion of knowledge across
countries and across businesses.108 There would be more FDI after exempting interest expenses to
third parties from the Interest Limitation Rule as businesses would have more confidence in higher
net-returns and lower compliance costs for future investment. More groups would then invest
abroad in/across the internal market, fostering innovation and competitiveness, and generating
higher growth for EU citizens.
Moreover, exempting certain volumes of third-party interest payments from the Interest Limitation
Rule would also tackle one major deficiency of the Interest Limitation Rule: its strong pro-cyclical
impact on company cash-flow. This effect can be very significant during economic downturns.109
Especially during times of increasingly frequent and adverse macro-economic shocks, carving out
third-party loans (Option 4) would protect businesses from disproportionate limitations to cost
deduction – more than discretionary year-by-year exemptions could achieve (Option 5). Global
economic crises since the Covid pandemic have revealed that shocks tend to persist for more than
just a year. During that period, companies’ debt obligations may remain constant – or may even
increase as interest rates tend to go up due to inflationary pressure. At the same time, deductibility
shrinks as profits decline. This is exactly what happened since the onset of the global energy crisis
in 2022 when the cost of borrowing for non-financial corporations went up from 1.4% (Q4, 2021)
to 5.3% (Q4, 2023).110 Non-deductibility of these costs could reduce a company’s cash-flow,
thereby causing serious financial distress to otherwise productive companies.111 Removing the
Interest Limitation Rule in the case of third-party borrowing will thus strengthen companies’
confidence in future investment as they can rely on the tax policy framework to stabilise
deductibility across the business cycle. Consequently, companies’ propensity to invest would likely
increase, especially if businesses rely heavily on external debt.112
Impact on maintaining high tax standards
108 OECD (Foreign Direct Investment Qualities and Impact | OECD). 109 For example, Finnish companies have seen their effective tax burden increase by up to 19% during the Great
Recession in 2008 because of limitations in interest deduction. Ropponen (2021), Interest limitation rules and business
cycles: Empirical evidence. 110 ECB series: cost for non-financial corporations of newly agreed loans (annualised rate). 111 Authors argue that tight deductibility limits would improve market selection as it lowers the likelihood of
unproductive businesses stay alive. See Olbert (2025), The impact of tax shields on bankruptcy risk and resource
allocation | Review of Accounting Studies. This argument holds in the absence of strong cyclical fluctuation. If strong
limitations coincide with pronounced downturns the effect gets amplified and may thus lead to the selection process
overshooting in the sense that healthy businesses get wiped out due to reduced cash-flow. 112 Fich (2025), M&A Under Pressure: How Interest Limitation Rules Are Shaping Corporate Dealmaking | ECGI,
turns the argument around: the introduction of interest limitation rules disrupted corporate investment significantly
(here: M&A). Businesses with limited cash reserves would be most affected as they rely heavily on third-party debt
funding.
All potential changes to the Interest Limitation Rule (options) analysed in the sections above would
retain the safeguards and rules intended to mitigate and limit tax evasion and avoidance and, as
such, remain in line with the objectives originally established by the ATAD. For the most part,
simplifications to be introduced would, as already analysed above, ensure legal certainty and enact
more facile and effective rules across the internal market for cross-border operations. This is
particularly the case for measures aimed at reducing implementation options, which would ensure
that the rule continues to fulfil its core function of preventing tax avoidance while minimising
fragmentation, compliance costs and legal uncertainty. Furthermore, by eliminating on-lending and
capital contributions or other equity contributions, for example, even the carve-out of low-risk third
party loans would be designed in a way to ensure no new risks to BEPS standards. Moreover, a de
facto carve out for SMEs maintains the objectives already established under ATAD, under the clear
understanding that these smaller companies should be able to deduct their interest expenses and
would not possess the means to consistently engage in aggressive tax planning, avoidance or
evasion (through, for example, on lending) in a manner similar to MNEs.
6.2.4.8. Impact on tax authorities and public finances
Carving out certain companies from the Interest Limitation Rule as suggested in Options 1 (SMEs)
and 4 (low-risk third-party loans) would also reduce administrative costs for financial
administrations as this would cut down on the numbers of compliance checks and enforcement and
lead to fewer transactions that would require monitoring and analysis. Financial administrations
may then be able to allocate resources more effectively, focusing on higher-risk areas or more
complex cases, potentially improving the efficiency of tax enforcement overall. As for the other
options considered, changes to existing provisions under the Interest Limitation Rule would likely
result in no or little impact for tax administrations since tax authorities are already responsible for
the implementation and enforcement of these measures (e.g., in case of audits, etc.).
The economic analysis of these measures is also further elaborated on in Annex 4. As regards the
de minimis threshold, for instance, Section 4.1 of Annex 4 contributes to showing that the impact of
implementing an obligatory de minimis threshold of EUR 3 million everywhere in the EU could
reduce the tax revenue of some Member States. As a result of the disparate application of the de
minimis threshold, the effect is expected to be felt in Member States where no formal de minimis
rule or a lower than EUR 3 million threshold is implemented today. In the EU, the overall revenue
impact could amount to around EUR 900 million per year. Regarding the carve-out of interest from
low-risk loans from the ILR, on the other hand, the impact on public finances is hard to quantify
but, as explained in Section 4.3 of Annex 4, it could be financially neutral.
6.2.5. Aligning & streamlining legislation in the context of tax mergers, dispute resolution
mechanisms and removal of imported hybrid mismatches
Impact on companies and on the economy
Streamlining legislation related to tax mergers and dispute resolution, and the removal of imported
hybrid mismatches would contribute to a more consistent interpretation of legal terms, improve
legal clarity and certainty of MNE groups and decluttering EU tax law. To that extent, the impact of
this measure on companies will be very similar to the package of measures outlined above in
Section6.2.4.4 6.2.4.6. in the context of the Interest Limitation Rule (in particular: reducing
implementation options and making sure that all Member States apply the same 30% EBITDA
threshold). Both pairs of measures enhance legal certainty. They reduce ambiguity and
inconsistencies in the application of tax rules across Member States. By harmonising provisions –
be it through a uniform EBITDA threshold under the Interest Limitation Rule or through aligning
tax merger and dispute resolution legislation – they aim to create a more predictable and stable
legal environment for businesses operating within the EU. Given these similarities, it is assumed
that the effect of the streamlining and simplification measures discussed here would be the same as
for the package outlined in Section 6.2.4.6 in relation to the Interest Limitation Rule. The
compliance cost reduction could then amount to EUR 80 million per year.
By minimising disparities in how Member States apply tax rules, the measures also help prevent
distortions in the Single Market, thereby promoting economic growth: Clear and viable dispute
resolution mechanisms reduce the risk of inconsistent outcomes in cross-border cases and allow
disputes to be resolved in a faster manner. This promotes fair competition and prevents regulatory
arbitrage. Likewise, reducing disparities in how Member States’ tax authorities handle restructuring
events - mergers and separations - could foster a more level playing field across the EU, enhancing
fairness and consistency in tax treatment.
Impact on tax authorities and maintaining high tax standards
Today, tax administrations already have the responsibility to enforce the rules of the TMD, engage
in dispute resolution when this is requested under the DRM, and enforce the ATAD mismatch rules
as they currently stand. Changes in these in line with the options assessed in this report would result
in a minimal impact on tax authorities. Increased legal certainty and more efficient procedures
should facilitate the work of tax authorities by reducing procedural uncertainties and administrative
complexity, thereby allowing resources to be used more effectively in the analysis and resolution of
disputes. While the proposed changes under the DRM could potentially lead to a greater number of
disputes being brought under the DRM, this would likely occur at the expense of disputes currently
pursued under other legal frameworks, such as Article 25 OECD Model MAPs or the Arbitration
Convention. As a result, the overall number of disputes handled by tax authorities and the related
workload would likely remain broadly unchanged
Meanwhile, all proposed measures under the TMD and DRM would retain high tax standards as
they do not entail an undermining or lowering of standards in any way. When it comes to imported
mismatches, as previously explained, the information to identify and assess relevant tax schemes in
third country jurisdictions is not available or easily identifiable/checked. Anecdotal evidence from
several EU Member States confirms that these rules are thus rarely, if ever, applied in practice.
6.3. General remarks on the limits assessing the impact of the Omnibus on tax
administrations
The proposed measures will often times simplify administrative procedures also for tax
administrations, partly through exempting companies from having to comply with certain rules. For
example, by exempting SMEs from the Controlled Foreign Company (CFC) rules and the Interest
Limitation Rule, tax administrations will no longer need to allocate resources to monitor, assess,
and enforce compliance for a large segment of smaller businesses. This will streamline risk
assessment procedures, reduce the volume of required documentation (e.g., CFC reporting and
interest deduction calculations), and free up capacity for tax authorities to focus on higher-risk
cases, such as large multinationals and aggressive tax planning structures. Additionally,
standardised thresholds and clearer definitions will minimise disputes and requests for advance
rulings, further cutting down on administrative workload.
However, the administrative savings resulting from such efficiency gains for tax authorities are
impossible to quantify. This is not only because the current burden varies significantly between
Member States due to differing enforcement practices, but also because indirect efficiency gains
(e.g., faster case processing, reduced litigation, or reallocated staff resources) cannot be measured
in monetary terms without precise information about the individual cost structures of tax
administrations particularly in the context of ATAD-rules. A recent study on the impact of the
ATAD rules has consulted Member State administrations especially on the tax-administrative
costs.113 Despite detailed questions and engagement with tax administrations as part of the
methodological approach, the study could not provide detailed, broken-down quantitative
information about the recurrent costs these rules impose on tax administrations. This is because tax
administrations themselves cannot separate costs by provision or even Directive, given that these
rules have been incorporated in national legislation and are not treated separately (from for overall
CIT implementation and enforcement costs) by tax inspectors or administrators.
The study, however, found that ATAD related costs appear proportionate to the number of
corporations that must comply with them. Clarifying the application of the rules, or carving out
certain companies from specific rules, as some omnibus measures would seek to do, would imply
that the cost for audits and controls could decline. For example, the analysis of Section 6.2.4.4
estimates that 8.5% of MNE groups present in the EU may no longer have to deal with Interest
Limitation Rules as low-risk loans would be carved out from these rules. This alone could affect an
estimated 13,000 – mostly complex – MNE groups. While Carve-outs assessed under Sections
6.2.4.1, 6.2.2.2 or 6.2.2.4 would also bring potential streamlining and lower administrative burdens
for tax authorities. However, given the data limitations described, point estimates of potential cost
savings for tax administrations cannot be provided. This contrasts with the ability to analyse the
reduction in compliance costs for businesses, as these can be estimated using publicly available
company level information and, not least, because Orbis provides a large database of detailed and
relevant accounting information at firm level.
6.4. Environmental impacts
No particular and direct environmental impact is expected. The initiative is a horizontal
simplification measure in the field of direct taxation, aimed at streamlining, clarifying and updating
the existing corporate tax framework. Any environmental effects are therefore likely to be indirect
and limited. To the extent that the simplifications free up resources, some businesses may choose to
allocate part of those resources to more environmentally sustainable investments. However, such
effects would be contingent on subsequent business decisions and cannot be robustly quantified or
directly attributed to the initiative.
6.5. Social impacts
Regarding employment and social impacts, the policy options are not expected to produce any
material direct social impacts, as it does not concern any labour, social or other directly related
rights. Yet, the tax compliance cost savings could be used in productive activities. For instance,
businesses could hire or train staff or increase salaries. In such cases, the impact could be positive.
Nonetheless, the freed-up funding could also be used for other business purposes or distributed to
shareholders. Accordingly, business-level decisions will determine to what extent such effects
materialise.
113 Study prepared for the European Commission to support an evaluation of the Anti-tax Avoidance Directive (ATAD)
- Final Report (2025). Here: Volume 2, p. 35.
6.6. Impact on fundamental rights
The initiative was also examined as regards its potential impact on fundamental rights, in particular
the Charter of Fundamental Rights of the EU. No significant impact is expected. By reducing
fragmentation and unnecessary compliance requirements, improving predictability and facilitating
cross-border business activity within the internal market, it may have a limited positive bearing on
the freedom to conduct a business and the effective exercise of the right of establishment. Such
potential impacts cannot be interpreted as meaning that the problems outlined in Chapter 2 lead to
any discrimination or unjustified restrictions.
Finally, where the implementation of the initiative entails the processing of personal data, such
processing would have to comply fully with the applicable Union framework on data protection.
The initiative is therefore considered to be compatible with the Charter.
7. HOW DO THE OPTIONS COMPARE?
The initiative has two general objectives: to simplify EU tax rules in order to boost EU
competitiveness, while maintaining high tax standards in the EU (Chapter 4). These are to be
achieved through four specific objectives: eliminating disproportionate EU tax compliance burdens,
introducing clear and predictable EU tax rules and terms, improving consistency in the application
of EU tax directives, reducing remaining tax obstacles to cross-border investment and commercial
activity (Chapter 4).
To achieve these objectives, the Omnibus on Taxation will amend up to seven Directives through a
wide array of policy options. Due to the large number of measures under consideration, and as not
every single option can be assessed individually, it is necessary to assess different combinations.
This allows a comparison between, on one hand, the different policy options for the main
interventions of this initiative (i.e. in relation to the taxation of cross-border payments and the
taxation of controlled foreign companies), and, on the other hand, the remaining policy options as
opposed to retaining the status quo.
Accordingly, this report compares three potential approaches for the Omnibus on Taxation proposal
depending on different levels of ambition: (1) The Comprehensive Omnibus on Taxation
compiles the most impactful simplifications for all envisaged measures which have alternative
options, e.g., for the withholding tax relief under IRD and PSD, the overlap between CFC rules and
Piller 2, and the update of the TMD. Further, to keep the ambition high, it also entails all other
simplifications where the only real choice is between a change or keeping the status quo, such as
for R&D expensing and the Interest Limitation Rule. This version will thus assess the most
extensive potential for simplification. (2) The Medium Ambition Omnibus on Taxation
distinguishes itself from the comprehensive approach by offering the least impactful simplifications
for measures which have alternative options. To keep the ambition to a moderate level, it also
entails all other simplifications where the choice is between a policy change or keeping the status
quo, though leaving out the introduction of a new measure related to R&D expensing. (3) The
Limited Ambition Omnibus on Taxation entails a far more limited number of measures, but that
nonetheless deliver on the overall simplification objectives of the omnibus. This option, therefore,
includes measures such as reducing implementation options for the Interest Limitation Rule in
ATAD and ensuring updates to the TMD and DRM, that are most likely to deliver quick results but
requiring a more minimal effort.
The tables below show a scale that indicates to what extent each of the approaches contributes to
achieving the specific objectives, considering the different impacts of the policy options, which are
discussed in Chapter 6. The scale is based on the following four steps: (0) irrelevant/no change, (+)
limited contribution, (++) partial contribution, and (+++) substantial contribution. In addition, it
will be considered to what extent the three approaches effectively deliver on the envisaged
objectives, efficiently achieve the envisaged objectives at the lowest reasonable cost, and to what
extent the approaches are coherent with the Tax Omnibus itself (internal coherence) and with other
EU legislation, international obligations, and broader EU policy goals (external coherence).
