EN EN

EUROPEAN COMMISSION

Brussels, 24.6.2026

COM(2026) 560 final

2026/0163 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164,

(EU)2017/1852, (EU) 2025/50 as regards the simplification of the Union framework on

direct taxation and supporting growth and competitiveness of the EU

{SEC(2026) 560 final} - {SWD(2026) 560 final} - {SWD(2026) 561 final} -

{SWD(2026) 562 final}

EN 1 EN

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).

EN 2 EN

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).

EN 3 EN

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).

EN 4 EN

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).

EN 5 EN

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.

EN 6 EN

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.

EN 7 EN

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.

EN 8 EN

• 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

EN 9 EN

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)

EN 10 EN

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,

EN 11 EN

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.

EN 12 EN

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.

EN 13 EN

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

EN 14 EN

operates a qualified ‘side-by-side’ regime and the low-taxed controlled foreign subsidiary is

not subject to qualified domestic top-up tax or, where it is subject to a qualified domestic top-

up tax, a refund or direct or indirect financial benefit is granted in relation to that tax.

Second, Article 4 introduces an exemption from CFC rule for small and medium-sized

groups. Information collected from exchanges with several Member States indicates that

administrations have had almost no CFC cases related to SMEs in the approximately ten years

since ATAD started to apply. This indicates that these rules are rarely triggered for SMEs,

possibly because these companies' operating structures involve no or little cross-border

activity. Their exclusion would thus not hinder anti-avoidance and evasion or aggressive tax

planning efforts. It would rather bring significant cost and resource savings, and thus benefits,

to both companies and tax administrations. The exemption of such groups therefore aims to

reduce disproportionate compliance costs and administrative burdens for smaller businesses

operating across the internal market.

Third, in order to simplify and streamline the CFC framework across the Union, the proposal

makes Model A the only possible approach, deleting the option to implement CFC rules by

applying Model B.

Finally, Hybrid Mismatch Rules prevent companies from exploiting discrepancies amongst

national rules, in order to avoid taxation. Yet, in some cases, such as when it comes to

imported mismatches, application has proven particularly complex for both taxpayers and tax

administrations. In order to simplify hybrid mismatch rules and ensure their proportionality,

Article 4 of the proposalremoves rules related to imported mismatches from ATAD.

Amendments to Council Directive (EU) 2017/1852 (Dispute Resolution Mechanism –

DRM)

The DRM lays down rules for swiftly and effectively resolving disputes related to the

interpretation of tax treaties for both businesses and citizens and covers issues on double

taxation. Article 5 of the proposalintroduces targeted amendments to the DRM with the aim

to address interpretative divergences identified in practice, streamline procedures, and

improve taxpayers’ access to dispute resolution mechanisms. The amendments are designed

to preserve the overall architecture of the Directive while introducing clarifications and

procedural simplifications.

The amendment to article 2 of the DRM clarifies that, where the taxation of more than one

person is directly affected by the same question in dispute, each of these persons qualifies as

“affected person” for the purposes of the Directive. This clarification is intended to remove

uncertainty in multiple-entity cases and should be read together with the amendments to

article 3 concerning the filing of complaints.

Article 3 of the DRM is subjected to several amendments which are meant to streamline and

clarify the complaint stage of the procedure. First, it is clarified who should file the complaint

where multiple affected persons are involved. Member States must allow either each affected

person to submit a complaint individually to its State of residence or, alternatively, permit one

affected person to file on behalf of all affected persons. This approach seeks to combine legal

certainty with procedural flexibility. Second, the concept of “simultaneous submission” is

replaced with a 30-calendar-day submission window. This amendment responds to divergent

national interpretations of the term “simultaneously”, which in practice ranged from requiring

filing on the same day to allowing broader timeframes.

EN 15 EN

In Article 4 of the DRM, an amendment is introduced to clarify that, where competent

authorities conclude that no agreement can be reached, they should inform the taxpayer

without delay rather than waiting for the expiry of the two-year MAP period. The objective is

to allow taxpayers to access the arbitration phase earlier and avoid unnecessary delays.

The amendments to Article 5 of the DRM clarify that failure to comply with procedural

requirements — including failure to submit information within the new 30-day submission

window, failure to use an accepted language, or failure to provide the same information to all

competent authorities — may result in rejection of the complaint. At the same time, the

amendments strengthen taxpayer protection by requiring competent authorities to give

taxpayers the opportunity to remedy deficiencies within 30 days and by allowing taxpayers to

resubmit a complaint, provided the overall time limit is respected. The purpose is to avoid

disproportionate procedural rejections and facilitate access to the mechanism.

The amendment to article 8 clarifies the time limit for objections against independent persons

of standing that participate in the advisory commission. Objections may only be raised until

the final decision has been accepted by all competent authorities. This rule is intended to

prevent late procedural challenges from undermining legal certainty and delaying the

conclusion of the procedure.

In Article 10 of the DRM, the amendment specifies that an alternative dispute resolution

commission may also be set up for disputes relating to the admissibility of complaints and not

only for the substantive resolution of double taxation disputes. The objective is to broaden

procedural flexibility and facilitate the efficient settlement of disputes at an earlier stage.

The amendment to the rules of functioning in article 11 of the DRM clarifies that qualification

requirements apply only to independent persons of standing and not to representatives of

competent authorities. This clarification is intended to avoid unnecessary interpretative

uncertainty.

The amendment to article 16 of the DRM addresses the interaction between the Directive and

other dispute resolution procedures based on different legal frameworks. It provides that other

ongoing procedures are suspended once a DRM complaint is submitted and are terminated

only once the DRM complaint has been accepted by all competent authorities concerned. The

purpose is to ensure that taxpayers are not left without protection against double taxation

while at the same time avoiding overlaps between parallel procedures.

The amendment to article 17 of the DRM is meant to introduce additional clarifications for

individuals and smaller undertakings making use of the simplified filing system. It aims to

avoid unclear procedural situations and facilitate coordination between competent authorities

where communications are submitted only to the competent authority of the taxpayer’s State

of residence.

The new article 19a of the DRM introduces a new provision empowering the Council to adopt

implementing acts laying down binding technical and procedural rules necessary to ensure a

uniform and effective application of the Directive. The proposal reflects the view that certain

interpretative and procedural difficulties cannot be adequately addressed solely through

targeted legislative amendments and may require more detailed implementing rules.

Finally, the amendment to article 21 of the DRM introduces a harmonised statistical reporting

framework and empowers the Commission to adopt implementing acts concerning the format

and conditions for the communication of statistical data. The purpose is to ensure consistency

EN 16 EN

of reporting across Member States and alignment with the OECD statistical framework,

thereby improving transparency and the evaluation of the functioning of the Directive.

Amendments to Council Directive EU 2025/50 (Directive on Faster and Safer Relief of

Excess Withholding Taxes - FASTER)

FASTER makes withholding tax procedures in the EU more efficient and secure for investors,

financial intermediaries and national tax administrations. In particular, FASTER provides for

standardised fast-track procedures for relief at source or quick refund of withholding tax

levied on dividends and interests from publicly traded securities.

As detailed above, the proposal extends the scope of the exemption from withholding tax of

the IRD and PSD, while excluding upfront procedures before granting the benefit from the

relevant withholding tax exemptions.

In practice, however, the application of these exemptions may create difficulties in the context

of publicly traded securities held through financial intermediaries and nominee accounts. In

such case, the paying company is often unable to determine at the time of payment whether

the conditions for a withholding tax exemption are fulfilled, in particular where ownership

information concerning portfolio investors is not available (usually below 5% of holding).

As a result, the paying company would not be able to assess whether the conditions of the

PSD and IRD, as amended, are met by the investor, and therefore the exemption cannot be

applied upfront. FASTER could bring significant simplification in such cases.

However, under the current FASTER provisions, Member States may deny access to the

standardised fast-track procedures where a full exemption from withholding tax is claimed.

This would de facto prevent the benefit of the FASTER procedures for refund from applying

to payments which are eligible for exemption under the extended scope of the IRD and PSD.

For this reason, Article 6 of the proposal adjusts the scope of FASTER, to ensure that it

covers refunds in the event of the IRD/PSD.

2026/0163 (CNS)

EN 1 EN

Proposal for a

COUNCIL DIRECTIVE

amending Directives 2003/49/EC, 2009/133/EC, 2011/96/EU, (EU) 2016/1164,

(EU)2017/1852, (EU) 2025/50 as regards the simplification of the Union framework on

direct taxation and supporting growth and competitiveness of the EU

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular

Article 115 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Parliament1,

Having regard to the opinion of the European Economic and Social Committee2,

Acting in accordance with a special legislative procedure,

Whereas:

(1) The proper functioning of the internal market requires that rules on direct taxation

operate in a clear, consistent and efficient manner. In recent decades, the Union has

adopted several directives in the field of direct taxation that aim to eliminate double

taxation, ensure tax neutrality, facilitate dispute resolution and prevent tax avoidance

in cross-border situations.

