Ettepanek - SEC(2026) 560, SWD(2026) 560, SWD(2026) 561, SWD(2026) 562, COM(2026) 560

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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.

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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)

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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).

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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).

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(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

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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.

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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.

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(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.

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(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.

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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

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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?

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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.

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(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)