7.1. Comprehensive Omnibus on Taxation
Policy option(s) Specific objectives
Taxation of cross-border
interest, royalty and dividend
payments
Eliminate
disproportionate
EU tax
compliance
burdens
Introduce
clear and
predictable
EU tax rules
and terms
Improve
consistency in
the
application of
EU tax
directives
Reduce remaining tax
obstacles to cross-
border investment
and commercial
activity
Option 1A: Tax exemption
accompanied by procedural
simplification
+++ ++ +++ +++
Taxation of CFCs
Option 1: Mandatory
application of Model A
+ + +++ +++
Option 2A: Carveout of Pillar 2
companies
+++ + + +
Option 3: Carveout of SMEs +++ ++ 0 0
Research and development
(R&D)
Option 1: Immediate expensing
for acquired tangible R&D
assets
+ + +++ +++
Interest Limitation Rule
Option 1: Carveout of SMEs +++ ++ + +
Option 2: Mandatory
application of 30% EBITDA
cap
++ 0 ++ ++
Option 3: Reduce
implementation options
0 + +++ ++
Option 4: Carveout of low-risk
third-party loans
+++ ++ 0 0
Option 5: Exemption in case of
profitability shock
++ ++ ++ +
Hybrid mismatches
Option 1A: Abolish imported
mismatch rules
+++ + 0 0
Tax mergers
Option 1B: Addition of new
restructuring transactions to
TMD
0 +++ ++ ++
Dispute resolution mechanism
Option 1: Clarify operative rules 0 +++ ++ ++
Option 2: Use of Council
implementing acts
0 +++ ++ ++
Overall: +++ +++ +++ +++
Effectiveness: The comprehensive approach addresses all identified problems by compiling an
Omnibus on Taxation which is ambitious and holistic in its simplification measures and thus
delivers on all envisaged specific objectives to the greatest extent possible. In this way, this
approach also accommodates various calls for simplification from the stakeholder consultations,
ranging from most frequent asks, which concentrated around the withholding tax relief under PSD
and IRD and the overlap between CFC rules and Pillar 2, to more moderate asks relating to the
TMD and the DRM. This approach is expected to have high-scale impacts as the aggregated cost
savings for EU businesses are roughly estimated to reduce compliance and financial costs by about
EUR 6-7 billion (EUR 6.6 billion)114,out of which recurrent costs related to cutting down on
administrative burden approximate to about EUR 2 billion per year.
Efficiency: As one of the specific objectives is to eliminate disproportionate compliance costs, it
has already been stated that the expected economic benefits of the comprehensive approach are
significant. By making some of the existing rules mandatory, e.g., for the CFC rules and the Interest
Limitation Rule, this approach would entail implementation costs for Member States that do not
already apply these options. Nonetheless, the enhanced uniformity in the rules would increase the
operational efficiency in the internal market. In general, the one-off costs linked to the transition of
the new rules would be relatively minor, as the comprehensive approach focuses on reducing
existing requirements, rather than introducing new ones and the carve-outs, e.g., related to the CFC
rules and the Interest Limitation rules would entail resource savings for tax administrations. On this
basis, the benefits of the comprehensive approach outweigh by far expected costs, and the
significant savings from this approach would be redirected towards investments in new projects,
expansion and innovation contributing to growth and boosting competitiveness.
Coherence: the comprehensive approach is coherent within the proposal itself as it offers the
broadest possible range of simplification measures across the existing EU tax framework, while
maintaining all the original objectives of the respective tax Directives in place. As a matter of fact,
it strengthens the Commission’s tax policy objectives by extending the progress already made
under the IRD, PSD, FASTER and TMD, while addressing the overlapping CFC and Pillar 2 rules
by introducing a common solution at EU level. It will also contribute to achieving other ongoing
Commission priorities, such as building a strong Savings and Investments
Union, encouraging cross-border commercial activity and business expansion in the
internal market, as well as facilitating business restructurings. The introduction of a new measure
for R&D expensing in this approach is also in line with the Commission Recommendation on tax
incentives to support the Clean Industrial Deal and in light of the Clean Industrial Deal State Aid
Framework (115). Finally, it helps address security and defence challenges in the EU, particularly
by excluding defence projects from the scope of the Interest Limitation Rule.
In conclusion, this approach can be expected to deliver on all the specific objectives in a cost-
efficient way, and thereby significantly simplify tax rules across the EU to boost the
competitiveness of EU business and stimulate investment and economic activity in the EU.
Although the simplification measures are ambitious, they remain coherent with the existing EU
114 Financial costs included in this number stem from the exemption of all payments of interest, royalties and dividends
from withholding tax (Option 1A): companies save EUR 4-5 billion as they would no longer forego tax reliefs and
would no longer bear opportunity costs due to delayed refund. See Section 6.2.1.1. and esp. Annex 4, Section 2. 115 Commission Recommendation of 2.7.2025 on tax incentives to support the Clean Industrial Deal and in light of the
Clean Industrial Deal State Aid Framework. C(2025) 4319 final.
policies and international standards as they are accommodated by necessary safeguards, such as the
protective measure for the withholding tax relief under the IRD and PSD, thereby ensuring that the
current high tax standards in the EU are not compromised.
7.2. Medium Ambition Omnibus on Taxation
Policy option(s) Specific objectives
Taxation of cross-
border interest, royalty
and dividend
payments
Eliminate
disproportionate EU tax
compliance burdens
Introduce clear
and predictable
EU tax rules and
terms
Improve
consistency
in the
application
of EU tax
directives
Reduce
remaining tax
obstacles to
cross-border
investment
and
commercial
activity
Option 1B: Alignment
of scope and
procedures
++ ++ ++ ++
Taxation of CFCs
Option 1: Mandatory
application of Model
A
+ ++ +++ +++
Option 2B: Inclusion
of QDMTT in CFC
calculations
0 + + +
Option 3: Carveout of
SMEs
+++ ++ 0 +
Research and
development (R&D)
Option 1B: Keep
status quo
0 0 0 0
Interest Limitation
Rule
Option 1: Carveout of
SMEs
+++ + + +
Option 2: Mandatory
application of 30%
EBITDA cap
++ 0 ++ ++
Option 3: Reduce
implementation
options
0 + ++ ++
Option 4: Carveout of
low-risk third-party
loans
+++ ++ 0 +
Option 5: Exemption
in case of profitability
shock
++ ++ ++ ++
Hybrid mismatches
Option 1A: Abolish
imported mismatch
rules
+++ + 0 0
Tax mergers
Option 1A: Dynamic
reference to the
0 ++ ++ ++
Mobility Directive
Dispute resolution
mechanism
Option 1: Clarify
operative rules
0 +++ ++ ++
Option 2: Use of
Council implementing
acts
0 +++ ++ ++
Overall ++ ++ ++ ++
Effectiveness: The medium ambition approach entails a wide range of simplification measures that
address all identified problems within existing Directives and responds to the need for action that
was stressed by stakeholders in the stakeholder consultations. It does not go beyond the existing EU
tax framework as requested by stakeholders in the Call for Evidence as it does not provide action
related to R&D expensing. Nonetheless, it delivers well on all specific objectives. The approach is
roughly estimated to reduce compliance and financial costs by around EUR 2-3 billion (EUR 2.4
billion)116,out of which recurrent costs related to cutting down on administrative burden is around
EUR 1 billion per year. Although these estimations are significantly lower than under the
comprehensive approach, mainly due to the alternative options chosen to address the problems
related to the withholding tax relief under the IRD and PSD and the overlap between CFC rules and
Pillar 2, this approach is still expected to provide high-scale impact.
Efficiency: As one of the specific objectives is to eliminate disproportionate compliance costs, it
has already been stated that the expected economic benefits of the medium ambition approach are
high. As this approach does not include a new measure related to R&D expensing and as the
alternative options chosen to address the problems related to the withholding tax relief under the
IRD and PSD and the overlap between CFC rules and Pillar 2 are less thorough than in the
comprehensive approach, the implementation and transition costs are expected to be lower, without
specific impact on tax administrations. While the savings would allow for a more effective
allocation of resources, the positive economic impact would be more limited as the dynamic
impacts on investment and growth would be marginal.
Coherence: The medium ambition approach is coherent within the proposal itself as it offers a
broad range of simplification measures across the existing EU tax framework, building on the
achievements already made at EU level. Like for the comprehensive approach, all measures are
designed to preserve the original objectives of the existing Directives. It also contributes to other
EU policies, like addressing security and defence challenges in the EU and the Savings and
Investments Union, but to a much lesser extent than the comprehensive approach.
In sum, while this outcome will fully ensure high tax standards and appears effective in achieving
the envisaged objectives in a cost-efficient way, its interventions in two key areas, i.e., in relation to
the withholding tax relief under the IRD and PSD and the overlap between CFC rules and Pillar 2,
are less thorough and, consequently, prove less effective in achieving the objectives to simplifying
EU tax rules with a view to boosting EU competitiveness.
116 Financial costs included in this number stem from the exemption of all payments of interest, royalties and dividends
from withholding tax (Option 1B): companies save EUR 1-2 billion as they would no longer forego tax reliefs and
would no longer bear opportunity costs due to delayed refund. See Section 6.2.1.2 and esp. Annex 4, Section 2.
7.3. Limited Ambition Omnibus on Taxation
Policy option(s) Specific objectives
Taxation of cross-border interest,
royalty and dividend payments
Eliminate
disproportionate
EU tax
compliance
burdens
Introduce
clear and
predictable
EU tax rules
and terms
Improve
consistency in
the application
of EU tax
directives
Reduce
remaining tax
obstacles to
cross-border
investment and
commercial
activity
Status quo 0 0 0 0
Taxation of CFCs
Status quo 0 0 0 0
Research and development (R&D)
Status quo 0 0 0 0
Interest Limitation Rule
Option 2: Mandatory application of
30% EBITDA cap
++ 0 ++ ++
Option 3: Reduce implementation
options
0 + ++ ++
Hybrid mismatches
Option 1A: Abolish imported
mismatch rules
+++ + 0 0
Tax Merger Directive
Option 1B: Addition of new
restructuring transactions to TMD
0 +++ ++ ++
Dispute resolution mechanism
Option 1: Clarify operative rules 0 +++ ++ ++
Option 2: Use of Council
implementing acts
0 +++ ++ ++
Overall + ++ ++ +
Effectiveness: The limited ambition approach targets existing measures in a simpler and more
straight forward way, such as reducing the implementation options for the Interest Limitation Rule
and extending the scope of the TMD, to generate simplification results thorough the easiest and
most accessible options. In this way, this approach delivers on all specific objectives, although it is
to a far lesser extent than the two previous approaches. In addition, it fails to address identified
problems related to the withholding tax relief under the IRD and the PSD and the overlap between
CFC and Pillar 2 rules, which were amongst the most highlighted needs for action in the
stakeholder consultations. This approach is roughly estimated to reduce compliance costs (recurrent
costs related to administrative burden) by around 0.1-0.2 billion.
Efficiency: While this approach does not entail what could be considered the biggest simplification
measures, it has some merit, as it would deliver on the objectives of the omnibus without entailing
considerable implementation and transition costs. At the same time, it has already been stated that
the expected economic benefits of the comprehensive approach are low, so it is an approach which
neither entails economic benefits, nor costs, resulting in no considerable impact.
Coherence: The limited ambition approach is coherent within the proposal itself as it offers a broad
range of simplification measures across the existing EU tax framework, building on the
achievements already made at EU level. However, it does not contribute significantly to other EU
policies and it falls short of delivering on the Commission’s aim to cut recurring administrative
costs by EUR 37.5 billionby the end of the 2024-2029 Commission mandate.
In sum, simplification by the least extensive means has the advantage that the legislative proposal
would be very targeted, focusing on the Interest Limitation Rule, the Hybrid Mismatch Rules, the
TMD and the DRM. Although, these elements would contribute to achieving the specific and
general objectives, this version is expected to be less effective than the others as it misses out on the
opportunity to simplify the rules to a greater extent and fails to meet the requests from the vast
majority of stakeholders in the stakeholder consultations to table an ambitious and holistic Omnibus
on Taxation. Consequently, the assessment of the limited ambition approach demonstrates well the
importance of proposing a reform of wide scope, since various specific objectives would be less
supported if the status quo were to be retained in several areas. For this reason, focussing only on
the two key measures appears less effective and efficient than proposing an Omnibus on Taxation
with a broader and more ambitious scope.
8. PREFERRED OPTION
Based on the outcome of the previous section, where the different simplification approaches were
assessed and compared, the preferred approach is the comprehensive approach to the Omnibus on
Taxation. Each of the options, which feature in the preferred approach, are analysed in more detail
below.
8.1. Comprehensive Omnibus on Taxation
8.1.1. Withholding tax exemption for payments of interest, royalties, and dividends
Option A accounts for the preferred simplification measure. This is to facilitate the tax exemption
of cross-border interest, royalties, and dividends within the EU, i.e., a tax exemption of all such
payments without consideration of holding threshold and accompanied by reduced or no procedural
requirements.
Overall, the option scores high in terms of fulfilling all the specific objectives. It will, inter alia,
provide consistency in the application of the IRD and the PSD by extending the scope of these
Directives to all interest, royalty, and dividend payments within the EU, while removing upfront
procedural requirements. The update and alignment of the Annexes will contribute to having
clearer rules. In this way, unnecessary tax compliance burdens linked to the application of these
Directives should be significantly reduced as fewer requirements will have to be met, in order to
benefit from the rules and as the option also provides for greater harmonisation of the procedures,
thereby also delivering on reducing remaining tax obstacles to cross-border investment and
commercial activity.
These results indicate not only a significant contribution to reaching the general objectives of the
Omnibus on Taxation proposal itself, as the proposal simplifies EU tax rules with a view to
boosting EU competitiveness, but also to other EU policies such as the Savings and Investment
Union. At the same time, the option upholds the original objectives of the IRD and the PSD, i.e.,
eliminating double taxation and reducing administrative burdens within the EU, while the
accompanying protective measure targeting royalty and interest payments to zero-tax jurisdictions
will remove the risk of unintended consequences, such as leaving the door open for tax planning
practices. The protective measure will ensure that the current level of protection, and thereby the
high tax standards, are maintained in the EU.
8.1.2. Taxation of Controlled Foreign Companies
To address the identified issues related to CFC rules in the ATAD, the preferred simplification
measures constitute a combination of Option 1, i.e., mandatory application of ‘Model A’, Option
2A, i.e., carveout of Pillar 2 companies, and Option 3, i.e., carveout of SMEs.
The mandatory application of the CFC rules based on ‘Model A’ introduces a common CFC
standard in the EU. Compared to the current divergence in the application of the rules, the measure
will effectively improve the consistent application of the CFC rules in the ATAD and replace
national specificities related thereto, thereby making the rules clearer. While this will simplify the
application of the rules for businesses across the EU, the mandatory application will also bring
legislative approximation towards higher tax standards in the EU as ‘Model A’ provides for a more
objective test than ‘Model B’ which is based on Transfer Pricing rules entailing a high degree of
discretion.
The carveouts ensure that two low-risk cases will not have to apply the CFC rules: SMEs, which
present a low risk for engaging in abusive cross-border tax practices, and large MNEs, which are
subject to the Pillar 2 global minimum tax. Thereby, these measures will eliminate unnecessary
compliance burdens for these businesses and contribute to simplifying EU tax rules while keeping
them fully in place where these are necessary for maintaining the current high tax standards in the
EU. The original objective of the CFC rules, i.e., to prevent multinational groups from shifting
profits from a parent company in a high tax jurisdiction to subsidiaries in low or no tax jurisdictions
to reduce the group’s tax liability, is thus well preserved in accordance with international standards
laid down in the OECD BEPS Action 3.
8.1.3. Expensing of assets related to research and development (R&D)
To boost EU competitiveness, this option introduces a simplified and consistent rule to ensure
immediate expensing for acquired tangible R&D assets, which is particularly important given the
existing favourable treatment of R&D expenses in key partner economies. This option will
introduce clearer and more predictable rules compared to the current national divergencies and will
reduce an identified tax obstacle to cross-border investment and commercial activity in the internal
market, thereby simplifying tax rules across the EU and stimulating economic activity with an
overall stable tax collection. To ensure that the measure meets both general objectives, it is
designed in accordance with the highest tax standards, as the option will include a definition of
qualifying R&D expenses, and the application will take inspiration from similar legislation adopted
by other like-minded international partners.
8.1.4. Interest Limitation Rule
To simplify the functioning of the Interest Limitation Rule in ATAD, it is preferred to introduce all
envisaged options, as they will make the rule more efficient and effective compared to the status
quo.