(2) The acquis in direct taxation represents a significant achievement for the Union. As

part of this acquis, Council Directive 2003/49/EC3, Council Directive 2009/133/EU4

and Council Directive 2011/96/EU5 have contributed to the functioning of the internal

market by facilitating cross-border economic activities, in particular by removing

withholding taxes on certain intra-group payments and ensuring tax neutrality for

cross border reorganisations. Council Directive (EU) 2016/11646 has strengthened the

protection of the internal market by laying down coordinated rules against tax

avoidance practices that may distort competition and affect the allocation of taxing

1 OJ C , , p. . 2 OJ C , , p. . 3 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest

and royalty payments made between associated companies of different Member States (OJ L 157,

26.6.2003, p.49, ELI: http://data.europa.eu/eli/dir/2003/49/oj). 4 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to

mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies

of different Member States and to the transfer of the registered office of an SE or SCE between Member

States (OJ L 310, 25.11.2009, p. 34, ELI: http://data.europa.eu/eli/dir/2009/133/oj). 5 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in

the case of parent companies and subsidiaries of different Member States (OJ L 345, 29.12.2011, p. 8,

ELI: http://data.europa.eu/eli/dir/2011/96/oj). 6 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices

that directly affect the functioning of the internal market (OJ L 193, 19.7.2016, p. 1,

ELI: http://data.europa.eu/eli/dir/2016/1164/oj).

EN 2 EN

rights, thereby addressing risks of base erosion and profit shifting. Council Directive

(EU) 2017/18527 has further contributed to the proper functioning of the internal

market by providing mechanisms for the effective resolution of cross-border disputes

in the Union that involve double taxation or arise from double taxation conventions.

(3) While the objectives of those Directives remain valid, practical experience arising

from their application has revealed structural shortcomings as well as increasing

complexity. The coexistence of multiple sets of rules adopted over time has resulted in

a multilayered tax framework. Furthermore, the interaction between those directives

and more recent developments in the international tax landscape, in particular Council

Directive (EU) 2022/25238 ensuring a global minimum level of taxation for

multinational enterprise groups and large-scaled domestic groups, has in some cases

led to overlaps, duplications and situations of layered regulation addressing similar

objectives. In addition, the existence of numerous options for implementation and the

use of concepts that are not uniformly defined have resulted in divergent approaches

across Member States and contributed to a highly fragmented tax framework in the

Union. Certain provisions of the Union tax framework are no longer in line with

current economic and legal developments, resulting in outdated rules.

(4) Those factors contribute to legal uncertainty for taxpayers and tax administrations in

the Union, increase the risk of disputes and unintended tax outcomes, and result in

significant compliance costs and administrative burdens, in particular for cross-border

activities, thereby undermining the effective functioning of the internal market and

adversely affecting the competitiveness of businesses operating within the Union.

Taxpayers operating across the internal market may be subject to divergent rules

implementing the Union tax framework and face burdensome compliance

requirements and procedural inefficiencies.

(5) In order to address those shortcomings, it is necessary to simplify and streamline the

Union framework on direct taxation while maintaining the highest standard of

protection for the internal market. That requires reducing complexity, eliminating

overlaps and ensuring a more uniform application of tax rules across Member States.

Given the cross-border nature of the issues identified, a coordinated approach at Union

level is required to ensure consistent solutions and to avoid further fragmentation. This

Directive should therefore introduce targeted amendments to Directives 2003/49/EC,

2009/133/EC, 2011/96/EU, (EU) 2016/1164 and (EU) 2017/1852. While it already

represents a significant step forward in the simplification and streamlining of the

Union tax framework, it is also necessary to amend Council Directive (EU) 2025/509

to ensure that the withholding tax exemption under Directives 2003/49/EC and

2011/96/EU can also be applied to income arising from publicly traded securities.

Altogether, those amendments should reduce compliance costs and administrative

burdens, improve legal certainty and ensure a more coherent interaction between the

existing rules. They should also contribute to the proper functioning of the internal

market and support the competitiveness of the businesses operating within the Union.

7 Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the

European Union (OJ L 265, 14.10.2017, p. 1, ELI: http://data.europa.eu/eli/dir/2017/1852/oj). 8 Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of

taxation for multinational enterprise groups and large-scale domestic groups in the Union (OJ L 328,

22.12.2022, p. 1, ELI: http://data.europa.eu/eli/dir/2022/2523/oj). 9 Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer relief of excess withholding

taxes (OJ L, 2025/50, 10.1.2025, ELI: http://data.europa.eu/eli/dir/2025/50/oj).

EN 3 EN

(6) Small and medium sized enterprises (’SMEs’) are particularly affected by the

complexity and fragmentation of the Union direct tax framework, despite the fact that

they generally present limited risks of base erosion and profit shifting. In order to

ensure that compliance obligations remain proportionate, it is therefore important to

provide for targeted simplification measures for SMEs.

(7) At the same time, large multinational enterprise groups (‘MNE’ groups) and large-

scale domestic groups that fall within the scope of Directive (EU) 2022/2523 are

subject to complex and globally coordinated rules aimed at ensuring a minimum level

of taxation in each jurisdiction in which they operate. While those rules play a key role

in addressing base erosion and profit shifting, they also entail significant compliance

obligations and may give rise to overlapping requirements when interacting with

existing tax rules at Union and national level. In order to preserve the competitiveness

of businesses operating within the Union, while maintaining a high level of protection

against tax avoidance, it is therefore important to provide for targeted simplification

measures for entities within the scope of that Directive, in order to ensure coherence of

the tax system and mitigate the compliance burden.

(8) Directives 2003/49/EC and 2011/96/EU lay down exemptions from withholding taxes

on certain cross-border payments of interest, royalties, dividends and other profit

distributions and thereby contribute to the elimination of double taxation within the

Union. However, differences in their design and the limited material scope of those

directives, in particular as regards minimum shareholding requirements, have led to

inconsistent implementation across Member States and increased compliance costs,

which may distort investment decisions for businesses operating across the internal

market. Residual withholding taxation in the Union creates barriers and reduces tax

neutrality for cross-border investments.

(9) With a view to simplifying the functioning of the internal market and strengthen its

competitiveness, it is appropriate to broaden the material scope of both directives. To

that end, the requirements for a minimum percentage and a minimum duration of the

shareholding as conditions for granting relief from withholding tax and, in the case of

dividends or other profit distributions, for granting the participation exemption should

be removed. In light of this broader scope, the option for Member States to replace the

criterion of a participation in the capital by that of a participation in the voting rights

should also be eliminated, so as to ensure a more uniform and predictable application

of those directives. Moreover, in order to remove tax obstacles to cross-border

investment by pension institutions, distributions of dividends to such entities should be

exempt from withholding tax, irrespective of their legal form and by way of

derogation from the subject-to-tax condition. Furthermore, to ensure that the rules

allowing Member States to provide that charges relating to a participation and losses

resulting from the distribution of profits of the subsidiary are not deducted from the

taxable profits of the parent company remain proportionate in the light of the

broadened scope of Directive 2011/96/EU, the application of that option should be

allowed where the participation is of a sufficient size to justify incurring management

costs. For this purpose, a minimum participation of 10% in the capital of the

subsidiary should be required.

(10) In order to prevent situations of double non-taxation, it is appropriate to ensure that

interest and royalty payments are subject to taxation at least once, either through a

withholding tax or by denying deductibility of those payments at source. While

Directive 2003/49/EC already includes a subject to tax requirement within the Union,

an additional measure is necessary to address situations where income flows of interest

EN 4 EN

and royalties leaving the Union remain untaxed in their country of destination. As a

general rule, Member States should continue to apply their national rules, including

those resulting from applicable tax treaties, to interest and royalty payments. The

specific protective measure should apply where the third-country jurisdiction in which

the recipient of the payment is established does not levy corporate income tax on

interest and royalty income or applies a zero corporate income tax rate to such income

and no withholding tax is levied in the Member State of source. The protective

measure would target the specific flow of income and consider the tax situation of the

direct recipient of the payment only. In this way, the rule would alleviate the payer

from the need to trace intermediary structures. This should be without prejudice to the

application of national and treaty-based anti-abuse provisions and Union principles

relating to beneficial ownership. However, that protective measure should not apply

where, for the tax period, the recipient of the payment is subject to a qualified

domestic top-up tax and does not receive any refund or direct or indirect financial

benefits in relation to that tax or is part of an MNE group which, for that tax period,

falls within the scope of the rules laid down in Directive (EU) 2022/2523 or, as

regards third-country jurisdictions, to the OECD Model Rules10. In this context, the

protective measure may still apply if the ultimate parent entity of the MNE group is

located in a jurisdiction with a qualified side-by-side regime for the tax period.