In particular, Option 2, i.e., mandatory application of the 30% fixed ratio of the EBITDA, and
Option 3, i.e., reduction of implementation options, will simplify the EU tax environment by
ensuring a more consistent application of the Interest Limitation Rule and replacing national
specificities related thereto. These options respond directly to the simplifications that stakeholders
were asking for in the consultations and to the findings of the ATAD evaluation, where it has been
pointed out in unison that the flexibility of the current rule creates problems in practice. These
options will, therefore, contribute to the general objectives of the Omnibus on Taxation by
simplifying the Interest Limitation Rule with a view to boosting EU competitiveness. Enhancing
the harmonisation of the rule will also contribute to maintaining high tax standards in the EU as it
will provide for a more uniform EU approach that still meets international standards as set out in
the OECD BEPS Action 4.
In turn, Option 1, i.e., a carveout for SMEs, and Option 4, i.e., carveout of third-party loans, will
ensure that the rule is more targeted, as low-risk cases will be alleviated from the associated
compliance burdens. The carveout will not alter the original objective of the Interest Limitation
Rule, i.e., to prevent using high debt financing to artificially reduce taxable profits in high-tax
jurisdictions, as the rule is intended to align taxation with genuine financing needs and prevent base
erosion by ensuring that interest deductions correspond to actual earnings. In the low-risk cases in
question, taking out a loan will generally reflect the company’s financing needs and the current
level of protection will not be adversely affected by unintended consequences linked to these
options. Hence, high tax standards remain within the EU.
Finally, Option 5, i.e., exemption in case of profitability shock, addresses the specific case where
the Interest Limitation Rule should not be imposing additional compliance or tax burden on a
company which experiences a significant drop in its EBITDA. This option will facilitate doing
business in the EU in periods of general economic difficulty or when a company faces occasional
economic challenges and, thereby, it improves the competitiveness of EU companies. The option
does not lower the current level of protection as it will only apply in cases where a company’s
difficulties reflect its economic reality. Tax planning opportunities will, therefore, not be an
unintended consequence of the option, and the high tax standards in the EU will continue to apply.
8.1.5. Hybrid mismatches
To reduce the complexity related to the hybrid mismatch rules, the preferred simplification measure
is to abolish the rules on imported mismatches, i.e., Option 1A, due to their limited use, practical
difficulties in application, and, as a result, little-to-no practical effect. This will make the rules
clearer without altering the original objective of the rules, i.e., eliminating hybrid mismatch
arrangements that exploit differences in the tax treatment of instruments, entities, or transfers
between two or more countries to achieve double non-taxation, as it is only doing away with a rule
which does not offer any protection in practice. The hybrid mismatch rules in the EU would
therefore remain in line with the primary rules of the international standards as set out in the OECD
BEPS Action 2. The option will thereby contribute to simplifying the EU tax landscape by
eliminating compliance burdens in a certain field without lowering high tax standards.
8.1.6. Tax mergers
As for the TMD, the preferred option is to update the existing definitions to include the new
restructuring transactions in the Mobility Directive (Option 1B). This will ensure the most
consistent application and remove a tax obstacle for business reorganisations which are already
acknowledged by EU law. The original objectives of the TMD, i.e., harmonising the tax treatment
of cross-border corporate reorganisations, would be fully pursued and extended to new
restructurings, thereby ensuring a wider level of protection for EU companies and facilitating more
types of restructurings to boost EU competitiveness. It would also run counter to the objectives of
the Omnibus on Taxation if these cases were left to be regulated in accordance with diverging
national tax approaches.
8.1.7. Dispute resolution mechanisms
Regarding the DRM, the preferred approach is a combination of targeted legislative amendments to
the text of the DRM (Option 1) coupled with the possibility of adopting Council implementing acts
(Option 2), depending on the nature of each issue. The original objective of the DRM, i.e.,
improving procedures for resolving double taxation disputes between Member States, will not be
affected. In fact, the interpretative issues identified in the application of the DRM cannot be
effectively addressed through a single instrument; instead the combination of the options will
effectively eliminate interpretative divergences and deliver to the greatest extent on providing clear
and predictable EU tax rules and terms, while also largely ensuring a uniform treatment of matters
within the scope of the DRM by replacing national rules related to the DRM with a harmonised
approach. These measures are complementary and expected to simplify the application of the DRM
while the improved functioning of the DRM will offer a higher level of protection and enhance the
tax standards in the EU.
8.2. REFIT (simplification and improved efficiency)
Under this programme, the Commission ensures that EU laws deliver their intended benefits for
individuals and businesses while achieving simplification and cutting red tape, whenever possible.
This condition is fulfilled, given the very intention of the proposed package: to simplify and cut red
tape. As noted in Section 8.1, all businesses in the scope of the EU acquis will benefit from the
simplifications which are envisaged under the Omnibus on Taxation proposal. The Omnibus on
Taxation is therefore in accordance with REFIT.
For further details, see Sections 4.1, 5.2, 6, and 0.
8.3. Application of the ‘one in, one out’ approach
According to the ‘one in, one out’ approach, new administrative burdens resulting from the
Commission’s proposals should be offset by reducing existing burdens in the same policy area. As
noted in Section 8.1, the preferred option has the potential to significantly reduce tax compliance
costs for businesses in the EU.
Proposals are designed so that the cost of implementation is minimal, especially if expressed as
annualised present value (i.e., distributed over the entire period a company will exist). It is so low
that they cannot be seriously estimated for both companies and financial administrations.
As a result, it is difficult to fully apply the ‘one in, one out’ approach in this situation as the
Omnibus on Taxation is meant to amend the existing rules to make them simpler and more
effective rather than removing or adding rules. On the basis of the Omnibus on Taxation, the
estimated administrative cost savings is about EUR 2 billion.117
However, as mentioned in the context of model simulations presented in Chapter 6, the full macro-
economic benefits of the proposed simplification measures for businesses outweigh by far these
direct cost savings and, all the more so, the cost of their implementation. This is because these cost
savings will play a role each time that companies make a decision about whether or not to invest
cross-border. This will create important second-round effects.
Consider that withholding taxes at zero percent across the EU will make complex refund
procedures unnecessary (Section 6.2.1.1); or that many companies having to comply with P2-
117 The latter amount includes savings from avoiding financial costs stemming from the exemption of all payments of
interest, royalties and dividends from withholding tax (Option 1A): avoiding foregone refund and opportunity costs due
to late tax refunds, a total of EUR 4.6 billion. See Chapter 6, Section 6.2.1.1 and Tables 1 and 2 of Annex 4.
related rules will be relieved from having to also comply with CFC rules (Section 6.2.2.2); or that
many companies now subject to interest limitation rules would no longer have to check compliance
with these rules in the future (Sections 6.2.4.1 and 6.2.4.4). All these measures create more legal
certainty for a significant number of companies which, in turn, will foster confidence in future
investment. It will motivate more of those companies to actually decide in favour of a given
investment, which today still consider that their cost is no match to the potential return. As a result,
more companies will invest in other EU countries, tapping into the full potential of the internal
market.
9. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?
Monitoring and evaluation are key constituents of this simplification initiative, regardless of the
policy options to be finally selected. Progress towards achieving the objectives will be monitored
and evaluated on the basis of the data already collected in combination with potential new
information.
9.1. Monitoring
The Commission will periodically monitor the implementation of the Omnibus on Taxation
proposal and its application in close cooperation with the Member States. Monitoring in a
continuous and systematic way will allow the Commission to identify whether the policy proposal
is being applied as expected and to address implementation problems in a timely manner.
Collection of factual data on the suggested monitoring indicators will also provide the basis for the
future evaluation of the initiative (Section 9.2).
Below, indicators are suggested to measure the success of the initiative in light of the specific
objectives (Tabel 1) and general objectives (Tabel 2):
Table 1: Monitoring of specific objectives
Target Indicators
Eliminate disproportionate
EU tax compliance burdens • Significant change in tax compliance costs for businesses,
relative to their turnover (established through a dedicated
survey).
• Share of companies for whom exceeding borrowing costs
remain non-deductible for both groups and SMEs, established
on the basis of a firm-level sample as done for this Impact
Assessment (Chapter 6 and Annex 4, Section 4 for 2024).
• Change in R&D expenditure as percent of GDP
• Level of costs and cost savings borne by tax administrations
(established through dedicated surveys)
Predictable EU tax rules
and terms • Stakeholder views on issues with the interpretation of specific
provisions, the existence of operational and technical
inconsistencies (e.g. different definitions, different reporting
standards), and how different policy choices in implementation
affect effectiveness
• Change in the number of cases resolved using the DRM
• (Change in tax compliance costs for businesses, relative to their
turnover)
Consistent application of
EU tax directive • Stakeholders’ views on harmonisation and on the variation of
options for transpositions and effects on business operations
• Existence of tax gaps and overlaps
• (Change in tax compliance costs for businesses, relative to their
turnover)
Table 2: Monitoring of general objectives
Target Indicators
Simpler tax rules boosting
EU competitiveness • Change in FDI within the EU (Balance of Payment Statistics)
• Change in tax compliance costs for businesses, relative to their
turnover
• Comparison of costs and benefits from stakeholders’
perspective (feedback on the issues addressed by the Tax
Omnibus)
Maintaining high tax
standard in the EU • Evidence of issues in the design of the Tax Omnibus, e.g., gaps
or loopholes that make the existing Directives prone to be
circumvented (stakeholder views)
• Change in the use of aggressive tax planning as indicated by the
amount of interest and royalty payments bound for jurisdictions
outside the EU
• Stakeholders’ views of the extent to which the Tax Omnibus
influenced business organisation and tax planning choices
To measure the indicators, the Commission will use different tools, such as stakeholder
surveys/questionnaires, public information, e.g., from Eurostat, company level databases, e.g.,
Orbis, external and internal research, and statistics, e.g., on the judicial activity of the CJEU. The
Commission will also review the situation in the Member States regularly and publish a report. The
monitoring framework will be subject to further adjustments in accordance with the final legal and
implementation requirements and timeline. Given the current lack of data, it will be difficult to
isolate the impacts of the Omnibus. Hence, stakeholder will also be surveyed on the basis of
generalised questions to obtain broad-ranging qualitative data. Similarly, a survey specifically on
ATAD-related compliance costs will be carried out. It must be sufficiently large to allow for
econometric techniques.118 Those will be used to analyse the effect of the Omnibus on compliance
costs, controlling to the largest possible extent for other observable and non-observable cost
drivers.
118 The survey could update the analysis presented in Tax compliance costs for SMEs: An update and a complement
Final Report KPMG/VVA 2022.
9.2. Evaluation
Considering the impact of the initiative on several existing EU direct tax Directives, which have
been transposed by the Member States, it will be necessary to give Member States time to properly
implement the adjustments which will be adopted in Council as part of the Omnibus on Taxation
proposal. On this premise, the first evaluation should not take place earlier than five years after the
new rules start to apply.
In addition to the data outlined in Section 9.1, Member States will be asked to communicate to the
Commission any relevant information that is necessary for the monitoring and evaluation of the
Omnibus on Taxation proposal. After giving a picture of the functioning of the new EU tax rules,
the evaluation should assess whether the outlined objectives have been met, including to what
extent the expected simplifications have materialised. The Commission will inform about the
evaluation results in the form of an evaluation report, which will be submitted to the Council.
ANNEX 1: PROCEDURAL INFORMATION
Lead DG, Decide Planning/CWP references
The lead Directorate General is the Directorate General for Taxation and the Customs Union (DG
TAXUD).
References:
– Agenda Planning: Omnibus on Tax Simplification (PLAN/2025/2875)
– Call for evidence on simplifying EU rules on direct taxation (Ref. Ares(2026)1712759)
– The initiative was announced in the Communication from the Commission to the European
Parliament, the Council, the European Economic and Social Committee, and the Committee
of the Regions on the Commission work programme 2026 (COM(2025) 870 final)
Organisation and timing
An Inter-Service Steering Group (ISSG) was set up to steer and provide input to this impact
assessment report. The steering group, led by the Secretariat-General, met on: 23 January, 25
February and 20 March 2026.
The following Directorates General were invited to the Steering Group: AGRI, BUDG, CNECT,
COMM, COMP, ECFIN, EEAS, EMPL, ESTAT, FISMA, GROW, INPTA, JRC, JUST, REGIO,
SJ, OLAF, TRADE. In addition to the meetings of the Inter-Service Steering Group, DG TAXUD
met in bilateral meetings with representatives of the following Directorates General to discuss the
analysis in the impact assessment, the design of options, and other policy issues: COMP, FISMA,
JRC, and the Secretariat-General.
Consultation of the RSB
The preparation of the Impact Assessment report was discussed with the Regulatory Scrutiny Board
in an upstream meeting on 9 March 2026.
The report was submitted to the Regulatory Scrutiny Report on 8 April 2026.
The Impact Assessment report was scrutinised by the Regulatory Scrutiny Board and discussed in
the relevant meeting on 29 April 2026. In the opinion dated 4 May 2026 and in line with the
decision of the President of the Commission P(2026)1 of 28 April 2026, the Regulatory Scrutiny
Board provided recommendations on how the quality of the draft report submitted should be
improved.
On this basis, the Impact Assessment report has been revised. The main changes to the report are
summarised in Table 3:
Table 3: TAXUD revisions following the RSB recommendations
Comments of the RSB How and where comments have been addressed
(C) What to improve
(1) The report should provide more robust
evidence including quantitative observational
data, to demonstrate the extent to which the
identified problems impose costs and burdens
on economic operators. It should explain how
this constrains economic activity and impacts
growth and competitiveness and also their
impacts on public authorities. To the extent
possible, observational as well as more granular
opinion data should be used to demonstrate the
size of the problems and establish the dynamic
baseline. The report should also bring forth
relevant evidence from key sources, such as the
ATAD evaluation and its support study.
More data, e.g., from the Call for Evidence, the
ATAD evaluation and other publicly available
studies, has been added in Chapter 2 to provide
more robust evidence on the identified
problems. It has also been clarified in Chapter 3
(EU action) and 5 (baseline scenario) that not all
problems that are identified, e.g., in the ATAD
evaluation and in the Call for Evidence, feature
in the report as the report focuses on identified
problems that can only be addressed by
legislative action.
(2) The report should strengthen the
intervention logic by providing a clearer
description of some of the proposed measures
and how they correspond to the identified
problems and objectives - especially for
measures concerning R&D expensing and
imported hybrid mismatches. It should, for
example, include an analysis of legal
uncertainties and diverging national rules on
expensing of R&D, and also clarify that the
measure is a new initiative rather than a change
of existing EU rules regarding expensing. As
regards imported hybrid mismatches, it should
better describe the problems. The report should
also outline the underlying logic guiding the
combination of individual measures into the
proposed options, and provide further
clarification on the main differences between
the ‘comprehensive’ and ‘medium’ ambitions.
The intervention logic has been revised to
ensure that there is a clearer link between the
identified problems (Chapter 2) and envisaged
objectives (Chapter 4). The wording of the
specific objectives has also been slightly
adjusted to make it less prescriptive and more
open to different simplification options. More
attention has been given to the SMART criteria
in the Better Regulation Guidelines, and the
measurability of the envisaged objectives has
been improved, e.g., by the use of qualitative
metrics as indicators for success (Chapter 9).
More explanations have been added concerning
R&D expensing and Hybrid Mismatch Rules to
the explanations concerning the problems
(Chapter 2), the baseline scenario and the policy
options (Chapter 5).
The underlying logic, i.e., different levels of
ambition, for the composition of the different
approaches to the Omnibus on Taxation has
been clarified (Chapter 7). In the same vein, the
‘medium ambition’ and ‘limited ambition’
approaches have been modified to provide three
ways, which are more differentiated, in which
the different policy options could be compiled
in the Omnibus on Taxation. The assessments of
the three approaches have been improved and
adjusted accordingly.
(3) The report should elaborate on the impact
on public administrations, including costs, cost
savings, and short-term and long-term effects
on tax bases and tax revenues. The report
should analyse potential obstacles that could
The analysis in chapter 6 has been supplanted
with additional elements on costs and impact on
public revenues, where such analysis is possible
taking into account significant data limitations,
as well as further elements of a macroeconomic
hinder the effective and timely implementation
of the proposed options by Member States.
nature to the extent growth, employment,
investment impact can be assessed through
existing economic models. Further explanations
on assumptions underlying points of analysis
have also been added (either in the text or
details in Annex to support conclusions).
4) The report should enhance its analysis of
costs, cost savings, and risks, including an
examination of potential impacts on objectives
such as removing double taxation, eliminating
unnecessary or disproportionate tax compliance
cost, ensuring tax neutrality, and tackling tax
avoidance and evasion. The analysis should
also better assess the resulting costs and
benefits from applicable efficiency
perspectives, and also consider the
distributional effects on various stakeholders.
The report should further assess the effects on
the EU business environment and economic
growth.
In addition to the points above, the analysis has
been better delineated by stakeholder group,
clarifying impacts on companies (corporate
taxpayers), tax administrations, and in
macro/economic terms. The analysis also
provides assessment on the impact of
maintaining high tax standards in the Union for
all relevant measures and policy options.
(5) The report should provide more empirical
evidence to support the assumptions used in the
analysis and provide a sensitivity analysis
where appropriate. It should, for example,
demonstrate the robustness of assumptions such
as 0.5% CIT compliance cost savings for R&D,
the 5% ILR-related cost reduction, and the
assumption on CFC and ILR related compliance
costs. Additional explanations on the
assumptions and data sources used in the model
should be included.
Detailed explanations of the empirical evidence
used, where available, has been added and
explanations provided for assumptions and data
sources when those are necessary/used.
(6) The report should be written using non-
technical language and be a self-standing
document that is accessible to non-expert
readers.
The report, and particularly Chapter 2
(problems), has been revised to give a simpler
and clearer presentation of identified problems.
To provide a better overview, a timeline for the
adoption of the existing Directives has been
added in Annex 7.
The use of abbreviations has been limited, and
more definitions of key concepts have been
added to make the report more accessible to
non-expert readers. The baseline scenario has
been moved from an Annex to the main body of
the report to ensure that the report is self-
standing.
Evidence, sources and quality
The evidence base for this impact assessment report is based on various different sources, such as:
– Modelling by the European Commission’s Joint Research Centre using the CORTAX
model.
– Feedback from the targeted stakeholder consultations and call for evidence, as summarised
in the synopsis report in Annex 2.
– The ATAD evaluation.
– Exchanges with additional stakeholders through the Platform for Tax Good Governance
and with Member States in Commission Working Party IV.
– Desk research and quantitative analysis.
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT)
Stakeholders’ engagement strategy
The consultation strategy for the Omnibus on Taxation encompasses the following activities:
– Feedback to the Call for Evidence published on the Commission website on 16 February
2026
– Targeted consultations with a wide range and large number of key stakeholders
No public consultation has been conducted as extensive targeted consultations have been held with
key stakeholders over the course of 15 months.
Feedback on the Call for Evidence
The consultation period through this feedback mechanism took place between 16 February and 30
March 2026 via the Commission website119. 117 contributions were submitted during this
consultation period by the following categories of stakeholders:
Figure 10: Respondents to the Call for Evidence by category
Source: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/16912-Simplifying-EU-rules-on-direct-taxation-
omnibus/feedback_en?p_id=22324
Overall, stakeholders fully supported the initiative to simplify existing EU tax rules with a view to
improving the functioning of the internal market and ensuring Europe’s attractiveness as a place to
invest and to do business. Nonetheless, the views on how exactly the simplification should be
conducted varied.
119 Simplifying EU rules on direct taxation – omnibus.
The majority of stakeholders, i.e., approximately 77%, expressed the need for enhancing
harmonisation and limiting national discretion in implementing the existing Directives. Other
recurrent askes concerned, e.g., rationalising and modernising the existing Directives, reducing
overlaps, inconsistencies, and administrative burdens, as well as standardising and clarifying the
terms and rules. Around 50% of the stakeholders found that the procedures following from the
Directives should be standardised, including through the use of digital tools. Around 60% also
pointed out the importance of making the rules and procedures simpler for SMEs.
In terms of specific issues and possible simplifications to the existing Directives, for the IRD and
the PSD, approximately 67% of the stakeholders expressed the need to simplify the current
withholding tax relief framework. The main issues concentrated around the access to withholding
tax relief which was considered as too complex, the eligibility requirements too strict and the
application of the Directives too inconsistent. On this basis, it was inter alia suggested to remove
upfront requirements, such as attestations, in order to benefit from the tax exemption, or to increase
administrative cooperation between the Member States by harmonising the procedural rules,
including by introducing a standardised documentation framework, across the EU. It was also
suggested to remove withholding taxes within the EU entirely or to harmonise the withholding tax
rates. It was suggested to update the list of company forms in annex to each Directive to
incorporate changes seen during the last years or even make the list more flexible and to harmonise
the beneficial ownership requirements and the participation exemption method. The need for
clarifying the scope of the specific anti-abuse rules was mentioned. Moreover, it was pointed out
that the current requirement of a 25% direct holding requirement in the IRD is too restrictive and
should be aligned with the holding requirements under the PSD. Also, for the IRD, it was
highlighted that the material scope is too narrow, e.g., excluding payments that, from an economic
perspective, perform the same function as interest or royalties, such as remuneration arising from
hybrid financial instruments, loans with variable or profit-linked components, redemption premia,
and other financial returns, and that the concept of interest should be harmonised. For the PSD, it
was suggested to harmonise the concept of ‘profit distribution’ across the EU, to ensure that all
Member States interpret the holding requirements as covering indirect ownership, to consider
holding periods at group level, and to avoid distortive outcomes from the 5% exemption limitation.
For the ATAD, the main message from stakeholders was to address the complexity and keep the
protection. More specifically, approximately 68% of the stakeholders found the parallel application
of ATAD and Pillar 2 disproportionate. In this regard, it was inter alia suggested that: The Interest
Limitation Rule could be abolished if the lender is established in a jurisdiction which has
implemented a QDMTT, and CFC rules and rules on hybrid mismatches could be abolished for
Pillar 2 companies. Concerning CFC rules, it was also pointed out that by around 60% of the
stakeholders that fragmentation and legal uncertainty should be reduced, e.g., by harmonising rules
and reporting obligations (e.g., by allowing only the implementation of one Model). Concerning the
Interest Limitation Rule, issues were pointed out by approximately 52% of the stakeholders. In this
regard, it was stressed that the current economic conditions, such as inflation, financing needs, and
income volatility, should be addressed. In addition, it was suggested to enhance the target and
proportionality of the rule, e.g., by excluding third party loans, introducing more coherent
definitions of ‘EBITDA’, ‘interest expense’ and ‘borrowing costs’, allowing for certain sector
specific requirements, making some of the safeguards mandatory, such as the group escape rule and
the infrastructure project exemption, while broadening its scope, and clarifying the treatment in
liquidation scenarios. Concerning the hybrid mismatches, concerns were raised by around 43% of
the stakeholders. It was, e.g., mentioned that the applicability of the rules should be limited to intra-
group transactions, that the rule on imported mismatches should be: removed, limited to ‘back-to-
back structures’, or clarified. In addition, it was requested that the definition of ‘acting together’
should be clarified, and that a de minimis threshold should be introduced. Concerning the general
anti-abuse rule (GAAR), approximately 44% of the stakeholders suggested to clarify and target its
scope, e.g., by providing guidance on its interpretation and by refining the interaction with Pillar 2.
Concerning exit taxation, it was suggested to introduce tax deferral upon exit or until realisation of
gains, instead of an instalment, and to standardise the method for determining the market value.
Lastly, on a general note, around 67% of the stakeholders stressed that the minimum standards in
ATAD, which are transposed differently in the Member States, create fragmentation and
complexity which could be addressed by enhancing harmonisation in this area, e.g., by limiting
implementation options as much as possible and by reducing ‘gold plating’, i.e., unilateral
introduction of additional requirements above the minimum set out in EU legislation, in the
Member States. It was also noted by approximately 45% of the stakeholders that the ATAD rules
are disproportionate for SMEs and which could be solved by introducing carve-outs for SMEs.
For the TMD, approximately 38% of the stakeholders found that the scope should be extended and
updated. It was inter alia pointed out that it has not kept pace with developments in EU company
law, i.e., the Company Merger Directive as amended by the Mobility Directive, and modern
business practices. It was also stressed that there is a need for clarification of the specific anti-abuse
rule, the treatment of losses carried forward, the effective dates, and the rules concerning partial
divisions, including the rules for allocating shared or functionally important assets. Finally, it was
noted that the scope and eligibility requirements should be aligned with the IRD and the PSD and
extended to cover transparent entities and that it should be ensured that the benefits are not denied
where the merger or division includes a tax transparent entity.
For the DRM, around 38% of the stakeholders found that dispute resolution remains too slow and
complex. It was inter alia pointed out that there is a need for a more meaningful participation of the
taxpayer and more timely and effective resolution of double taxation disputes, e.g., under the
supervision of the Commission. In this regard, it was e.g., suggested to enhance transparency, to
ensure a consistent interpretation of the admission criteria, to enforce timelines more strictly and
impose interest and penalties, where applicable, to clarify the interaction with MAP procedures, to
establish a permanent arbitration body, to clarify the definition of affected person, and to extend the
scope to disputes arising from the application of the Pillar 2 Directive. It was also stressed that
there is a need for an EU framework for dispute prevention, e.g., in transfer pricing, which can be
bilaterally or multilaterally adopted by Member States.
The feedback showed no demand for modifying the original policy objectives of the existing
Directives.Conversely, a few stakeholders emphasised that simplification efforts should be done in
a way that does not undermine the important policy objectives of the existing Directives. Some
went further and noted that the existing Directives should be reinforced, e.g., with new dedicated
anti-abuse rules and minimum substance requirements. Others also suggested that new tax
initiatives should entail systematic reviews of existing measures, e.g., to ensure that simplification
is continuous rather than a one-off matter and that the impact for SMEs is regularly evaluated.
Finally, approximately 61% of the stakeholders expressed that the simplification should go beyond
amending the existing Directives, e.g., to further support innovation and growth through a more
ambitious and holistic tax agenda. Other asks in this area related: to taxation of unrealised capital
gains, to introduce a common distribution-based tax system in the EU and a centralised EU
reporting and one-stop-shop model, to shift from taxing income to taxing pollution and resource-
use, to have more incentives for SMEs, to improve Transfer Pricing within the EU, to introduce
mutual recognition of tax-exempt public benefit entities, to exclude jurisdictions with a QDMTT
from the EU list of non-cooperative jurisdictions, to review the implementation of the OECD Pillar
2, and to expand the scope of simplification to indirect taxation, cross-border workers, and existing
proposals, such as BEFIT, and the Pillar 2 Directive.
Targeted Consultations
Over the course of the policy development process, a number of interviews and meetings were
carried out with different private stakeholders, including businesses of different sizes operating in
different sectors. The consultations mainly covered issues related to the IRD, PSD, TMD, and
DRM as a separate study was carried out for the ATAD by an external contractor as part of the
evaluation of the ATAD.
Overall, it can be said that the stakeholders favour the objectives of simplification and tax
competitiveness but their current issues and needs for simplification vary relative to their size,
activities, and the Member States in which they are operating. The key take-aways from the
discussions can be summarised as follows:
Concerning the IRD and the PSD, most stakeholders face compliance burdens, particularly in some
Member States where taxpayers have to either request a refund of paid withholding tax or undergo
lengthy and costly upfront procedures to benefit from the tax exemption. Stakeholders suggested to
align formalities and deadlines, and to introduce a digitalised and standardised procedure across the
EU, including EU digital tax resident certificates, building on the FASTER Directive. Some
stakeholders also highlighted heavy compliance burdens related to beneficial ownership tests and
noted that complex rules have a deterrent effect on distributing profits across borders – contrary to
the objectives of the Directives. Some stakeholders found that withholding taxes could be fully
removed within the EU, or at least procedures with upfront compliance requirements should be
abolished.
In addition, concerning the IRD and the PSD, many stakeholders stressed the need for a common
definition of beneficial ownership and common beneficial ownership test within the EU to provide
more certainty to taxpayers and tax authorities. It was also noted by some stakeholder that the PSD
does not include a ‘beneficial owner’ definition. Nonetheless, several Member States limit the
application of the PSD in situations where the recipient is not considered the beneficial owner,
which is clashing with the legal concept of a ‘shareholder’. Some stakeholders also highlighted the
general need for common understanding and interpretation of terms in the Directives. Particularly
concerning the ‘eligible companies’, it was pointed out that the annexes should be updated and
aligned. With regard to the holding requirements, most stakeholders shared the view that the IRD
and the PSD should be aligned on the use of indirect holdings and percentages as the they are
currently treated differently across the EU because discretion to the Member States led to
deviations in the conditions to benefit from the Directives. Some stakeholders found that the scope
of the Directive should be broader and that the tax exemption should ideally apply irrespective of
holding requirements within the EU.
Regarding PSD, some stakeholders raised concerns in relation to the implementation of Article 4(3)
which allows Members States to exclude, from the tax base, the deduction of management costs
relating to the holding for a fixed amount corresponding to 5% of the profits distributed. According
to stakeholders concerned, when the actual expenses are lower than the flat rate, this may result in a
part of the dividends or profit distributions not being exempt, leading to inconsistencies with the
aim of the PSD to eliminate double taxation.
On the anti-abuse rules in the IRD and the PSD, many stakeholders experienced difficulties in the
application of the specific anti-abuse rules, the beneficial ownership tests, and the general anti-
abuse rule in the ATAD. It was highlighted that benefits should not be denied if the arrangement
does not result in a tax advantage. While some stakeholders suggested to merge the anti-abuse
provisions of the PSD and IRD, others found that they could be abolished as the general anti-abuse
rule in ATAD was sufficient. It was also mentioned that a common understanding of key concepts,
including clarifications on ‘tax advantage’ and timing of assessment for non-genuine arrangements,
would be helpful.
Concerning the TMD, not all stakeholders had experience with restructurings. Among the relevant
stakeholders, some found a need for clarification on the type of operations that fall within the scope
of the TMD. In this regard, it was also pointed out that TMD should be aligned with the Company
Law Merger Directive as amended by the Mobility Directive to cover more restructuring forms.
Few stakeholders advocated for extending the scope of the TMD to all taxes, including real estate
(transfer) taxes, stamp duties, local and regional taxes, to ensure full tax neutrality and to make it
easier for businesses re-organise within the EU. A few stakeholders also suggested to have common
rules on tax losses and valuation methods.
Stakeholders in-scope of Pillar 2 highlighted the need to review the EU tax legislation in view of
the implementation of Pillar 2. They pointed out that certain elements of the EU tax legislation,
particularly concerning ATAD, have been rendered obsolete, and should be withdrawn with a view
to reducing administrative burden and boosting the EU’s competitiveness.
Finally, concerning the DRM, most stakeholders found the procedures too lengthy, time-
consuming, and that there was a lack of uniformity amongst existing mechanisms. In this regard, it
was pointed out that it is important for tax certainty that the procedures are binding and have set
deadlines. Some stakeholders also called for allowing procedures in English, or one or two
additional big EU languages, and more extensive involvement of taxpayers during the procedures.
It was stressed that the DRM should create an obligation for Member States to solve the issue in
question and that Member States’ possibility to deny access should be limited. Several stakeholders
also expressed the view that the scope of the DRM could be extended and that more dispute
prevention initiatives, such a corporative compliance programmes, are needed in the EU.
ANNEX 3: WHO IS AFFECTED AND HOW?
1. Practical implications of the initiative
The initiative directly affects the companies that will be subject to and thus liable to domestic taxes
on companies of EU Member States, as well as their respective national tax administrations, by
simplifying EU tax rules to boost EU competitiveness, while maintaining high tax standards in the
EU. Citizens will indirectly benefit from the increase in GDP. It also indirectly affects the tax
revenues of Member States.
Companies will bear minimal initial adjustment costs for training the personnel to the new rules.