(11) No similar measure is necessary to address risks of double non-taxation of profit

distributions (dividends), since such distributions are already taxed within the Union,

either at the level of the distributing company or at the level of the recipient.

(12) Extensive and diverse procedural requirements applied by some Member States as

conditions for the application of the exemptions from withholding tax laid down in

Directives 2003/49/EC and 2011/96/EU have, in practice, created significant

administrative burdens for taxpayers and tax authorities in the Union and have

hindered the effective functioning of those exemptions. In order to reduce those

burdens, enhance legal certainty and support the competitiveness of the internal

market, it is appropriate to simplify and streamline those procedural

requirements. This Directive should therefore provide that Member States do not

require prior authorisation or administrative procedures for verifying whether the

conditions for the exemptions are fulfilled at the time of payment of the interest or

royalties or the distribution of profits. This should not affect the powers of Member

States to carry out ex post controls and to apply national anti-abuse rules, including

rules on beneficial ownership.

(13) In the case of publicly traded securities, portfolio investors whose holding in the

paying company remains below a certain threshold are frequently unknown to that

company, as such securities are often held in nominee-registered accounts. As a result,

the paying company may not be able to determine in advance whether the conditions

for the exemptions from withholding tax provided for in Directives 2003/49/EC and

2011/96/EU are fulfilled, which may impede effective access to those exemptions.

Directive (EU) 2025/50 established standardised relief-at-source and quick refund

procedures for excess withholding tax on income from publicly traded securities. In

order to avoid inefficient and burdensome national procedures and to ensure that

taxpayers who are entitled to the exemptions provided for in Directives

2003/49/EC and 2011/96/EU can also make use of the common procedures laid down

10 OECD (2021), Tax Challenges Arising from Digitalisation of the Economy – Global Anti-Base Erosion

Model Rules (Pillar Two): Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting

Project, OECD Publishing, Paris, https://doi.org/10.1787/782bac33-en.

EN 5 EN

in Directive (EU) 2025/50, that Directive should be amended so that income from

publicly traded securities which qualifies for those exemptions is not excluded from

the relief-at-source or quick refund procedures.

(14) Where payments falling within the scope of Directives 2003/49/EC and 2011/96/EU

satisfy the substantive conditions for exemption from withholding tax, but tax is

nonetheless withheld, for instance, because the paying company cannot determine in

advance whether those conditions are met, Member States should ensure that the

excess tax is refunded through standard refund procedures within a reasonable time.

To that end, Directive 2011/96/EU should be aligned with Directive 2003/49/EC as

regards the time limits for submitting refund claims and for processing them.

(15) Directive 2003/49/EC provides that a permanent establishment is to be treated as the

payer of interest or royalties where the payment constitutes a tax-deductible expense

for that permanent establishment. In order to avoid legal uncertainty and to ensure that

that rule applies in a manner consistent with the objective of the Directive, it is

appropriate to clarify that Directive 2003/49/EC applies to payments which are

attributable to the activities of a permanent establishment, irrespective of whether

those payments are tax-deductible in the Member State in which the permanent

establishment is situated.

(16) Directive 2009/133/EC provides for common rules to reduce tax obstacles and ensure

tax neutrality in reorganisations concerning companies of different Member States,

including mergers, divisions, partial divisions, transfers of assets, exchanges of shares

and the transfer of the registered office of a Societas Europaea (SE) or Societas

Cooperativa Europaea (SCE). Developments in Union company law, in particular

those introduced by Directive (EU) 2017/1132 of the European Parliament and of the

Council11, as amended by Directive (EU) 2019/2121 of the European Parliament and

of the Council12, have led to a misalignment between the scope of tax rules and

company law provisions. This results in legal uncertainty for the businesses and

compromises competitiveness in the internal market. In order to ensure coherence

between the tax framework and company law, the definitions of Directive

2009/133/EC should be aligned with Directive (EU) 2017/1132 to include an

additional subtype of a merger and “division by separation”.

(17) Directive 2009/133/EC also applies to the transfer of the registered office of an SE or

SCE. In light of the neutrality principle, it is necessary that the same tax treatment be

granted to the cross-border conversions, which include at least the transfer of the

registered office of the converting company from the departure Member State to the

destination Member State. Therefore, a new chapter should be introduced to Directive

2009/133/EC on rules applicable to cross-border conversions, whereby, in line with

the rest of the Directive, taxation of capital gains that arise on assets of a company

undergoing a cross-border conversion should be deferred until the actual disposal of

such assets, to the extent that the company remains a tax resident in the departure

Member State or maintains in that Member State a permanent establishment with

which such assets remain connected.

11 Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to

certain aspects of company law (OJ L 169, 30.6.2017, p. 46,

ELI: http://data.europa.eu/eli/dir/2017/1132/oj). 12 Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019

amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (OJ L

321, 12.12.2019, p. 1, ELI: http://data.europa.eu/eli/dir/2019/2121/oj).

EN 6 EN

(18) In the light of the judgment of the Court of Justice of 1 October 2009 in Case C-

247/0813, it is appropriate to revise the list of company forms included in the Annex to

Directive 2003/49/EC, Annex I, Part A, to Directive 2009/133/EC and Annex I, Part

A, to Directive 2011/96/EU in order to ensure that all entities, which by their nature

should fall within the scope of those directives, are explicitly covered.

(19) Directive (EU) 2016/1164 lays down rules against tax avoidance practices that directly

affect the functioning of the internal market, including specific rules on interest

limitation, controlled foreign companies, exit taxation, hybrid mismatches and a

general anti-abuse rule. Those rules set a common framework to ensure a minimum

level of protection against base erosion and profit shifting within the Union.

(20) In order to strengthen the Union’s competitiveness, support innovation and facilitate

the green and digital transition, it is important to promote investment in research and

development across the internal market. Considering, in particular, the changing

international tax environment, tax systems should continue to provide effective and

targeted support for genuine research and development activities. To that end, a

common framework for the tax treatment of certain research and development

expenditure should be established in Directive (EU) 2016/1164, ensuring simplicity,

legal certainty and consistency with the objective of maintaining a level-playing field

in view of enhancing international competitiveness.

(21) Capital expenditure on plant, machinery and other tangible assets used by taxpayers

for research and development, or to provide facilities for conducting such activities,

should be fully deductible from taxable income to foster innovation, strengthen the

internal market, and encourage investment in new technologies. Establishing a

framework to set a level playing field for the deductibility of such expenditure would

reduce barriers faced by businesses operating across borders within the Union. To this

effect, taxpayers should be allowed to deduct the qualifying expenditure from their

taxable base either in the tax period in which it is incurred, or at their choice, in any of

the four subsequent tax periods.

(22) In order to ensure legal certainty, simplify the application of the rules and prevent

abuse, conditions should be laid down to determine the minimum time during which

qualifying expenditure must be used for research and development, the withdrawal of

the allowance, and the treatment of balancing charges upon disposal. Taxpayers

benefiting from the allowance should therefore be required to use the qualifying

expenditure wholly and exclusively for research and development for a minimum

period of three years. Where the taxpayer ceases to own, demolishes, or otherwise

disposes of an asset to which that qualifying expenditure relates and generates any

monetary value, that value should be taken into account to ensure that the allowance

accurately reflects the actual investment in research and development.

(23) In conformity with the principles of subsidiarity and proportionality, the prescription

of a minimum level of harmonisation within the Union as regards the tax deductibility

of capital expenditure used for research and development is sufficient to ensure that

research and development remain central to the Union’s competitiveness and

contributes to a more level playing field within the internal market. Accordingly,

without prejudice to the application of the State aid rules, Member States should be

entitled to apply domestic provisions that allow for more favourable tax deductibility

in respect of qualifying expenditure.

13 Judgment of the Court of Justice of 1 October 2009, Gaz de France - Berliner Investissement SA

v. Bundeszentralamt für Steuern, C-247/08, ECLI:EU:C:2009:600.

EN 7 EN

(24) The Commission’s evaluation of Directive (EU) 2016/116414 concluded that the rules

of that directive are complex and rely on alternative approaches, multiple optional

exceptions and thresholds. In particular, discrepancies in key concepts and definitions,

as well as the coexistence of different models for the taxation of controlled foreign

companies and options in the interest limitation rule have resulted in fragmentation of

the Union legal framework for taxation, legal uncertainty for taxpayers and increased

compliance burdens, in particular for businesses operating cross-border. That is the

case also where the risk of base erosion and profit shifting is limited, notably for

SMEs. It follows that the applicable legal framework may result in a disproportionate

burden compared to the actual risk that it addresses. In addition, in light of the recent

introduction of a global minimum level of taxation through Directive (EU) 2022/2523,

Directive (EU) 2016/1164 should be adjusted to avoid overlaps and redundancies in

scope, objectives and effects, including situations of double taxation and duplicative

reporting obligations, resulting from the coexistence of the two frameworks.