This is because the Omnibus on Taxation either eliminates, clarifies or updates existing EU rules,
or, where the initiative introduces new harmonised rules, builds on existing approaches, e.g. the
FASTER Directive for withholding tax procedures, or simpler frameworks (e.g. the tax
depreciation treatment of assets related to research and development). Accordingly, it is also
expected that recurrent costs will be very low. Because the new measures aim to simplify EU tax
rules, there will be a significant cost reduction overall for EU businesses.
Similarly, the impact for tax administrations should be positive, because, apart from the initial cost
for training, they can be expected to free up human resources thanks to exemptions from existing
administrative burdens (e.g. withholding tax), a more targeted scope for some of the EU rules (e.g.
CFC, Interest Limitation Rule), and clearer mechanisms such as for dispute resolution.
2. Summary of costs and benefits
As explained in Chapter 6, it has not been possible to estimate costs for each of the envisaged
policy options. Also, input from stakeholders has been limited in terms of quantitative estimations
of the relevant costs, which accordingly makes it difficult to provide robust estimates. In addition,
depending on the business model of the different groups, the cost of applying the existing EU rules
is expected to differ substantially. For instance, a group which is centrally organised would have
less costs than a group which mainly operates its administrative functions at the level of its
subsidiaries in different Member States. Below, an attempt is made to describe some of the possible
costs, noting that these are likely to be relatively very small, especially when compared to the
potentially large cost savings derived from simplification. No recurrent costs are expected, given
that the very nature of the Omnibus on Taxation is to reduce recurrent compliance costs.
I. Overview of Benefits (total for all provisions) – Preferred Option
Description Amount Comments
Direct benefits
Reduction of tax-related
compliance costs for cross-
border operating companies.
For all companies: EUR 6.6 billion per year
- Exemption from WHT on intra-EU cross-
border interest, royalty and dividend payments:
EUR 5.34 billion per year (of which EUR 4.59
billion accrue to lower foregone tax relief and
lower opportunity costs; EUR 0.75 billion
accrue to incurred costs, i.e., lower
administrative burden).
- Carveout of Pillar 2 companies and SMEs from
CFC rules: EUR 160 million respectively EUR
90 million per year
- Mandatory application of CFC Model A: EUR
45 million per year
Chapter 6 provides explanation for
estimates under different scenarios.
- Common tax depreciation treatment of R&D
assets: EUR 265 million per year
- De minimis exclusion (SMEs) and carve-out of
qualifying third-party loans from the interest
limitation rule: EUR 69 million and EUR 430
million per year respectively
- Other simplifications of the interest limitation
rule: EUR 80 million per year
- Other measures (hybrid mismatches, tax
mergers, dispute resolution): EUR 80 million per
year
Cost savings in legal advice
and litigation procedures
concerning dispute
resolution and business
reorganisations.
Difficult to estimate. Legal advice and litigation
costs for complex tax matters can range from
several thousands to a few millions per company
per case. More tax certainty and common rules
can lead to a substantial reduction of such costs.
Chapter 6 provides explanation for
estimates under different scenarios.
Supporting EU
competitiveness through
exemption from WHT on
intra-EU cross-border
interest, royalty and
dividend payments.
In the long run: EU GDP could be higher by
+0.04% relative to the status quo.
Chapter 6 provides explanation for
estimates under different scenarios.
Supporting EU
competitiveness through
simpler, common and more
beneficial tax depreciation
treatment for investments in
the area of research and
development (R&D).
In the long run: EU GDP could be higher by
+0.2% relative to the status quo.
Chapter 6 provides explanation for
estimates under different scenarios.
Indirect benefits
(1) Estimates are gross values relative to the baseline for the preferred option as a whole (i.e. the impact of individual
actions/obligations of the preferred option are aggregated together); (2) Please indicate in the comments column which
stakeholder group is the main recipient of the benefit;(3) For reductions in regulatory costs, please describe in the
comments column the details as to how the saving arises (e.g. reductions in adjustment costs, administrative costs,
regulatory charges, enforcement costs, etc.;);.
II. Overview of costs – Preferred option
Businesses Administrations
One-off Recurrent One-off Recurrent
Exemption from WHT
on intra-EU cross-
border interest, royalty
and dividend payments
Direct adjustment
costs
None/very
marginal n/a
None/very
marginal n/a
Direct
administrative
costs
None/very
marginal n/a
None/very
marginal n/a
Direct regulatory
fees and charges none n/a none n/a
Direct
enforcement costs none n/a none n/a
Indirect costs None/very
marginal n/a
None/very
marginal n/a
Taxation of CFCs Direct adjustment
costs
None/very
marginal n/a
None/very
marginal n/a
Direct
administrative
costs
None/very
marginal n/a
None/very
marginal n/a
Direct regulatory
fees and charges
none n/a
none n/a
Direct
enforcement costs
none n/a
none n/a
Indirect costs None/very
marginal n/a
None/very
marginal n/a
Simpler, common and
more beneficial tax
depreciation treatment
for investments in the
area of research and
development (R&D)
Direct adjustment
costs
Very marginal n/a
Very marginal n/a
Direct
administrative
costs
Very marginal
n/a
Very marginal
n/a
Direct regulatory
fees and charges
none n/a
none n/a
Direct
enforcement costs
none n/a
none n/a
Indirect costs none n/a none n/a
Other simplifications Direct adjustment
costs
Very marginal n/a
Very marginal n/a
Direct
administrative
costs
Very marginal
n/a
Very marginal
n/a
Direct regulatory
fees and charges
none n/a
none n/a
Direct
enforcement costs
none n/a
none n/a
Indirect costs none n/a none n/a
(1) Estimates (gross values) to be provided with respect to the baseline; (2) costs are provided for each
identifiable action/obligation of the preferred option otherwise for all retained options when no preferred
option is specified; (3) If relevant and available, please present information on costs according to the
standard typology of costs (adjustment costs, administrative costs, regulatory charges, enforcement costs,
indirect costs;).
III. Contribution to the administrative burden reduction targets – Preferred option(s)
Administrative
costs
[M€]
New recurrent
costs (INs)
(nominal values
per year)
Removed recurrent
costs (OUTs)
(nominal values per
year)
Net cost (INs
– OUTs)
(nominal values
per year)
New one-off costs
(INs)
(annualised total net
present value over the
relevant period)
Removed one-off costs
(OUTs)
(annualised total net
present value over the
relevant period)
All businesses
For all companies:
~EUR 2 billion per
year
- Exemption from
WHT on intra-EU
cross-border interest,
royalty and dividend
payments: EUR 0.75
billion per year of
lower administrative
burden.
- Carveout of Pillar 2
companies and SMEs
from CFC rules:
EUR 160 million,
EUR 90 million per
year respectively
- Mandatory
application of CFC
Model A: EUR 45
million per year
- Common tax
depreciation
treatment of R&D
assets: EUR 265
million per year
- De minimis
exclusion (SMEs)
and carve-out of
qualifying third-party
loans from the
interest limitation
rule: EUR 69 million
EUR 430 million per
year respectively
- Other
simplifications of the
interest limitation
rule: EUR 80 million
per year
- Other measures
(hybrid mismatches,
tax mergers, dispute
resolution): EUR 80
million per year
• in which
SMEs
Public
administrations
Citizens
3. Relevant sustainable development goals
The below table provides an overview of the Sustainable Development Goals (SDGs) that are at
stake and the progress that is expected under the preferred option for the Omnibus on Taxation, as
described in Chapter 8.
IV. Overview of relevant Sustainable Development Goals – Preferred Option(s)
Relevant SDG Expected progress towards the Goal Comments
e.g. SDG no. 8 – Promote
sustained, inclusive and
sustainable economic
growth, full and productive
employment and decent
work for all
The Omnibus on Taxation proposal contributes to
SDG 8 by reducing tax compliance burdens,
clarifying tax terminology, replacing uneven
treatments and divergent national rules with a
single EU approach, while maintaining high EU
tax standards, thereby fostering a more efficient,
predictable, and growth-supportive business
environment across the EU.
The Omnibus on Taxation is expected to
lead – in the long term to a positive impact
on GDP – see above.
e.g. SDG no. 9 - Build
resilient infrastructure,
promote inclusive and
sustainable industrialisation
and foster innovation
Through simpler and more coherent EU tax rules,
as well as a more beneficial treatment for
investments in research and development, the
Omnibus on Taxation will support EU industry
and innovation, including infrastructure and
digitalisation.
The Omnibus on Taxation is expected to
stimulate GDP growth, as said above, in
particular also thanks to the positive impact
of the proposed immediate expensing for the
acquisition of R&D-related tangible assets.
ANNEX 4: ANALYTICAL METHODS
1. General remarks about compliance costs per MNE group
It should be strongly noted that there is a general absence of reliable statistics about the level of
ATAD-related tax compliance costs for MNEs. Therefore, the analysis presented in this impact
assessment and the methodological approaches explained in detail in this Annex rely on
information received from stakeholder interviews in the context of a related study carried out for
the European Commission in 2025. The study concludes that:
“Costs for large and more complex companies for which rules are relevant can be higher, although
often hard to disaggregate from compliance with other EU provisions, typically managed by the
same offices or teams. With the exception of one outlier, costs are in the order of EUR 100,000 per
year at the level of an MNE group (corresponding to two-three full-time staff dedicated to ATAD
compliance).” 120
For the purposes of analysing the impact of several possible measures, it is thus assumed that, at the
level of large groups, ATAD related activities do incur compliance costs at the level of EUR
100,000 per year if the respective measure affects large groups, especially those subject to Pillar 2.
If the measure is broader, or affects smaller MNEs in particular, one third of this amount is
assumed (about EUR 33,000). As the study confirms, no empirical information is available
concerning how these costs can be disaggregated to the single ATAD components. Given these
limitations, it is thus assumed that CFC and ILR rules make up one third of these costs each, given
the importance and complexity of each of these rules.
By-and-large, the ATAD consists of five rules. In principle it could thus be assumed that each rule
accounts for one fifth of the compliance costs, in absence of further information. However, the ILR
and CFC rules both have been brought forward predominantly by stakeholders in the targeted
consultations as presenting concerns and both have a wide scope of application, compared to other
rules of the ATAD (e.g. the hybrid mismatch rules concern specific cases depending on the
legislation gaps between different legal orders; exit taxation concerns specific transactions).
In terms of volume and tax revenues at stake, the ILR would also appear as most significant, which
can be an additional indication that firms may dedicate more attention and efforts to it. Similarly,
the CFC rules require identifying ownership structures and analysis of the operations and balance
sheet of each relevant entity, differentiating between different types of income and identifying
relevant substance, in order to determine whether and to what extent income should be attributed to
other entities.
The other rules of the ATAD are less comprehensive. Moreover, both ILR and CFC rules impose
ongoing obligations on firms. The other ATAD rules can also be complex. Yet, on average they
likely cause lower compliance costs because:
• Their likelihood of imposing an ongoing compliance burden is lower as they are triggered
by events (transactions).
120 Study prepared for the European Commission to support an evaluation of the Anti-tax Avoidance Directive (ATAD)
- Final Report (2025). Here: Volume 2, p. 38.
• They are mostly relevant for MNE groups, rather than constituting a permanent compliance
obligation to a large number of firms.
• GAAR, in particular, are based on broader principles (as opposed to complex formulaic
rules). This is why they are less likely to trigger proactive restructuring and to impose a risk
of disputes.
In the absence of more accurate information we therefore apply the informed assumption that ILR
and CFC-rules make a share of one third in total ATAD-related compliance costs each, with the
other ATAD-elements accounting for the remaining third.
2. Analysis of options: tax exemptions for interest, royalty and dividend payments
Step 1: Cost characteristics
A tax exemption of cross-border intra-EU payments of interest, royalties and dividends from
withholding tax would mean a significant cost reduction for investors. Investors currently have to
incur three types of costs when seeking a refund of overpaid withholding taxes. If withholding
taxes are set at zero in all Member States (i.e., no tax difference between Member States), these
costs would no longer be incurred. The analysis conducted on the extension of this exemption
across all EU Member States addresses three different angles of potential impact.
First, incurred costs that arise directly to investors, or the relevant operations department of the
custodian or an external service provider as they engage in paperwork required to comply with
current refund rules: These costs are assumed to account for an average of 2% of the refundable
amount. The calibration of the parameter is based on earlier Commission studies.121 It includes the
cost of operations departments of the custodian itself or of an external service provider, but also
fees for the processing of late filings. Paperwork and a variety of source country requirements are
amongst the cost drivers.
Second, opportunity costs due to delayed claims and payments of tax refunds: Delays in refunding
of withholding taxes paid currently entail a financial disadvantage for the investor. Studies confirm
that refund procedures usually take between several months and years.122 The resulting delayed
cash-flow may keep investors from funnelling liquid means into interest-bearing investment during
the period of delay. To assess the opportunity cost of this foregone cash-flow, the analysis uses a
risk-free investment in government bonds as an example of one such missed opportunity and
assumes that, based on 2024 numbers, such one-year investment would bear an average yield of
2.2%. We also assume an average refund period of one year (which is already relatively generous
compared to the time it takes in many Member States), to assess then the possible financial impact.
Third, foregone relief to investors: Due to complex and cumbersome refund procedures, taxpayers
may be dissuaded from claiming back overpaid withholding tax. This may be the case especially
for smaller investors with little resources to deal with these procedures. Following assumptions
121 New EU system for the avoidance of double taxation and prevention of tax abuse in the field of withholding taxes
(WHT) Accompanying the document Proposal for a Council Directive on Faster and Safer Relief of Excess
Withholding Taxes: SWD/2023/216 final; The Economic Impact of the Commission Recommendation on Withholding
Tax Relief Procedures and the FISCO Proposals, Commission Staff Working Document, 24 June 2009. 122 SWD/2023/216 final (p. 96).
made in earlier Commission analyses, it is assumed that foregone relief affects 10% of the relevant
cross-border flows.123
Step 2: Estimating the underlying monetary flows for interest and dividend payments
As a starting point, the analysis estimates the amounts that are currently flowing from the source
country (the company) to the country where the investor is located. These amounts may be subject
to a tax at source which may be refunded to the investor. While information about cross-border
income (interest, dividends) and royalty flows does exist in Eurostat’s Balance of Payment
statistics, this information is patchy for certain country pairs. The analysis therefore uses this data
only for royalty payments (Step 3). For interest and dividend payments, a different approach is
used, which follows earlier Commission analysis.124 For interest and dividends, we start from
information about the bilateral stock of the relevant investment, i.e., the investment position of an
investor located in Member State A investing in Member State B. This information is available
from the International Monetary Fund’s statistics on portfolio investment positions.
We use the portfolio investment statistics (as opposed to FDI statistics) because these better capture
the investments currently not covered by the PSD and IRD. Those directives foresee no
withholding taxes on cross-border dividend, interest and royalty payments, but this exemption does
not apply if the association between payer and payee involves a holding below 10% (PSD) or
below 25% (IRD). Thus, a withholding tax applies below these thresholds. As Member States often
withhold taxes at the national rate, which is usually higher than the one of the tax treaty that is
applicable to a specific (bilateral) situation, withholding taxes are associated with refund
procedures which differ substantially per Member State and lead to significant compliance costs.
The statistics give the amount of portfolio investment in stock debt security assets and equity assets
issued by a company in country B and held by the investor in country A (i.e., stocks of assets per
country pair A/B). Next, these stocks are multiplied by average yields to obtain an estimate for
bilateral flows of income payments from country B (source) to country A (investor). For year 2024,
interest flows are proxied by multiplying debt security assets by the 10-year government bond yield
as given by the European Central Bank (2.4%), while dividend flows are obtained by multiplying
equity stocks by the Eurostoxx 600 average yield (2.5%).
Step 3: Estimating the underlying monetary flows for royalty payments
Unlike interest and dividend payments, in the system of National Accounts, charges for the use of
intellectual property are not considered income flows stemming from direct investment but a
compensation for performing a service. We can therefore not rely on investment stocks as a starting
point for flow estimates as it happened in Step 2 above for interest and dividends. Rather, the
approach for royalties looks directly at Eurostat’s Balance of Payments statistics which measure
international royalty flows. The assumptions about the cost components (Step 1) and using the
bilateral levels of withholding taxes (Step 4) applied to royalties are the same as above.
Step 4: Estimating the refundable tax relief withheld at source on these flows
123 Ibidem. 124 Ibidem.
In order to estimate the potential current tax refund for each country pair, these payment flows have
to be multiplied by the corresponding withholding tax rate, or rather, the overpaid part of the
withholding tax that would be up for refund if there were a positive difference between the
domestic tax withheld at source (in the country of the company) and the tax due in the Member
State of the investor. Domestic withholding tax rates in the country of the investor may apply if
there is no bilateral agreement about the level of withholding taxes on flows between the two
countries. However, such agreements exist between almost all Member States, so that the relevant
refundable tax difference is usually the one between the domestic withholding tax at source and the
tax rate applicable for bilateral interest, dividend and royalty payments as stipulated in the treaty.
Thus:
(Equation 1) Refundable WHT = Domestic WHT (at source) – Treaty WHT
Information about the level of bilateral withholding taxes applied to interest, dividend and royalty
payments is given by the International Bureau of Fiscal Documentation (IBFD).
Cost estimates for companies: Full exemption of interest, dividend and royalty payments
(Option 1A)
Estimated interest and dividend payments
The following flow estimates are obtained for interest and dividend payments:
Estimated cost = cost-factor (Step 1) times estimated flows (Step 2) times withholding tax
difference between source and investor country (Step 4)
Table 1: Assumptions and estimates for cross-border interest and dividend payments within the EU
The three estimated cost measures then cumulate to annual tax savings from the perspective of the
investor of EUR 3.6 billion for cross-country interest and dividend payments within the EU (rows
8-10). This is higher than the estimation under the FASTER Impact Assessment.
Estimated cost reduction: royalty payments
Unlike interest and dividend payments, in the system of National Accounts, charges for the use of
intellectual property are not considered income flows stimming from direct investment but a
compensation for performing a service. We can therefore not recur on investment stocks as a
Interest and Dividends 1)
Income flows million EUR
1 Interest (from Debt instr.) 161,890
2 Dividends (from Equity) 188,981
3 Interest+Dividends 350,871
Refundable tax relief
4 Interest (from Debt instr.) 13,483
5 Dividends (from Equity) 12,241
6 Interest+Dividends 25,724
7 Implicit rate of WHT relief, dividends and Interest: 7.3%
Cost relief estimate Total Interest Divid.
8 Foregone tax relief (investors not claiming) 2,572 1,348 1,224
9 Opportunity costs of delayed claims and payments of tax refund (+1 year) 561 294 267
10 Incurred costs (paperwork etc.) 514 270 245
starting point for flow estimates as it happened in (Step 2 above) above for interest and dividends.
Rather, the approach for royalties looks directly at Eurostat’s Balance of Payments statistics which
measure international royalty flows (Step 3). The assumptions about the cost components (Step 1)
and using the bilateral levels of withholding taxes (Step 4) applied to royalties are the same as
above.
For royalties, the total cost amounts to EUR 1.7 billion (rows 5-7 in Table 2).
Table 2: Assumptions and estimates for cross-border royalty payments within the EU
Total estimated cost reduction
Overall, total cost reduction from the investor’s perspective (savings on foregone tax relief,
opportunity costs and incurred costs) therefore amounts to an estimated EUR 5.34 billion per year
for interest, dividend and royalty payments (rows 1-3 of Table 3).
Table 3: Total estimates for cross-border payments within the EU and tax revenue losses, Option
1A (million EUR)
Cost relief estimates for companies: Alignment of scope and procedures (Option 1B)
We estimate the impact of lowering the holding requirement of the Interest and Royalty Directive
(IRD) from today’s 25% down to 10%. This lowering will bring more investors under the IRD, so
that more investors would see their payments exempt form a WHT. How many investors may be
affected by that? To roughly estimate this, one should first estimate the share of investors today
holding shares between 10% and 25%.
Table 4: Rough estimate of flows from shareholdings between 10% and 25%
Royalties 2)
million EUR
1 Income flows (charge for use of intell. property) 70,216
2 Refundable tax relief 11,951
3 Implicit rate of WHT relief Royalties 17.0%
Cost estimate 5 Foregone tax relief (investors not claiming) 1,195
6 Opportunity costs of delayed claims and payments of tax refund (+1 year) 261
7 Incurred costs (paperwork etc.) 239
2) Estimation
based on EStat Balance of Payment royalty flows (charges for the use of intell. property)
Total cost relief estimate (Interest, Dividends, Royalties)
1 Foregone tax relief (investors not claiming) 3,767
2 Opportunity costs of delayed claims and payments of tax refund (+1 year) 821
3 Incurred costs (paperwork etc.) 753
1 EU-located shareholders with subsidiaries in the EU (Orbis) 100%
2 … with a share below 10% 10%
3 … with a share below 25% 17%
4 ->… with a share between 10% and 25% 7%
A query run on the company level database Orbis shows that the percentage of EU-located
shareholders holding less than 10% shares in EU-located subsidiaries is 10% (Table 4). For a share
of at least 25% the percentage is 17%. Aligning the holding requirement for interest and royalty
payments to the one stipulated in the PSD for dividends would thus affect about 7% of interest and
royalty payments, as those are the estimated shares of companies with holdings between 10% and
25%. In other words, Option 1B would ‘free’ 7% of royalty and interest payments from a
withholding tax, while Option 1A would free 17% of royalty and interest payments from a
withholding tax. The ratio between savings for royalties and interest payments between Option B
and Option A is therefore 7%/17%. With this assumption, lowering the IRD requirement could
result in cost savings of about EUR 1.5 billion per year. This is shown in Table 5.
Table 5: Cost estimate Option 1B (million EUR)
Caveat for estimates of both options
As an outcome of the approaches explained in detail above, the estimated cost savings of
exempting intra-EU interest, royalty and dividend payments from WHT amount to about EUR 5.34
billion per year (Option 1A) and EUR 1.5 billion (Option 1B). There are, however, two
uncertainties linked to these estimates that should be taken into consideration:
• Estimates could be adjusted downwards because they are based on statistics about portfolio
investment positions, which inevitably include individuals as investors. It is not possible to
estimate with exactitude how investment by individuals compares to portfolio investment by
companies. Based on the limited statistics, however, it may be around 40%.125 However, the
share in the actual investment volumes held by private individuals, as opposed to other
investors, is likely to be lower. On this basis, the statistics on portfolio investments are deemed
to provide a reliable source of information for the purposes of this analysis.
• On the other hand, estimates could be adjusted upwards because they do not include the
savings of compliance costs incurred by investors that hold larger shares (non-portfolio
investment) today, i.e., investment that already falls into the scope of the IRD and PSD,
respectively. These costs chiefly involve compliance with the procedures for proving
entitlement to the benefits of the IRD and PSD. Albeit to a possibly a lesser extent, the measure
leads to cost savings here too. This is because the measure results in eliminating upfront
procedures ahead of payments of interest, royalties and dividends; and this simplification will
apply to all such payments, regardless of whether they are linked to portfolio or direct
investment. The paying company would thus no longer have to assess whether the conditions
to benefit from the exemption are fulfilled by the beneficiary.
125 Coordinated Portfolio Investment Survey (CPIS) Survey Guide, Second Edition (p. 96 for Belgium).
1 Tax relief from full exemption for interest and royalties (Option 1A without dividends)
(Tables 1 and 2 without dividends) 3,607
2 Tax relief from aligning IRD with PSD holding requirement of 10% (Option 1B)
(= row 1 x 7 / 17) 1,489
3. Analysis of options: CFC Rules
The options for which the methodological and analytical approach is detailed herein are analysed in
Section 6.2.2. The purpose is to estimate the reduction in compliance costs through better aligning
CFC-rules for Pillar 2 companies.
Today’s potential economic double taxation
As the legal framework and applicable tax rules stand today, there is an assessed partial overlap
between CFC and Pillar 2 rules, which potentially leads to instances of economic double taxation.
These overlaps are outlined in the table below (see row 1). A shareholder-subsidiary pair may be
subject to Pillar 2 either because the subsidiary is located in a jurisdiction that applies top-up taxes
to companies in its territory (QDMTT, first column) and/or the shareholder in a jurisdiction that
includes income in other low-taxed jurisdiction when calculating the minimum tax (i.e., Income
Inclusion Rule - IIR, second column). Overlaps with CFC-rules can be particularly significant in
cases where subsidiaries fall under QDMTT while their shareholders need to apply CFC legislation,
see first column. Today, as QDMTT does not account for CFC, economic double taxation may
occur in the sense that the group pays both the CFC tax charge and QDMTT, considering that not
all member States allow for crediting the latter against the former. By contrast, top-up taxes under
IIR do take CFC taxes into account. That is, companies pay either the CFC or the Pillar 2 top-up,
whatever higher. Note, however, that US-headquartered groups are taxed only domestically
(QDMTT), but not under IIR, in the EU.
Table 6: Impact on EU shareholding entities of today’s situation and after applying two options
Tax relief = positive
Two options are assessed accordingly, explained in detail as follows:
On carving out Pillar 2 companies from CFC rules (Option A): MNEs whose CFCs are subject to
Pillar 2 are carved out from CFC rules. Accordingly, for US-headquartered MNEs, this carve-out is
only granted to shareholders whose CFC is subject to QDMTT. In other words, only the Pillar 2
QDMTT will be paid by all MNEs subject to Pillar 2, see row 2. Companies would namely save the
CFC tax charges in case they are subject to QDMTT, see row 4, column 2.
On including QDMTT in the CFC calculation (Option B): Rather than carving out Pillar 2 MNEs
from CFC rules, Member States would take into account the QDMTT liability to determine whether
Taxes paid… CFC, QDMTT (with or without
IIR)
CFC, IIR (no QDMTT) and
Ultimate Parent is not
located in the US
1 .. today P2 topup + CFC-topup max(P2-topup, CFC topup)
2 …under Opt A P2-topup P2-topup
3 …under Opt B max(P2 topup, CFC topup) max(P2 topup, CFC topup)
Difference (=impact)
4 … Opt A CFC-topup max(0, CFC topup -
P2-topup)
P2 topup + CFC-topup
- max(P2 topup, CFC topup) … Opt B 05
a foreign controlled subsidiary is low-taxed, therefore a CFC, and, consequently, CFC rules are
triggered. In case that the CFC tax rate in a Member State is higher than 15% (which is achieved
through the QDMTT), the CFC tax charge would apply, and credit would be provided for the
QDMTT (see row 5 of the table above). The outcome indicates that tax charges saved by
companies under this scenario are lower than under Option A.
4. Analysis of options: Interest Limitation Rule (ILR)
The basis for the economic analysis and outcomes explained in Section 6.2 are set out in the sub-
sections below.
To recall, Article 4 of the ATAD introduces an Interest Limitation Rule in the EU, which restricts
the deductibility of a company’s interest expenses. Under the Interest Limitation Rule, businesses
are generally entitled to deduct net borrowing costs, i.e., net interest expenses, up to 30% of their
earnings before interest, tax, depreciation and amortisation (so-called ‘EBITDA threshold’). Net
borrowing costs below an optional threshold of EUR 3 million per year can still be deducted
without limit (de minimis). The safe harbour aims to exempt SMEs from the scope of the Interest
Limitation Rule. This is important because equity-funding is less of an option for small enterprises,
and they are therefore heavily reliant on loans to fund their activities. These parameters are to be
seen as the minimum protection against profit shifting and base erosion. Member States can
implement stricter rules. This section will demonstrate that SMEs are currently protected very
effectively from limitations in interest deduction. Yet the new measures will improve protection
even more.
4.1 Carving out SMEs (mandatory de minimis of EUR 3 million)
Impact on companies
20 Member States have implemented a EUR 3 million de minimis or equivalent rule.126 Six
Member States have opted for a lower threshold of up to EUR 1 million so that the number of firms
protected from the ILR may be lower. These include the Netherlands, Poland, Portugal, Romania,
Spain and Sweden. Of those, some have other instruments in place, especially the possibility of an
indefinite carry-forward of interest expenses not deductible in a given year due to ILR. Non-
allowed deductions can thus be indefinitely deferred to future years. This is notably the case in the
Netherlands and Spain. Italy has no de minimis threshold. Yet it also has significant protective tools
in place that alleviate the impact of ILR for small businesses or exclude them from ILR altogether.
Non-realised deductions and non-utilized deduction capacities127 can be carried forward. Most
importantly, sole traders and partnerships (società di persone) are explicitly excluded from the
scope of the ILR (Art. 96 of the Italian Income Tax Code - TUIR). This would exclude almost 80%
of all companies in Italy.128
We estimate the share of SMEs that today do not see any limitation from interest deduction
limitation, and how this share would change after implementing a de minimis of 3 EUR million in
all Member States taking as the hypothesis that this would become mandatory. We simulate the
126 Study prepared for the European Commission to support an evaluation of the Anti-tax Avoidance Directive (ATAD)
- Final Report (2025). 127 In a given year, interest expenses may stay below the 30% of EBITDA threshold, so that there is unused capacity for
deduction (i.e., 30% of EBITDA – interest expense). 128 ZEW (2023), Familienunternehmen in Deutschland und Italien Zur Bedeutung des Unternehmenstyps im Vergleich
mit ausgewählten europäischen Staaten, Stiftung Familienunternehmen, München, 2023. See p. 38.
current ILR rules in EU Member States on an Orbis sample of 1.8 million unconsolidated accounts
from 2024 with a positive taxable profit. The vast majority of these accounts are from SMEs.129
The following information and assumptions about the implementation of the Interest Limitation
Rule in Member States is taken on board for the simulation:
• The EBITDA-threshold is 30% for all EU Member States but Finland (25%) and the
Netherlands (24.5%).
• The de minimis threshold is set at EUR 3 million in all Member States but the following
seven: the Netherlands, Portugal, Romania, Spain (all EUR 1 million), Poland (EUR 0.7
million), Sweden (EUR 0.44 million) and Italy (nil).
• The stand-alone exemption of ATAD Article 4 (3) (b) is implemented in all Member States
but Bulgaria, Czechia, Denmark, Greece, Italy, Latvia, the Netherlands, Poland, Portugal,
Sweden and Croatia.
• A company is considered standalone if a consolidated account does not exist and the
company is its own global ultimate owner. If there is no global owner given in the data for a
company it is also considered standalone.
• The initiative will abolish the stand-alone exemption as it is deemed no longer necessary,
given that standalone companies will be effectively protected through the carve-out of
SMEs and of low-risk loans from the Interest Limitation Rule (Section 6.2.4.4).
• Not being able to deduct interest expenses due to the Interest Limitation Rule increases the
amount of corporate taxes a company must pay. This effect is calculated by multiplying the
non-deductible part of interest expenses by the national statutory Corporate Income Tax rate
of the Member State where the respective company is resident.
• Our approach includes the group approach for taxpayer qualification following Art. 4(1) (b)
of ATAD: Member States may allow to calculate interest expenses and EBITDA at the level
of the group (i.e., for group members on their respective territory) rather than for each entity
separately. This rule is currently implemented in all but the following nine Member States:
Bulgaria, Croatia, Czechia, Cyprus, Finland, Greece, Latvia, Slovakia and Sweden.130
• Italy excludes sole traders and partnerships from the scope of the ILR. Those are taken out
of the sample.
• Increasing the de minimis threshold will reduce the amount of corporate tax revenues as
more companies will be exempt. However, this effect is significantly reduced by existing
loss carry-forward mechanisms: Interest expense deduction may be limited in a given year.
Yet those mechanisms would allow deduction in a later year so that these costs are not ‘lost’
for deduction. As a result, the effect of a higher de minimis on the deductible amount would
be cushioned. Based on the Joint Research Centre’s corporate microsimulation model
DiRECT 131, the effect of implementing a mandatory de minimis threshold of EUR 3
million in all Member States on tax revenue losses could be reduced by about 30% if we
allow in the model that losses can be carried forward.