(25) The interest limitation rule set out in Article 4 of Directive (EU) 2016/1164 is intended

to discourage aggressive tax planning through the use by taxpayers of artificially

inflated interest payments by placing excessive debt in high-tax jurisdictions. While

the rule fulfils an important function in preventing tax avoidance, the coexistence of

different thresholds, optional carve-outs and escape clauses, which have been

implemented differently by Member States, often risks not targeting base erosion and

profit shifting risks in a proportionate manner. That flexibility has contributed to

significant fragmentation, increased compliance costs and legal uncertainty within the

internal market. The interest limitation rule may also negatively affect companies’

ability to finance investment and growth, as it fails to adapt to changes in the

economic environment, particularly in a context of increasing interest rates and

inflation. Furthermore, the rule may disproportionately affect capital-intensive sectors,

such as real estate, infrastructures and innovative start-ups that rely on long-term debt

financing. Finally, the current interest limitation rule also risks placing unnecessary

burdens on SMEs, despite those companies having fewer resources and opportunities

to engage in aggressive tax planning using interest payments.

(26) Amendments to Article 4 of Directive (EU) 2016/1164 are therefore necessary to

simplify its application, better align it with its objective and ensure that the rule

remains fit for purpose while supporting genuine investments in the Union. In

particular, it is important to reduce the number of options available to Member States,

update the rule’s structure, clarify its scope and take into account the new common

framework for the tax treatment of certain research and development expenditure.

(27) The interest limitation rule is designed to ensure that most third-party borrowing costs

remain deductible for tax purposes, as such financing generally presents limited risks

of base erosion and profit shifting. However, the possibility for Member States to

apply lower deductibility thresholds when transposing that rule has resulted in

divergent approaches across the Union, increased complexity and reduced legal

certainty for taxpayers. In order to ensure a consistent application of the rule and equal

treatment within the internal market, the level of deductibility for tax purposes should

be fixed at 30% of EBITDA across all Member States.

(28) In order to preserve the effectiveness of the new common framework for the tax

treatment of certain research and development expenditure introduced into Directive

14 Commission Staff Working Document: Evaluation of Council Directive 2016/1164 laying down rules

against tax avoidance practices that directly affect the functioning of the internal market.

EN 8 EN

(EU) 2016/1164, the calculation of EBITDA for the purposes of the interest limitation

rule should include add-backs for tax-adjusted amounts relating to research and

development expenditure deducted under that framework, in the same manner as

exceeding borrowing costs, depreciation and amortisation are taken into account.

(29) Base erosion and profit shifting risks addressed by the interest limitation rule primarily

arise from excessive interest payments between associated enterprises. By contrast,

borrowing from non-associated enterprises, including through bonds issuances subject

to specific regulatory oversight, generally present limited risks of such practices. In

order to better align this rule with its objective and ensure a consistent and

proportionate application, borrowing costs arising from loans granted by non-

associated enterprises should be excluded from the scope of the limitation, provided

that such financing is used to fund the borrowing taxpayer’s own activities and

therefore, any on-lending within the group should not be covered by the exclusion.

(30) To reduce the administrative and compliance burden of the interest limitation rule,

especially for small taxpayers, Member States may currently provide a safe harbour

rule according to which net interest expenses are always deductible for tax purposes

up to a fixed monetary amount. However, the optional nature of this provision and its

transposition flexibility have resulted in divergent implementation across the Union,

limiting its effectiveness. It is therefore appropriate to make that safe harbour

mandatory, and provide for a periodic indexation, to ensure that it remains effective

and relevant over time.

(31) The two targeted exclusions from the interest limitation rule concerning loans granted

by non-associated enterprises and the mandatory increased safe harbour would render

the optional exclusion in favour of standalone entities redundant. Therefore, that

optional exclusion should be deleted in order to simplify and streamline the interest

limitation rule.

(32) The interest limitation rule links the deductibility of borrowing costs to earnings,

which may decline during economic downturns. As a result, taxpayers may face

stricter limitations precisely when access to external financing becomes more needed.

In order to mitigate such procyclical effect and ensure that the rule does not unduly

constrain economic activity in periods of financial stress, Directive (EU) 2016/1164

should be amended to alleviate the application of the interest limitation rule where a

significant drop of the EBITDA occurs in a given year.

(33) In order to ensure that the interest limitation rule does not hinder investments that are

essential for the Union’s economic development and public welfare, Directive (EU)

2016/1164 allows Member States to exclude certain long-term public infrastructure

projects from its scope. Since such projects generally present limited risk of base

erosion and profit shifting and without prejudice toState aid rules including

Commission Decision (EU) 2025/2630 on the application of Article 106(2) TFEU to

State aid in the form of public service compensation15, the scope of that exclusion

should be extended to cover a broader range of public-benefit projects, including those

contributing to the Union’s common priorities in particular in relation to climate,

digitalisation, social and economic resilience, energy security and social and

15 Commission Decision (EU) 2025/2630 of 16 December 2025 on the application of Article 106(2) of the

Treaty on the Functioning of the European Union to State aid in the form of public service

compensation granted to certain undertakings entrusted with the operation of services of general

economic interest and repealing Decision 2012/21/EU, C/2025/8820, OJ L, 2025/2630, 19.12.2025.

EN 9 EN

affordable housing, including the construction, transformation and renovation of

buildings for social and affordable housing purposes.

(34) In light of the evolving geopolitical landscape and, in particular, Russia’s war of

aggression against Ukraine, the Union is to strengthen its overall defence readiness

and facilitate the mobilisation of private investment in defence capabilities. To that

end and in order to address the capability gaps identified by the Commission and the

High Representative of the Union for Foreign Affairs and Security Policy in the joint

White Paper for European Defence Readiness 203016, and support the objectives set

out in Council Regulation (EU) 2025/110617, establishing the Security Action for

Europe, it is appropriate to introduce a temporary exclusion from the interest

limitation rule for exceeding borrowing costs incurred on loans used to finance

defence products in critical capability areas. In order to ensure that the exclusion

remains proportionate to that objective and does not unduly affect the application of

the interest limitation rule beyond what is necessary, the exclusion should be strictly

targeted and apply only to critical defence capabilities identified as priority areas by

Council Regulation (EU) 2025/1106. In order to ensure that the exclusion remains

proportionate and effectively supports the rapid scaling-up of production capacity, the

exclusion should be limited in time and apply only to loans concluded within the first

five tax years after the entry into force of this Directive. That temporary application is

also consistent with the European Council conclusions of 20 March 202518, which call

for accelerating efforts to enhance the Union’s defence readiness within the next five

years.

(35) The interest limitation rule may have a disproportionate impact on certain groups that

are highly leveraged for genuine commercial reasons. Directive (EU) 2016/1164

therefore provides Member States with the option to allow taxpayers to apply a group

escape rule, enabling them to deduct exceeding borrowing costs above the general

limitation, where they can demonstrate that their level of leverage is in line with that

of their group. However, the optional nature of this provision has resulted in divergent

application across the Union. In order to achieve a consistent and proportionate

application of the rule, while preserving its objective of addressing base erosion and

profit shifting risks, the group escape rule should be made mandatory, while allowing

Member States to retain the choice between the two existing mechanisms for the

implementation of the group escape rule as set out in Article 4(5), points (a) and (b) of

Directive (EU) 2016/1164.

(36) The possibility to carry-forward exceeding borrowing costs and unused interest

capacity is essential to avoid disproportionate outcomes for taxpayers with volatile

earnings or long-term investment cycles, such as capital-intensive industries and start-

ups. While Directive (EU) 2016/1164 provides for such carry-forward rules, their

optional nature has led to divergent approaches across Member States. Such a

landscape compromises efforts to establish a level playing field within the internal

market, enhance legal certainty and support the economic resilience of capital-

intensive industries. For this purpose, the carry-forward of exceeding borrowing costs

and unused interest capacity should be made mandatory while allowing Member

16 Commission and High Representative of the Union for Foreign Affairs and Security Policy, Joint White

Paper for European Defence Readiness 2030 (19.3.2025 JOIN(2025) 120 final). 17 Council Regulation (EU) 2025/1106 of 27 May 2025 establishing the Security Action for Europe

(SAFE) through the Reinforcement of the European Defence Industry Instrument (OJ L 025/1106,

28.5.2025), ELI: http://data.europa.eu/eli/reg/2025/1106/oj). 18 European Council Conclusions, 20 March 2025, EUCO 1/25.

EN 10 EN

States to retain the choice between the different mechanisms for implementing such

carry-forward as set out in Article 4(6), points (a) and (c) of that Directive, thereby

recognising that the timing of interest expenses and taxable income may not always

align within a single tax year.

(37) Financial undertakings are subject to specific regulatory frameworks under Union law.

Directive (EU) 2016/1164 therefore allows Member States to exclude such

undertakings from the scope of the interest limitation rule. In order to ensure that this

exclusion remains fit for purpose and reflects developments in Union financial

regulation since the adoption of that Directive, the definition of financial undertakings

should be updated accordingly.

(38) The purpose of the general anti-abuse rules (GAAR) set out in Article 6 of Directive

(EU) 2016/1164 is to tackle abusive tax practices of companies that are not addressed

by specific provisions. Nevertheless, the reference to corporate tax has created

uncertainty as to the scope of application of the GAAR, in particular as to whether it

applies to withholding taxes or top-up taxes resulting from the application of Directive

(EU) 2022/2523. In order to enhance clarity and ensure consistent application across

the Union, the wording should be amended to confirm that the GAAR applies to all

taxes to which companies are subject.

(39) The rules on controlled foreign company (CFC) in Articles 7 and 8 of Directive (EU)

2016/1164 re-attribute the income of low taxed subsidiaries or permanent

establishments to the parent company, in order to prevent base erosion and profit

shifting. However, the objective and effects of those rules overlap to a significant

extent with the income inclusion rule laid down in Directive (EU) 2022/2523 (the

Pillar Two framework), which ensures a minimum level of taxation at an effective rate

of 15% on a broader tax base comprising passive and active income. The parallel

application of CFC rules and the Pillar Two framework may result not only in

economic double taxation but also duplicative and complex compliance obligations for

MNE groups, which are required to perform overlapping calculations and reporting

under both sets of rules. In order to avoid such unintended outcomes while preserving

the CFC rules’ objective of preventing tax-avoidance, an exemption should be granted

to taxpayers subject to the Pillar Two framework. Furthermore, where the ultimate

parent entity (UPE) of an MNE is located in a jurisdiction with a qualified ‘side-by-

side’ regime19, the income inclusion rule is not to apply. However, the combination of

CFC rules and a domestic top-up tax in the state of the low-taxed controlled company

may still lead to double taxation and comparable overlapping compliance burdens. For

this reason, a targeted exemption from CFC taxation should still be given to MNEs

with UPEs in states that operate qualified side-by-side regimes in respect of the

income of their low-taxed controlled foreign companies which are subject to a

qualified domestic top-up tax and receive no refunds or relevant direct or indirect

financial benefits.

(40) Article 7(2) of Directive (EU) 2016/1164 allows Member States to choose between

two methods for determining the income of a CFC which is included in the tax base of

the parent company. This optionality has led to divergent implementation across the

Union, resulting in fragmentation, increased compliance costs and reduced legal

19 OECD (2026), Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base

Erosion Model Rules (Pillar Two), Side-by-Side Package: Inclusive Framework on BEPS, OECD,

https://www.oecd.org/content/dam/oecd/en/topics/policysub-issues/global-minimum-tax/side-by-side-

package.pdf.

EN 11 EN

certainty for taxpayers. Evidence from the application of those rules indicate that the

model based on specific categories of passive income (‘Model A’) provides a more

effective and administrable approach than the model targeting non-genuine

arrangements (‘Model B’). The latter overlaps significantly with transfer pricing rules

and offers limited additional value in practice. In order to simplify the CFC

framework, enhance legal certainty and ensure the consistent application of CFC rules

across the Union, Member States should apply a single approach based on Model A.

Consequently, the option to apply Model B and the related de minimis rule which has

become redundant given that it is solely applicable under Model B, should be deleted.

(41) In the Union, 99.8% of businesses are SMEs. However, only 10% of them have cross-

border activities, and 2% have subsidiaries outside of the Union. In addition, 42% of

SMEs are standalone entities, and therefore not part of a group and without associated

enterprises.20 Information collected from exchanges with several Member

States indicates that administrations have had almost no CFC cases related to SMEs in

the approximately 10 years since Directive (EU) 2016/1164 started to apply.

This indicates that the rules on CFC are rarely applied to SMEs, possibly because

those companies' operating structures involve no or little cross-border activity. The

exclusion of SMEs from the scope of these rules would thus not impact on the efforts

to counter tax avoidance and evasion or aggressive tax planning but rather

bring benefits in the form of cost and resource savings to both companies and tax

administrations. It therefore follows that in line with similar exemptions in favour of

SMEs in this initiative and in other areas of taxation and Union law, it is appropriate to

also introduce an exemption for SMEs from the scope of CFC rules. This will

ensure the proportionate application of CFC rules and mitigate the compliance and

administrative burden for taxpayers and tax authorities respectively.

The exemption should apply to all small and medium-sized groups as defined in

Directive (EU) 2013/34 of the European Parliament and of the Council21, regardless of

whether the ultimate parent undertaking is located in the Union or in third

countries. The scope of the SME exemption ensures that groups may only benefit from

the SME exemption if the group in its entirety meets the definition of a small or

medium-sized group. The exemption should also be granted to standalone

entities, with a permanent establishment abroad, which qualify as a micro, small or

medium-sized undertaking as defined in that Directive.

(42) The CFC rules grant Member States the option to exclude from their scope entities or

permanent establishments whose level of passive income remains limited since the

risks of tax avoidance in those cases are considered low. The option also covers

specific situations involving financial undertakings, for which a higher proportion of

passive income may arise as part of their ordinary business activities. In order to

reduce the administrative and compliance burden for taxpayers, Article 7(3) of

Directive (EU) 2016/1164 should be amended so as to require Member States to

introduce such exemption.

20 VVA/KPMG, Tax compliance costs for SMEs: An update and a complement Final Report KPMG/VVA

2022. 21 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual

financial statements, consolidated financial statements and related reports of certain types of

undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and

repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19,

ELI: http://data.europa.eu/eli/dir/2013/34/oj).

EN 12 EN

(43) The rules on imported mismatches in Article 9(3) of Directive (EU) 2016/1164 have

proven excessively complex, primarily due to their elaborate definitions and multi-

layered compliance obligations. That complexity not only hinders their practical

implementation but also generates significant administrative burdens for both

taxpayers and tax authorities, without achieving their intended results. Considering the

difficulties in applying the rules on imported mismatches and in deriving any positive

outcome, it is appropriate and in conformity with the principle of proportionality to

delete those rules.

(44) In order to reduce fragmentation within the internal market and ensure that the

simplification objectives of this Directive are achieved consistently across the Union,

the rules laid down in Article 4(5) and 4(7)(d) should apply in a uniform manner in all

Member States. For this purpose, Member States should not maintain or introduce

provisions diverging from the uniform rules laid down in this Directive.

(45) The effective resolution of disputes on double taxation within the Union remains a

priority for the proper functioning of the internal market. Unresolved situations of

double taxation create obstacles to cross-border economic activity, undermine legal

certainty and result in excessive tax burden for taxpayers. While Directive (EU)

2017/1852 has significantly improved the framework for resolving such disputes,

experience has shown that certain concepts should be clarified and divergent

interpretations should be addressed, in order to enhance effectiveness and ensure a

more consistent and accessible dispute resolution procedure across the Union to the

benefit of both taxpayers and tax administrations.

(46) To facilitate the use of the procedures for tax dispute resolution laid down in Directive

(EU) 2017/1852 and ensure their wider use, it is necessary to clarify the notion of

“affected person”, including in disputes involving more than one person, and to

specify who is entitled to submit a complaint in such cases.

(47) While ensuring that all competent authorities receive the same information remains

essential, it is equally important to enhance flexibility and ease of access to the dispute

resolution procedure. To that end, it should be clarified in Article 3 of Directive (EU)

2017/1852 that, in cases involving more than one affected person, each affected person

may submit the complaint only to the competent authority of its Member State of

residence, thereby avoiding unnecessary multiple filings and reducing the

administrative burden. For example, where a transfer pricing adjustment affects two or

more associated enterprises, each enterprise should be entitled to submit a complaint

only to the competent authority of its Member State of residence. However, that does

not prevent one affected person from submitting a complaint on behalf of another

affected person in accordance with national law.

(48) To enhance legal certainty, while continuing to ensure that all competent authorities

concerned receive the same information at the same time, the requirements in Article 3

of Directive (EU) 2017/1852 for simultaneous submission of complaints, which has

proven difficult to interpret, should be replaced by a clear time limit for submission.

(49) In order to ensure that competent authorities engage constructively and focus on

eliminating double taxation effectively, the grounds for rejecting a complaint set out in

Article 5 of Directive (EU) 2017/1852 should be reduced to a minimum and restricted

to cases where the complaint lacks the essential information required. In addition,

affected persons should be given the possibility to remedy deficiencies in the

complaint, where appropriate, and, in the event of rejection, to resubmit the complaint,

provided that the applicable time limits are respected.