129 95% of these accounts are small and medium sized in the sense that their net turnover has been below EUR 50
million that year. 130 Deloitte (2023), Implementation of the EU Anti-Tax Avoidance Directive | Tax 131 For an overview: Corporate tax microsimulation model (DiRECT) - Joint Research Centre.
With this information, for the EU as a whole, about 96% of the unconsolidated accounts in the
sample do not see any limitation in interest deduction. In reality, that share is likely higher, given
that small entities are underrepresented in Orbis. 132
Implementing in all Member States a common and mandatory de minimis of EUR 3 million in the
same model will increase that share of companies not impacted by the Interest Limitation Rule
from 96% to above 99%. The number of unconsolidated accounts impacted by the rule in the
sample will decline considerably, from 75,000 before to only about 12,000 after implementing the
new de minimis. In other words, about 63,000 companies (mainly SMEs) so far dealing with
interest deduction limitations will in the future be carved out. This information will be used to
estimate compliance cost reductions for SMEs in Section 6.2.4.1.
For the Orbis sample, EU corporate tax savings for SMEs could amount to EUR 900 million.
These effects affect those Member States where the current de minimis threshold is lower than the
current ATAD-ceiling of EUR 3 million or where no de minimis is implemented.
Orbis does not cover the entire firm population. That is, all estimates provided here are lower
bound. This holds especially for the 63,000 companies that will no longer be limited in their
interest deduction as the de minimis of EUR 3 million would become mandatory in all Member
States. Given the underrepresentation, especially of small entities in Orbis, the ‘true’ effect is likely
higher than expressed through this number. However, the estimated impact on corporate tax savings
of EUR 900 million is likely less biased through coverage issues in Orbis. This is because small
entities contribute very little to the aggregate volume of interest expenses and earnings. For
example, excluding the smallest 50% of observations does not significantly alter the estimated
effect on corporate tax savings.
Conclusion: While the current Interest Limitation Rules already protects EU SMEs very well from
being impacted by the ILR, making the de minimis of EUR 3 million mandatory in all Member
States will further improve the level of protection, while ensuring a level playing and consistent
approach towards companies across all EU Member States.
Impact on public finances
The previous analysis showed that companies will save corporate tax expenditure of around EUR
900 million, which constitutes the impact on public finances. If the threshold were aligned across
all Member States, that impact would be sustained in those Member States which do not currently
implement the EUR 3 million de minimis.
4.2 Carving out low-risk third-party interest payments
Impact on companies
The prime purpose of the ATAD Interest Limitation Rules is to prevent MNEs from exploiting
interest payments as a means of shifting profits. While ensuring this, the rationale for setting the
EBITDA threshold to 30% in Council Directive 2016/1164 was to ensure that most businesses
would not be limited in deducting their third-party interest payments from their tax base. This is
132 See, for example, Kameli-Özcan et al (2024), How to Construct Nationally Representative Firm-Level Data from the
Orbis Global Database: New Facts on SMEs and Aggregate Implications for Industry Concentration, American
Economic Journal: Macroeconomics 2024, 16(2): 353–374; Bajgar et al (2020), Coverage and representativeness of
Orbis data, OECD Science, Technology and Industry Working Papers 2020/06.
important in the context of MNE groups: these are payments from parties that have no association
with the borrower, either as members of the same MNE group or because of common control
(without being part of the same consolidated financial accounts). An OECD study of 2015133 found
that the share of publicly traded groups able to deduct all their net third-party interest expenses was
87% if the ratio to EBITDA were fixed at 30%. This is shown in the chart which displays the
percentage of these groups who, as a matter of principle, are able to fully deduct their third-party
interest payments for alternative EBITDA thresholds. This percentage obviously depends on the
level of the EBITDA threshold. The green-dotted line is the original 2015 OECD estimate.
Figure 1: Alternative parameters. Impact on the share of groups able to deduct their third-party
interest payments
The OECD analysis at the time used publicly traded multinational groups’ consolidated financial
accounts from years 2009-2013; the analysis has now been updated for the purposes of this
Omnibus on Taxation for the year 2024, using the firm database Orbis. To replicate the OECD
analysis, the current analysis draws on a sample of about 3,500 consolidated accounts for listed
groups for year 2024. These accounts contain information about EBITDA and the level of interest
payments which – given that the analysis is based on consolidated accounts – should net out group-
internal interest payments and, in this way, include third-party payments only. Only accounts with
positive EBITDA are considered.
For an EBITDA-threshold of 15% or higher, findings closely match the original OECD estimate as
can be seen in the Chart. The line shows the share of groups which today should be able to fully
deduct their third-party interest expenses, assuming the de minimis at EUR 3 million (as in ATAD).
It shows that at the ATAD-threshold of 30% of EBITDA, the share of groups who, as a matter of
principal, are able to deduct their third-party interest payments without limitation is 86%.
133 Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4 - 2015 Final Report |
OECD.
Taxud calculations based on Orbis; Consolidated accounts with positive EBITDA
Percent of listed groups in principle able to fully deduct their third-party interest payments
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
OECD (2015) for 2009-13
2024 with deminimis 3 mln (Orbis)
Threshold (% of EBITDA)
The reality is, however, that both the EUR 3 million de minimis threshold and the 30% EBITDA
threshold are currently a minimum standard in the ATAD. The thresholds have been implemented
more stringently in some Member States (see previous section). Taking into account how the
respective de minimis and EBITDA thresholds are effectively applied in Member States, the
analysis shows that currently only about 83% of groups in the Orbis sample end up having their
interest fully deductible. This represents an important difference from the 86% that was originally
targeted in the OECD analysis or the 86% if thresholds were applied as in ATAD across the EU-27.
For the purposes of this analysis, we assume that 83% is the share of groups whose third-party
interest payments remain fully deductible today (as explained in the previous section), this means
that 17% of groups in the sample are not able to (fully) deduct their interest expenses. However, not
all of these 17% of groups are being carved out under the proposed measure because not all of the
corresponding third-party interest expenses stem from low-risk loans.
There is strong empirical evidence that group members often take third-party loans and then lend
on to other group members. More generally, group members may engage in structured
arrangements whereby the group in its entirety would gain an advantage, often in the form of tax
savings.134 An inter-company loan could, for example, consist of “inflated” interest payments to
other members of the same group in low-tax jurisdictions, with the effect of shifting part of the
group’s tax base thereto. Indeed, it was found that inter-company loans actually react to tax-rate
differences within the MNE.135 To prevent this practice, a restrictive definition of third-party loans
would be introduced under this option, to make sure that the entity taking out the loan will use the
debt to finance its own activities, with no possibility of on-lending within the group (see Section
5.2.4.4).
Interest payments shown in the consolidated accounts from Orbis used to analyse the effect of this
carve-out contain external loans from a third party, but would not accurately capture any on-lending
to other group members. The consolidated account of the group illustrated in Figure 2 will show the
interest payments from a third-party loan, irrespective of whether this loan is lent on into the group
by Entity 2 (right chart) or directly channelled to the ultimate borrower, Entity 1 (left chart).
Figure 2: Direct and on-lent third-party loans from an MNE perspective
Direct loan (low-risk) Loan lent on (‘risky’)
Taxud illustration
134 Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4 - 2015 Final Report |
OECD (p. 74). 135 For example: Buettner and Wamser (2007), Intercompany loans and profit shifting: evidence from company-level
data; Desai et al (2003), A Multinational Perspective on Capital Structure Choice and Internal Capital Markets | NBER.
MNE group
Third party
loan: 100
Entity 1 Entity 2
MNE group
Third party
loan: 100
Entity 1 Entity 2
loan lent on: 100
Only the (‘risky’) on-lending scenario is problematic and would therefore be excluded in the future.
The carve-out would affect only low-risk loans. In the absence of accurate statistics about the exact
extent of on-lending relative to the entire stock of third-party loans, the analysis assumes an on-
lending probability of 50% (i.e., a 50% share of ‘risky’ loans on average).
The main motivation for MNEs to on-lend loans into the group may be to avoid taxes. In that case
it is fair to assume that loans so far lent on via Entity 2 will, after the exclusion of on-lending, not
be taken any longer in the future as the group would not be able to avoid taxes via on-lending any
more. The other 50% of (low-risk) loans will be carved out through the initiative. We thus assume
that the share of groups which see limitations in their interest deduction due to the ILR – today 17%
– will be half that share (8.5%) in the future due to the carve-out of low-risk loans. This
information will be used to calculate compliance cost savings in Section 6.2.4.4.
Impact on public finances
We apply the assumption of a 50% on-lending probability for third party loans. 50% of loans taken
by MNEs today could therefore be classified as ‘risky’ as they may be used for tax avoidance
purposes through on-lending into the group. It was further assumed that, due to the exclusion of on-
lending in the future, firms would not have an incentive to lend these ‘risky’ loans from third
parties and would thus not take the corresponding loans anymore.
Under these assumptions the budgetary effect could be neutral: interest expenses stemming from
half of MNEs’ third-party loans would no longer be deducted from the tax base, and no longer used
for tax avoidance, generating additional tax revenue. The other (low risk) half, however, will be
carved out from ILR and will therefore become immediately deductible from the tax base.
5. Simulating the long-term economic impacts of the measures with CORTAX
5.1 Modelling tax exemption for interest, royalty and dividendpayments and lowering of
compliance costs
The tax exemption is approximated by translating the estimated foregone tax revenue from intra-
EU withholding taxes into an equivalent reduction in the tax rates that exist in the model. Since the
model does not explicitly include withholding taxes on cross-border payments between companies,
the policy reform is approximated by lowering the tax rates applied to interest and dividend
income.
To do this, first the amount of tax revenue currently associated with interest and dividend flows
received by corporations is approximated. National accounts data on these income flows are used,
and it is assumed that most inter-corporate dividends are already exempt, so only a small share of
dividends remains taxable (10%). Applying corporate income tax rates to interest and the remaining
dividend income provides an estimate of the revenue generated from these capital income flows.
This revenue is then compared with the estimated foregone tax revenue resulting from the
abolishment of intra-EU withholding taxes. Expressing the foregone withholding tax revenue as a
share of the broader revenue from interest and dividend taxation yields a percentage that reflects the
relative importance of withholding taxes within capital income taxation.
Finally, the reform is approximated as a proportional cut in the tax rates applied to interest and
dividend income equal to this percentage, so that the reduction in tax revenue in the model
corresponds approximately to the revenue loss that would occur if withholding taxes were
abolished. In the calibration, this corresponds to a reduction of 0.83% in the tax rate on interest
income and 6.48% in the tax rate on dividend income.
The reduction of compliance costs is introduced via targeted savings for cross-border businesses
(from MNE headquarters to subsidiaries).
5.2 Modelling of immediate expensing of acquired tangible R&D assets
The reform introduces direct expensing for R&D-related tangible assets such as plant, machinery,
and buildings used for R&D activities. Since CORTAX does not explicitly model R&D investment
separately or allow a distinct depreciation regime for such assets, the reform is approximated by
modifying the depreciation parameters applied to the corresponding share of the capital stock.
First, the share of total assets corresponding to R&D-related tangible assets is estimated. This share
is constructed by combining three components: the proportion of R&D expenditure on tangible
assets relative to total capitalisable R&D expenditure (based on the JRC Dashboard of Innovative
Companies), the ratio of R&D capital assets to total fixed assets (from Eurostat capital stock data),
and the ratio of fixed assets to total assets used in the model calibration. Multiplying these three
elements yields an estimate of the share of total assets that corresponds to tangible assets used for
R&D.
In the model, the tax treatment of investment is represented through two depreciation components:
an immediate deduction in the first year and the net present value (NPV) of deductions in
subsequent years. To approximate direct expensing for the estimated share of R&D tangible assets,
the depreciation structure is adjusted by shifting part of the depreciation allowances from future
years to the first year. Specifically, the NPV of depreciation allowances in later years is reduced in
proportion to the estimated share of R&D assets, while the immediate expensing component is
increased accordingly.
This adjustment preserves the overall magnitude of depreciation allowances while bringing forward
part of the deductions to the first year, thereby generating accelerated depreciation for the relevant
share of capital. The resulting country-specific depreciation parameters constitute the policy shock
introduced into the model.
ANNEX 5: COMPETITIVENESS CHECK
Overview of the impacts on competitiveness
Dimensions of
Competitiveness
Impact of the initiative
(++ / + / 0 / - / -- / n.a.)
References to sub-sections of the
main report or annexes
Cost and price competitiveness ++ Chapters 5, 6, 7
International competitiveness + Chapters 5, 6, 7
Capacity to innovate + Chapters 5, 6, 7
SME competitiveness ++ Chapters 5, 6, 7
Synthetic assessment
The preferred option is expected to have an overall positive effect on competitiveness. By reducing
unnecessary tax compliance and reporting burdens, clarifying concepts and terminology, and
replacing overlapping or divergent national approaches with a more coherent EU framework while
maintaining high tax standards, the initiative should lower compliance and administrative costs,
improve legal certainty and remove some continued tax barriers for cross-border business activity
in the internal market. These effects are expected to strengthen cost competitiveness, support
investment decisions, and foster a more innovation-friendly and resilient business environment in
the Union.
Competitive position of the most affected sectors
In principle, the Omnibus on Taxation is not sector-specific in nature but horizontal, as it seeks to
streamline and clarify the EU framework for direct taxation across the internal market. The most
directly affected sectors are likely to be those with the greatest exposure to cross-border group
structures and transactions covered by the Directives in scope, notably sectors featuring significant
intra-group financing, royalty payments, reorganisations or frequency in tax disputes. Furthermore,
large MNEs which are subject to the additional compliance burden and requirements related to the
EU Pillar 2 Directive, will benefit in particular under the preferred options, e.g., the carveout from
CFC rules in light of Pillar 2. In addition, some sectors benefit from targeted measures: the defence
sector, for example, will be alleviated from the interest limitation rule, as well as, optionally, other
sectors, such as social housing.
ANNEX 6: SME CHECK
Overview of impacts on SMEs
Relevance for SMEs
The initiative is relevant for SMEs because tax-compliance burdens fall proportionately more
heavily on smaller businesses and this Omnibus on Taxation aims to specifically exempt
SMEs from some EU tax obligations in a targeted manner. Also more generally, greater
clarity, fewer overlaps, and more coherent EU rules can materially reduce legal, advisory, and
administrative costs, which often represent a significant for SMEs to engage in cross-border
activity. The direct effects are expected to be the strongest for small and medium-sized
enterprises with foreign subsidiaries or high reliance on debt financing The Omnibus on
Taxation is designed so that simplification is real for SMEs in practice, especially by
providing full carveouts where possible, but also through clearer EU tax terminology and
mechanisms, and the elimination of national processes for some cross-border payments.
(1) IDENTIFICATION OF AFFECTED BUSINESSES AND ASSESSMENT OF RELEVANCE
Are SMEs directly affected? (Yes/No) In which sectors?
Yes, all sectors.
Estimated number of directly affected SMEs
In the Orbis company database, the number of SMEs affected by the EU direct tax acquis
under this Omnibus on Taxation (SMEs with cross-border subsidiaries) is estimated at 55 000.
Estimated number of employees in directly affected SMEs
n/a
Are SMEs indirectly affected? (Yes/No) In which sectors? What is the estimated number
of indirectly affected SMEs and employees?
SMEs are directly affected.
(2) CONSULTATION OF SME STAKEHOLDERS
How has the input from the SME community been taken into consideration?
SME interests were considered mainly through engagement with representative business
associations, which aggregate and articulate the views of their SME constituencies. This
channel provided a pragmatic and proportionate means of integrating SME-relevant concerns
and practical insights into the assessment, complemented by other available evidence.