EN 13 EN

(50) In order to expedite the dispute resolution procedure, communication between

competent authorities and with affected persons should be clear and timely. Where the

competent authorities agree that no agreement can be reached on the resolution of the

dispute, for example because a precedent already exists, they should inform the

affected person without delay, rather than awaiting the expiry of the period provided

for in the mutual agreement procedure under Article 4 of Directive (EU) 2017/1852.

(51) To ensure that an affected person who intends to make use of the procedures laid

down in Directive (EU) 2017/1852 is not left without protection against double

taxation while at the same time avoiding overlaps between procedures based on

different legal frameworks, it is necessary to provide that other procedures initiated

under legal frameworks other than Directive (EU) 2017/1852 are suspended upon the

submission of a complaint and are terminated only once the complaint has been

accepted by all competent authorities concerned.

(52) In order to create a more transparent and efficient procedure in resolving disputes, it is

essential to establish further common procedural rules by way of implementing acts.

Those implementing acts should provide taxpayers and the competent authorities with

detailed and clear rules, with the aim to bring down the compliance burden and

achieve swift resolution of disputes. Such measures are expected to have an impact on

Member States’ executive and enforcement powers in the field of direct taxation and

more specifically, on the exercise of their taxing rights under bilateral or multilateral

tax conventions as well as on Member States’ tax bases. For that reason, it is necessary

to confer powers on the Council, acting on a proposal from the Commission, to adopt

implementing acts under Directive (EU) 2017/1852.

(53) In order to evaluate the effectiveness of the new rules introduced to Directive (EU)

2017/1852, the Commission should prepare an evaluation on the basis of the

information provided by Member States and other available data. The data should be

aligned as much as possible with the data provided to the OECD on the same matter as

to prevent an unnecessary additional burden for the Member States. In order to ensure

uniform conditions for the implementation of this Directive, in particular regarding

what kind of data is to be provided on a yearly basis for statistical purposes,

implementing powers should be conferred on the Commission. Those powers should

be exercised in accordance with Regulation (EU) No 182/2011 of the European

Parliament and of the Council22.

(54) In order to allow Member States and taxpayers to adapt their systems and structures to

the new rules laid down in Article 1 points 2(b) to (h), (3)(c), and (5), in Article 3

points (2) and (5) to (10) and in Article 4 point (5)(d) of this Directive, the application

of those provisions should be deferred. Member States should therefore be allowed to

apply the national measures necessary to comply with those provisions from a later

date than the other provisions of this Directive. In order to ensure that the derogation

set out in Article 4 point (5)(g) applies only within a limited investment window, it is

appropriate to confine its application to loans concluded in the first five tax periods

following the date from which that rule starts to apply.

(55) In order to take account of future changes in the company legal forms that may be

constituted under national law or EU law, the power to adopt acts in accordance

with Article 290 of the Treaty on the Functioning of the European Union should be

22 Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011

laying down the rules and general principles concerning mechanisms for control by Member States of

the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).

EN 14 EN

delegated to the Commission in respect of updating the lists of forms set out in

the annexes to Directives 2003/49/EC, 2009/133/EC and 2011/96/EU. It is of

particular importance that the Commission carry out appropriate consultations during

its preparatory work, including at expert level, and that those consultations be

conducted in accordance with the principles laid down in the Interinstitutional

Agreement of 13 April 2016 on Better Law-Making. The European Parliament should

be informed of the adoption of delegated acts, of any objection expressed in respect of

them and of any revocation of the delegation of powers.

(56) Any processing of personal data carried out for the purposes of this Directive should

be carried out in accordance with Regulation (EU) 2016/679 of the European

Parliament and of the Council23. Any exchange or other transmission of information

by competent authorities under this Directive should be limited to what is necessary

and proportionate for the purposes of this Directive. Where such exchanges or

transmission involve personal data, the rights of data subjects and the corresponding

obligations of controllers and processors under Regulation (EU) 2016/679, as well as

any additional safeguards laid down in Union or national law, should be respected.

(57) Since the objectives of this Directive, namely to ensure a coherent and consistent

application of Union rules in the field of direct taxation, to reduce fragmentation and

compliance burdens and to support the growth and competitiveness of the internal

market, cannot be sufficiently achieved by the Member States acting alone but can

rather, by reason of their scale, cross-border dimension and effects on the internal

market, be better achieved at Union level, the Union may adopt measures, in

accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on

European Union. In accordance with the principle of proportionality, as set out in that

Article, this Directive does not go beyond what is necessary in order to achieve those

objectives,

HAS ADOPTED THIS DIRECTIVE:

Article 1

Amendments to Directive 2003/49/EC

Directive 2003/49/EC is amended as follows:

(1) the title is replaced by the following:

‘Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation

applicable to interest and royalty payments made between companies of different

Member States’;

(2) Article 1 is amended as follows:

(a) paragraph 3 is replaced by the following:

‘3. A permanent establishment shall be treated as the payer of interest or

royalties only insofar as those payments represent an expense incurred for the

purposes of the activity of the permanent establishment in the Member State in

which it is situated.’;

(b) paragraph 7 is deleted;

23 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the

protection of natural persons with regard to the processing of personal data and on the free movement of

such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016,

p. 1, ELI: http://data.europa.eu/eli/reg/2016/679/oj).

EN 15 EN

(c) paragraph 10 is deleted;

(d) paragraph 11 is replaced by the following:

‘11. For the purposes of paragraph 1, Member States shall not require any prior

authorisation or administrative procedure verifying the fulfilment of the

requirements laid down in this Article or in Article 3 at the time of payment.’;

(e) paragraphs 12 and 13 are deleted;

(f) paragraph 14 is replaced by the following:

‘14. If the requirements for exemption cease to be fulfilled, the receiving

company or permanent establishment shall immediately inform the paying

company or permanent establishment.;

(g) in paragraph 15, the second sentence is deleted;

(h) the following paragraph 17 is added:

‘17. For the purposes of this Article and by way of derogation from paragraphs

15 and 16, Member States shall ensure that relief from withholding tax is

granted in accordance with the procedures laid down in Council Directive (EU)

2025/50* for cases falling within the scope of that Directive.

______

*Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer

relief of excess withholding taxes (OJ L, 2025/50, 10.1.2025, ELI:

http://data.europa.eu/eli/dir/2025/50/oj)’;

(3) Article 3 is amended as follows:

(a) the heading is replaced by the following:

‘Definition of company and permanent establishment’;

(b) point (a) is amended as follows:

(1) in point (iii), the indent ‘- corporation tax in the United Kingdom,’ is

deleted;

(2) the following subparagraph is added:

‘The Commission is empowered to adopt delegated acts in accordance

with Article 3a to amend the Annex to this Directive in order to update

the list of forms referred to in the first subparagraph, point (i), as a result

of a notification by a Member State of a new company form that may be

constituted under its national law, or to include a new company form

introduced under Union law.’;

(c) point (b) is deleted;

(4) the following Articles 3a and 3b are inserted:

‘Article 3a

Exercise of the delegation

1. The power to adopt delegated acts is conferred on the Commission subject to the

conditions laid down in this Article.

EN 16 EN

2. The power to adopt delegated acts referred to in Article 3 shall be conferred on the

Commission for an indeterminate period of time from [the date of entry into force of

this Directive].

3. The delegation of power referred to in Article 3 may be revoked at any time by the

Council. A decision to revoke shall put an end to the delegation of the power

specified in that decision. It shall take effect the day following the publication of the

decision in the Official Journal of the European Union or at a later date specified

therein. It shall not affect the validity of any delegated acts already in force.

4. Before adopting a delegated act, the Commission shall consult experts designated

by each Member State in accordance with the principles laid down in the

Interinstitutional Agreement of 13 April 2016 on Better Law-Making.

5. As soon as it adopts a delegated act, the Commission shall notify it to the Council.

6. A delegated act adopted pursuant to Article 3 shall enter into force only if no

objection has been expressed by the Council within a period of two months of

notification of that act to the Council or if, before the expiry of that period, the

Council has informed the Commission that it will not object. That period shall be

extended by two months at the initiative of the Council.

Article 3b

Information to the European Parliament

The European Parliament shall be informed by the Commission of the adoption of

delegated acts, of any objections expressed in respect of those acts, and of any

revocation by the Council of the delegation of power.’;

(5) in Article 5, the following paragraph 3 is added:

‘3. Where an interest or royalty payment arising in a Member State is paid to a

recipient established in a third country jurisdiction where no corporate tax is levied

or where a nominal corporate tax at zero rate applies to interest and royalty income,

the source State shall ensure that either of the following measures applies:

(a) the levying of a withholding tax on the payment;

(b) the denial of the deductibility, for tax purposes, of the corresponding

payment for the payer.

This paragraph shall not apply where the recipient of the payment:

(a) is subject to a qualified domestic top-up tax for the tax period and no refund

or direct or indirect financial benefit is granted in relation to that tax; or

(b) is part of an MNE group which, for the tax period, falls within the scope of

the rules laid down in Council Directive (EU) 2022/2523* or, as regards third-

country jurisdictions, the OECD Model Rules, unless the ultimate parent entity

of that MNE group is located in a jurisdiction with a qualified side-by-side

regime for the tax period.

For the purposes of this paragraph:

(a) the recipient of the payment shall be regarded as established in a

jurisdiction where it is incorporated or constituted under the laws of that

jurisdiction or has its place of effective management there or is otherwise

EN 17 EN

treated as resident for tax purposes under the laws of that jurisdiction and is not

treated as resident for tax purposes in another jurisdiction;

(b) ‘qualified domestic top-up tax’ means a tax as defined in Article 3, point

(28), of Directive (EU) 2022/2523;

(c) ‘MNE Group’ means a group as defined in Article 3, point (4), of Directive

(EU) 2022/2523;

(d) ‘a jurisdiction with a qualified side-by-side regime’ means a jurisdiction

that is reported as having such status on the OECD Central Record for

purposes of the Global Minimum Tax in accordance with the agreement of the

OECD/G20 Inclusive Framework on a Side-by-Side Package of 5 January

2026;

__________

* Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a

global minimum level of taxation for multinational enterprise groups and large-

scale domestic groups in the Union (OJ L 328, 22.12.2022, p. 1, ELI:

http://data.europa.eu/eli/dir/2022/2523/oj)’;

(6) Article 6 is deleted;

(7) the Annex to Directive to 2003/49/EC is replaced by the text in Annex I to this

Directive.

Article 2

Amendments to Directive 2009/133/EC

Directive 2009/133/EC is amended as follows:

(1) Article 2 is amended as follows:

(a) in point (a), the following point (iv) is added:

‘(iv) one or more companies, on being dissolved without going into liquidation,

transfer all their assets and liabilities to another existing company, the

acquiring company, without the issue of any new shares by the acquiring

company, provided that one person holds directly or indirectly all the shares in

the merging companies or the members of the merging companies hold their

securities and shares in the same proportion in all merging companies;’;

(b) point (b) is replaced by the following:

‘(b) ‘division’ means an operation whereby:

(i) a company, on being dissolved without going into liquidation,

transfers all its assets and liabilities to two or more existing or new

companies, in exchange for the pro rata issue to its shareholders of

securities representing the capital of the companies receiving the assets

and liabilities, and, if applicable, a cash payment not exceeding 10 % of

the nominal value or, in the absence of a nominal value, of the

accounting par value of those securities;

(ii) a company being divided transfers part of its assets and liabilities to

one or more recipient companies, in exchange for the issue to the

company being divided of securities or shares in the recipient companies

(‘division by separation’);’;

EN 18 EN

(c) the following points (l), (m) and (n) are added:

‘(l) ‘cross-border conversion’ means an operation whereby a company, without

being dissolved, wound up or going into liquidation, converts the legal form

under which it is registered in a departure Member State into a legal form of

the destination Member State, as listed in Annex I, and transfers at least its

registered office to the destination Member State, while retaining its legal

personality;

(m) ‘departure Member State’ means a Member State in which a company is

registered prior to a cross-border conversion;

(n) ‘destination Member State’ means a Member State in which a converted

company is registered as a result of a cross-border conversion;’;

(2) in Article 3, the following subparagraph is added:

‘The Commission is empowered to adopt delegated acts in accordance with Article

3a, to amend Annex I, Part A, to this Directive in order to update the list of forms

referred to in point (a) as a result of a notification by a Member State of a new

company form that may be constituted under its national law, or to include a new

company form introduced under Union law.’;

(3) the following Articles 3a and 3b are inserted:

‘Article 3a

Exercise of the delegation

1. The power to adopt delegated acts is conferred on the Commission subject to the

conditions laid down in this Article.

2. The power to adopt delegated acts referred to in Article 3 shall be conferred on the

Commission for an indeterminate period of time from [the date of entry into force of

this Directive].

3. The delegation of power referred to in Article 3 may be revoked at any time by the

Council. A decision to revoke shall put an end to the delegation of the power

specified in that decision. It shall take effect the day following the publication of the

decision in the Official Journal of the European Union or at a later date specified

therein. It shall not affect the validity of any delegated acts already in force.

4. Before adopting a delegated act, the Commission shall consult experts designated

by each Member State in accordance with the principles laid down in the

Interinstitutional Agreement of 13 April 2016 on Better Law-Making.

5. As soon as it adopts a delegated act, the Commission shall notify it to the Council.

6. A delegated act adopted pursuant to Article 3 shall enter into force only if no

objection has been expressed by the Council within a period of two months of

notification of that act to the Council or if, before the expiry of that period, the

Council has informed the Commission that it will not object. That period shall be

extended by two months at the initiative of the Council.

EN 19 EN

Article 3b

Information to the European Parliament

The European Parliament shall be informed by the Commission of the adoption of

delegated acts, of any objections expressed in respect of those acts, and of any

revocation by the Council of the delegation of power.’;

(4) the following Chapter Va is inserted:

‘CHAPTER Va

RULES APPLICABLE TO CROSS-BORDER CONVERSIONS

Article 14a

1. A cross-border conversion shall not give rise to any taxation of capital gains

calculated in accordance with Article 4(1), in the departure Member State, provided

that one of the following conditions are met:

(a) the company undergoing the cross-border conversion remains a tax resident

in the departure Member State;

(b) such capital gains are derived from assets and liabilities which remain

effectively connected with a permanent establishment of the company

undergoing cross-border conversion in the departure Member State and play a

part in generating the profits or losses taken into account for tax purposes.

2. Paragraph 1 shall only apply if the company computes any new depreciation and

any gains or losses in respect of the assets and liabilities that remain in the departure

Member State or are effectively connected with a permanent establishment in that

Member State, as though the cross-border conversion had not taken place.

3. Where, under the laws of the departure Member State, the company is entitled to

have any new depreciation or any gains or losses in respect of the assets and

liabilities remaining in that Member State computed on a basis different from that set

out in paragraph 2, paragraph 1 shall not apply to the assets and liabilities in respect

of which that option is exercised.

Article 14b

1. Where a company undergoes a cross-border conversion, the Member States shall

take the necessary measures to ensure that provisions or reserves properly constituted

by the company before the cross-border conversion, that are partly or wholly exempt

from tax and not derived from permanent establishments abroad, may be carried over

with the same tax exemption, by a permanent establishment of the company

undergoing the cross-border conversion, which is situated within the territory of the

departure Member State.

2. To the extent that a company undergoing a cross-border conversion within the

territory of a Member State would be allowed to carry forward or carry back losses

which had not been exhausted for tax purposes, that Member State shall allow the

permanent establishment, situated within its territory, of the company undergoing

cross-border conversion, to take over those losses of that company which have not

been exhausted for tax purposes, provided that the loss carry forward or carry back

would have been available in comparable circumstances to a company which

continued to be tax resident in that Member State.

EN 20 EN

Article 14c

1. A cross-border conversion shall not in itself give rise to any taxation of the

income, profits or capital gains of the shareholders of the company undergoing that

cross-border conversion.

2. Paragraph 1 shall not prevent the Member States from taxing the gain arising out

of the subsequent transfer of the securities representing the capital of the company

undergoing cross-border conversion.’;

(5) Annex I to Directive 2009/133/EC is amended in accordance with Annex II to this

Directive.

Article 3

Amendments to Directive 2011/96/EU

Directive 2011/96/EU is amended as follows:

(1) the title is replaced by the following:

‘Council Directive 2011/96/EU of 30 November 2011 on a common system of

taxation applicable to dividends and other profit distributions between companies of

different Member States’;

(2) in Article 1, paragraph 1 is replaced by the following:

‘1. Each Member State shall apply this Directive:

(a) to distributions of profits received by companies of that Member State

which come from distributing companies of other Member States;

(b) to distributions of profits by companies of that Member State to

companies of other Member States of which they are distributing companies;

(c) to distributions of profits received by permanent establishments

situated in that Member State of companies of other Member States which

come from distributing companies of a Member State other than that where the

permanent establishment is situated;

(d) to distributions of profits by companies of that Member State to

permanent establishments situated in another Member State of companies of

the same Member State of which they are distributing companies.’;

(3) in Article 2, point (a), the following subparagraph is added:

‘The Commission is empowered to adopt delegated acts in accordance with Article

2a to amend Annex I to this Directive in order to update the list of forms referred to

in the first subparagraph, point (i), as a result of a notification by a Member State of a

new company form that may be constituted under its national law, or to include a

new company form introduced under Union law.’;

(4) the following Articles 2a and 2b are inserted:

‘Article 2a

Exercise of the delegation

1. The power to adopt delegated acts is conferred on the Commission subject to the

conditions laid down in this Article.