Are SMEs’ views different from those of large businesses? (Yes/No)
Yes. As regards SMEs, business associations argue that tax compliance costs are a significant
hurdle for smaller businesses to enter cross-border markets, while in any case they are less
concerned by the EU tax protections, as they often do not even have sufficient size or the type
of structure or cross-border footprint, to use the tax planning strategies, compared to larger
enterprises which are more internationally active.
(3) ASSESSMENT OF IMPACTS ON SMES136
What are the estimated direct costs for SMEs of the preferred policy option?
Qualitative assessment
The initiative should bring no or very limited direct costs for SMEs. Like all companies, SMEs may
need to acquaint with some of the simplified rules and clarifications, but the Omnibus on Taxation
mainly brings exemptions regarding SMEs. Thanks to the explicit carve-out in favour of SMEs from
the CFC rules and de facto exclusion from the interest limitation rule, SMEs will not be concerned by
the mandatory application (and therefore legislative change with a one-off cost) of Model A under
CFC, nor by the mandatory application of the existing options for the interest limitation rule.
Quantitative assessment
What are the estimated direct benefits/cost savings for SMEs of the preferred policy option137?
Qualitative assessment
In principle, any impact of the policy options will not differ between large companies and SMEs. In
addition, the Omnibus on Taxation includes measures in favour of SMEs: a targeted carveout from the
CFC rules and a de facto exclusion from the interest limitation rule of the ATAD.
Quantitative assessment
SMEs in line with the Commission objective to prioritise burden reduction for SMEs (35%, compared
to 25% generally), the specific exemption of SMEs from CFC rules and the de facto carve-out from
the interest limitation rule are estimated to bring additional cost savings of around EUR 90 million per
year respectively EUR 33 million per year, on top of the general cost savings from the other
simplification measures, which will benefit both SMEs and larger businesses.
What are the indirect impacts of this initiative on SMEs? (Fill in only if step 1 flags indirect
impacts)
n/a
(4) MINIMISING NEGATIVE IMPACTS ON SMES
Are SMEs disproportionately affected compared to large companies? (Yes/No)
136 The costs and benefits data in this annex are consistent with the data in annex 3. The preferred option includes the
mitigating measures listed in Section 4. 137 The direct benefits for SMEs can also be cost savings.
If yes, are there any specific subgroups of SMEs more exposed than others?
SMEs are disproportionately affected compared to large companies under the baseline
scenario because SMEs currently bear higher tax compliance costs in proportion to their size.
To address this issue in the area of EU direct tax legislation, the Omnibus on Taxation
proposes explicit and de facto exclusions in favour of SMEs. The Omnibus on Taxation
should consequently particularly benefit SMEs, thereby minimising any negative impacts
thereon.
Have mitigating measures been included in the preferred option/proposal? (Yes/No)
As mentioned, the proposal includes measures specifically to alleviate compliance burdens for
SMEs.
CONTRIBUTION TO THE 35% BURDEN REDUCTION TARGET FOR SMES
Are there any administrative cost savings relevant for the 35% burden reduction target
for SMEs?
The proposal includes specific exemptions for SMEs in two areas, estimated to bring
additional cost savings for SMEs of around EUR 90 million per year respectively EUR 33
million per year. This will contribute to the 35% burden reduction target for SMEs.
ANNEX 7: TIMELINE OF EU DIRECTIVES IN DIRECT TAXATION
Over the last 35 years, the EU has adopted a relatively limited but highly influential body of
legislation in the field of direct taxation, mainly targeting:
• corporate taxation,
• cross-border restructuring,
• anti-tax avoidance,
• administrative cooperation, and
• dispute resolution.
Below is a chronological timeline of the principal directives (excluding administrative corporation)
that has been adopted within the area of direct taxation.
Figure 11: Timeline of EU direct taxation directives
1990 — First Generation of Corporate Tax Directives
Parent-Subsidiary Directive
• Directive 90/435/EEC
• Eliminated withholding taxes and double taxation on profit distributions between associated
companies in different Member States.
• Later recast as Directive 2011/96/EU.
Merger Directive
• Directive 90/434/EEC
• Introduced tax neutrality for cross-border mergers, divisions, transfers of assets, and
exchanges of shares.
• Later recast as Directive 2009/133/EC.
2003 — Taxation of Savings and Interest
Interest and Royalties Directive
• Directive 2003/49/EC
• Abolished withholding taxes on cross-border interest and royalty payments between
associated companies.
2011 — Recast
Recast Parent-Subsidiary Directive
• Directive 2011/96/EU
• Consolidated and modernized the 1990 directive.
2014–2015 — Anti-Abuse Measures
Amendment to Parent-Subsidiary Directive
• Directive 2014/86/EU
• Addressed hybrid loan mismatches.
• Directive 2015/121/EU
• Added a mandatory anti-abuse rule to the Parent-Subsidiary Directive.
2016 — Anti-Tax Avoidance Package
Anti-Tax Avoidance Directive (ATAD I)
• Directive (EU) 2016/1164
• Introduced:
o interest limitation rules,
o exit taxation,
o GAAR,
o controlled foreign company (CFC) rules,
o hybrid mismatch rules.
ATAD II
• Directive (EU) 2017/952
• Extended hybrid mismatch rules to third countries.
2017 — Tax Dispute Resolution
Tax Dispute Resolution Directive
• Directive (EU) 2017/1852
• Improved mechanisms for resolving double taxation disputes within the EU.
2022 — Global Minimum Tax
Pillar 2 / Minimum Tax Directive
• Directive (EU) 2022/2523
• Implemented the OECD global minimum effective tax rate of 15% for large multinational
groups.
EN EN
EUROPEAN COMMISSION
Brussels, 24.6.2026
SWD(2026) 562 final
COMMISSION STAFF WORKING DOCUMENT
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT
Accompanying the document
Proposal for a COUNCIL DIRECTIVE
amending Council Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164,
(EU) 2017/1852, (EU) 2025/50 as regards the simplification of the Union framework on
direct taxation and supporting growth and competitiveness of the EU
{COM(2026) 560 final} - {SEC(2026) 560 final} - {SWD(2026) 560 final} -
{SWD(2026) 561 final}
Executive Summary
Impact Assessment Report Accompanying the Proposal for a Council Directive
amending Council Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164,
(EU) 2017/1852, (EU) 2025/50 as regards the simplification of the Union framework on
direct taxation and supporting growth and competitiveness of the EU
A. Need for Action
What is the problem and why is it a problem at EU level?
The largest volume of direct tax legislation is national, which implies that businesses which
operate across borders in the EU face the need to comply with numerous corporate income tax
systems. EU directives come to the fore only in specific fields of a primarily cross-border
nature. The EU direct tax acquis is, therefore, limited and, where it exists, represents a
significant achievement for the EU given the challenging political stakes which the adoption
of EU tax directives is associated with. The fact that the EU rules often include several options
for implementation is an illustration of this difficulty. It results in substantial differences
across EU Member States and a fragmented tax landscape. In addition, the application of EU
tax law across the internal market is often inconsistent. At the same time, the context has
significantly evolved since these legal acts were first introduced, rendering some of the older
rules outdated. Altogether, four main issues arise: (i) tax compliance requirements that are
disproportionate, (ii) legal uncertainty due to unclear tax rules and terms, (iii) different tax
treatment depending on national specificities, (iv) tax barriers on cross-border business
activities.
These issues contribute to the overall high complexity, increased risks of disputes, and high
tax compliance burdens for doing business in the EU and impede the EU’s competitiveness.
While in many other areas there is significant progress in EU law to ensure that businesses can
operate in the internal market under common standards, tax remains a policy field intertwined
between some EU harmonisation and vastly different national systems and thus a remarkable
obstacle to broader alignment and efficient functioning.
What should be achieved?
The general objectives of the initiative are: (i) to simplify EU tax rules to boost EU
competitiveness, while (ii) maintaining high tax standards in the EU.
To achieve such general objectives, the following specific objectives should first be attained:
(i) to eliminate unnecessary EU tax compliance burdens; (ii) to introduce clear and predictable
EU tax rules and terms; (iii) improve consistency in the application of EU tax directives; (iv)
to reduce remaining tax-obstacles to cross-border investment and commercial activity.
What is the value added of action at the EU level (subsidiarity)?
The Tax Omnibus aims to simplify the EU tax environment. In conjunction with the DAC
Recast, the Omnibus will bring coordinated and comprehensive action that is only possible at
EU level, ensuring that both material tax rules and the exchange of information framework are
up-to-date and fit for purpose. EU action in this area will bring clear added value by reducing
red tape, lowering obstacles to cross border operations, and engendering efficiency and
effectiveness in applying tax rules. By amending the EU direct tax acquis with the aim of
simplification, the Omnibus should make tax compliance in the EU clearer, easier and more
efficient. This will mean that for businesses, it will be less costly to operate or expand across
borders in the EU. For tax administrations, simpler rules and streamlined procedures should
ease their work related to tax controls and audits and, ultimately, lead to fewer disputes and a
reduction in administrative costs.
B. Solutions
What are the various options to achieve the objectives? Is there a preferred option or
not? If not, why?
The objectives can be achieved through an Omnibus directive amending most of the existing
EU direct tax acquis, via one single legal act. The objectives related to the DAC will be
achieved in a separate initiative, the DAC Recast proposal. The Tax Omnibus proposal is
analysed in the present impact assessment report.
In brief, the Tax Omnibus aims to simplify, streamline and clarify existing directives in the
area of direct taxation: the Interest and Royalties Directive (IRD)1, the Parent-Subsidiary
Directive (PSD)2, the Tax Merger Directive (TMD)3, the Anti-Tax Avoidance Directive
(ATAD)4, and the Dispute Resolution Mechanisms Directive (DRM)5. To facilitate the
functioning of the IRD and PSD, the Omnibus will also amend the recent FASTER Directive6.
The analysis of the impact assessment report is mainly based on the experience and challenges
from applying these Directives in practice, as well as their interaction with more recent EU
and international tax developments, such as the newly adopted Pillar 2 Directive7.
The report identifies a wide range of policy options. When it comes to withholding taxes
under the IRD and PSD, an option would be to exempt all intra-EU interest, royalty and
dividend payments through an extension of these directives, coupled with the removal of
upfront procedures for entitlement. In this regard, an alternative option would be to align the
scope and procedures of the IRD and PSD.
For Controlled Foreign Company (CFC) rules in the ATAD, it is envisaged to consider a
mandatory application of Model A, a carveout for Pillar 2 companies or taking account of
Pillar 2 Qualified Domestic Minimum Top-up Taxes to determine whether a CFC tax charge
is due and, if so, credit the top-up tax against the CFC liability. Additionally, the analysis also
assesses a carveout for SMEs.
For investments in research and development (R&D), the immediate expensing of the cost of
assets related to R&D is explored against the status quo, whereby R&D expensing would
continue to be defined only at national level.
The Interest Limitation Rule under the ATAD includes options for reform across its spectrum,
with the main aim of ensuring fairness and mitigating the procyclical effects of the rule: a
carveout for SMEs, a mandatory application of the 30% EBITDA cap, mandatory application
of certain currently optional variations, a carveout for low-risk third-party loans, and an
exemption in case of profitability shocks.
More contained options for modifications involve removing the rules on imported hybrid
mismatches; aligning the TMD with the Mobility Directive (cross-border mergers from a
company law perspective), either through a dynamic reference or via addition of new
structuring transactions; and several targeted improvements to the DRM, to clarify procedural
rules and allow the use of Council implementing acts.
The report specifically assesses three combinations of these options. Comprehensive
Omnibus: this combination takes on board all policy options and where relevant, takes the
most ambitious alternatives for the main measures of this initiative on the taxation of cross-
border interest, royalty and dividend payments, and taxation of CFCs, to assess the most
ambitious potential for simplification. Medium Ambition Omnibus: this approach
1 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and
royalty payments made between associated companies of different Member States. 2 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case
of parent companies and subsidiaries of different Member States. 3 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers,
divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different
Member States and to the transfer of the registered office of an SE or SCE between Member States. 4 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that
directly affect the functioning of the internal market. 5 Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European
Union. 6 Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer relief of excess withholding taxes. 7 Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for
multinational enterprise groups and large-scale domestic groups in the Union.
encompasses policy options, but includes the less ambitious alternatives for withholding taxes
under the IRD and the PSD, and CFC in ATAD while it keeps status quo concerning R&D
expensing. Limited Ambition Omnibus: this version is targeting existing measures in a
simpler and more straight-forward way, such as reducing the implementation options for the
Interest Limitation Rule and extending the scope of the TMD, to generate simplification
results through the easiest and most accessible options.
What are different stakeholders’ views? Who supports which option?
Stakeholders fully supported the initiative to simplify existing EU tax rules. There was
particularly strong support among private stakeholders, i.e. EU businesses and industry
representatives as well as tax professionals, who identified the need for simplification across
all existing directives and beyond as detailed in Annex 2. EU Member States unanimously
welcomed the initiative, as evidenced by the Council Conclusions of March 2025, and
encouraged the Commission to adopt an ambitious proposal; while convergence on the
specific policy options will also need to be further attained during Council negotiations.
C. Impacts of the preferred option
What are the benefits of the preferred option?
The impact assessment sets out the potential cost savings for businesses and the economy in
the EU as a result of potential reductions of current tax compliance costs, as well as the
broader, longer-term macro-economic impact. The preferred option is the Comprehensive
Omnibus. This option is roughly estimated to reduce compliance and financial costs by about
EUR 6.6 billion per year, out of which recurrent costs related to cutting down administrative
burden is roughly EUR 2 billion per year (a breakdown of these numbers can be found in
Annex 3 to the impact assessment report), and some of its individual measures are estimated
to increase EU GDP by roughly 0.04% (exemption from withholding tax) and 0.2%
(immediate expensing of certain R&D assets) in the long run.
What are the costs of the preferred option?
The impact assessment report attempts to describe some of the possible costs. The purpose of
the Tax Omnibus proposal is to reduce existing recurrent costs, by simplifying EU tax rules
where possible. Accordingly, as outlined in Chapter 6 and Annex 3, the initiative is not
expected to bring any significant costs for businesses and tax administrations, and are thus
estimated as none, marginal, or not relevant.
What are the impacts on SMEs and competitiveness?
SMEs: the Omnibus includes measures in favour of SMEs, such as an explicit carve-out from
the CFC rules and a de facto carve-out from the interest limitation rule of the ATAD. These
are estimated to bring additional cost savings of around EUR 90 and at least EUR 69 million
per year, respectively. In addition, SMEs will also benefit from the general cost savings which
are expected to arise from the other simplification measures. In this way, the Omnibus will
support the Commission objective to prioritise burden reduction for SMEs (35%, compared to
25% generally).
Competitiveness: the Omnibus is estimated to have an overall positive effect on
competitiveness, by lowering compliance and administrative costs, improving legal certainty
and removing some continued tax barriers for cross-border business activity in the internal
market. These effects are expected to boost investment decisions and enhance the EU business
environment, supporting overall growth and competitiveness.
Will there be significant impacts on national budgets and administrations?
Most of the policy options are not expected to have significant impact on national budgets.
Where relevant, the impact assessment report estimates the overall impact of policy options on
tax revenues, and the outcome should be limited or neutral, especially when compared to the
related investment and GDP growth benefits.
Additionally, administrations are meant to benefit from simplifications. Tax authorities should
face very limited adaptation costs to adjust to new procedures, especially IT procedures, since
the envisaged measures generally either simply eliminating existing requirements or extending
the use of procedures and templates already introduced via the FASTER directive.
Will there be other significant impacts?
The impact assessment also considers whether the initiative may have environmental or social
impacts, or an impact on fundamental rights. No particular and direct environmental impact is
expected. It is also not expected that there would be a significant social impact, although freed
resources may positively influence employment to some extent. The initiative should also not
interfere with the protection of fundamental rights, which are guaranteed, and personal data
will be protected.
Proportionality?
The preferred option does not go beyond what is necessary to achieve the objectives and
focuses on elements where the added value of EU action goes beyond what can be achieved
by Member States alone.
D. Follow up
When will the policy be reviewed?
The first evaluation should take place not earlier than five years after the new rules start to
apply.