EN 21 EN

2. The power to adopt delegated acts referred to in Article 2 shall be conferred on the

Commission for an indeterminate period of time from [the date of entry into force of

this Directive].

3. The delegation of power referred to in Article 2 may be revoked at any time by the

Council. A decision to revoke shall put an end to the delegation of the power

specified in that decision. It shall take effect the day following the publication of the

decision in the Official Journal of the European Union or at a later date specified

therein. It shall not affect the validity of any delegated acts already in force.

4. Before adopting a delegated act, the Commission shall consult experts designated

by each Member State in accordance with the principles laid down in the

Interinstitutional Agreement of 13 April 2016 on Better Law-Making.

5. As soon as it adopts a delegated act, the Commission shall notify it to the Council.

6. A delegated act adopted pursuant to Article 2 shall enter into force only if no

objection has been expressed by the Council within a period of two months of

notification of that act to the Council or if, before the expiry of that period, the

Council has informed the Commission that it will not object. That period shall be

extended by two months at the initiative of the Council.

Article 2b

Information to the European Parliament

The European Parliament shall be informed by the Commission of the adoption of

delegated acts, of any objections expressed in respect of those acts, and of any

revocation by the Council of the delegation of power.’;

(5) Article 3 is deleted;

(6) in Article 4, paragraphs 1, 2 and 3 are replaced by the following:

‘1. Where a receiving company or its permanent establishment, by virtue of the

association of the receiving company with the distributing company, receives

distributed profits, the Member State of the receiving company and the Member State

of its permanent establishment shall, except when the distributing company is

liquidated, either:

(a) refrain from taxing such profits to the extent that such profits are not

deductible by the distributing company, and tax such profits to the extent that

such profits are deductible by the distributing company; or

(b) tax such profits while authorising the receiving company and the

permanent establishment to deduct from the amount of tax due that fraction of

the corporation tax related to those profits and paid by the distributing

company and any lower-tier distributing company, subject to the condition that

at each tier a company and its lower-tier distributing company fall within the

definitions laid down in Article 2 and meet the requirements provided for in

Article 3, up to the limit of the amount of the corresponding tax due.

This paragraph shall be without prejudice to national anti-abuse measures aimed at

preventing the avoidance of wealth or income tax liabilities through the use of

holding companies.

2. Nothing in this Directive shall prevent the Member State of the receiving company

from considering a distributing company to be fiscally transparent on the basis of that

EN 22 EN

Member State’s assessment of the legal characteristics of that distributing company

arising from the law under which it is constituted and therefore from taxing the

receiving company on its share of the profits of its the distributing company as and

when those profits arise. In this case the Member State of the receiving company

shall refrain from taxing the distributed profits of the distributing company.

When assessing the receiving company’s share of the profits of its the distributing

company as they arise the Member State of the receiving company shall either

exempt those profits or authorise the receiving company to deduct from the amount

of tax due that fraction of the corporation tax related to the receiving company’s

share of profits and paid by the distributing company and any lower-tier distributing

company, subject to the condition that at each tier a company and its lower-tier

distributing company fall within the definitions laid down in Article 2 and meet the

requirements provided for in Article 3, up to the limit of the amount of the

corresponding tax due.

3. Where a receiving company holds a minimum participation of 10% in the capital

of, or voting rights in, a company of another Member State, each Member State shall

retain the option of providing that any charges relating to the holding participation

and any losses resulting from the distribution of the profits of the distributing

company may not be deducted from the taxable profits of the receiving company.

Where the management costs relating to the holding participation in such a case are

fixed as a flat rate, the fixed amount may not exceed 5 % of the profits distributed by

the distributing company.’;

(7) Article 5 is replaced by the following:

‘Article 5

1. Profits which a distributing company distributes to its receiving company shall be

exempt from withholding tax.

2. By derogation from Article 2(a), points (i) and (iii), paragraph 1 shall also apply

where the receiving company is a pension institution.

For the purposes of the first subparagraph, ‘pension institution’ means any of the

following:

(a) an institution for occupational retirement provision as defined in Article 6,

point (1) of Directive (EU) 2016/2341 of the European Parliament and of the

Council*;

(b) an institution operating pension schemes which are considered to be social

security schemes covered by Regulation (EC) No 883/2004 of the European

Parliament and of the Council** and Regulation (EC) No 987/2009 of the

European Parliament and of the Council***, as well as any legal entity set up

for the purpose of investment of such schemes.

_________

* Directive (EU) 2016/2341 of the European Parliament and of the Council of 14

December 2016 on the activities and supervision of institutions for occupational

retirement provision (IORPs) (OJ L 354 23.12.2016, p. 37, ELI:

http://data.europa.eu/eli/dir/2016/2341/oj).

EN 23 EN

** Regulation (EC) No 883/2004 of the European Parliament and of the Council of

29 April 2004 on the coordination of social security systems (OJ L 166, 30.4.2004,

p. 1, ELI: http://data.europa.eu/eli/reg/2004/883/oj).

*** Regulation (EC) No 987/2009 of the European Parliament and of the Council of

16 September 2009 laying down the procedure for implementing Regulation (EC) No

883/2004 on the coordination of social security systems (OJ L 284, 30.10.2009, p. 1,

ELI: http://data.europa.eu/eli/reg/2009/987/oj).’;

(8) the following Articles 5a, 5b and 5c are inserted:

‘Article 5a

For the purposes of Article 5, Member States shall not require any prior authorisation

or administrative procedure for verifying the fulfilment of the requirements laid

down in Articles 2 and 3 at the time of the distribution of profits.

Article 5b

1. If the distributing company has withheld tax at source to be exempted under

Article 5, a claim may be made at source for repayment of that tax. The application

for repayment must be submitted within the period laid down. That period shall last

for at least two years from date of the distribution of profits.

2. The Member State of the distributing company shall repay the excess tax withheld

at source within one year following due receipt of the application and such

supporting information as it may reasonably ask for. If the tax withheld at source has

not been refunded within that period, the receiving company shall be entitled on

expiry of the year in question to interest on the tax which is refunded at a rate

corresponding to the national interest rate to be applied in comparable cases under

the domestic law of the Member State of the distributing company.

Article 5c

For the purpose of Article 5 and by way of derogation from Article 5a and 5b,

Member States shall ensure that relief from withholding tax is granted in accordance

with the procedures laid down in Council Directive (EU) 2025/50* for cases falling

within the scope of that Directive.

______

*Council Directive (EU) 2025/50 of 10 December 2024 on faster and safer relief of

excess withholding taxes (OJ L, 2025/50, 10.1.2025, ELI:

http://data.europa.eu/eli/dir/2025/50/oj).’;

(9) Article 6 is replaced by the following:

‘The Member State of a receiving company may not charge withholding tax on the

profits which such a company receives from a distributing company.’;

(10) in Article 7, paragraph 1 is replaced by the following:

‘1. The term ‘withholding tax’ as used in this Directive shall not cover an advance

payment or prepayment (précompte) of corporation tax to the Member State of the

distributing company which is made in connection with a distribution of profits to its

receiving company.’;

EN 24 EN

(11) Annex I to Directive 2011/96/EU is amended in accordance with Annex III to this

Directive.

Article 4

Amendments to Directive (EU) 2016/1164

Directive (EU) 2016/1164 is amended as follows:

(1) the title is replaced by the following:

‘Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules on the tax

treatment of research and development expenditure and against tax avoidance

practices that directly affect the functioning of the internal market’;

(2) Article 2 is amended as follows:

(a) the following points (-1), (-1a) and (-1b) are inserted before point (1):

‘(-1) ‘qualifying expenditure’ means capital expenditure on plant, machinery

and other tangible assets, net of deductible value added tax, incurred by or on

behalf of the taxpayer and used in the direct business interest of the taxpayer

for any of the following purposes:

(a) carrying out research and development;

(b) providing facilities for carrying out research and development;

(-1a) ‘research and development’ means any of the following:

(a) basic research: experimental or theoretical work undertaken primarily

to acquire new knowledge of the underlying foundations of phenomena

and observable facts, without any particular application or use in view;

(b) applied research: original investigation undertaken in order to acquire

new knowledge but directed primarily towards a specific, practical aim or

objective;

(c) experimental development: systematic work, drawing on knowledge

gained from research and practical experience and producing additional

knowledge, which is directed to producing new products or processes or

to improving existing products or processes;

(-1b) ‘disposal value’ means:

(a) in the case of a sale, at no less than market value, of assets in respect

of which qualifying expenditure has been incurred, the net proceeds of

the sale;

(b) in the case of demolition or destruction of such assets, the net amount

received for the remains together with any insurance or capital

compensation;

(c) in all other cases where the taxpayer ceases to own such assets, the

market value;’

(b) in point (4), third subparagraph, point (a) is replaced by the following:

‘(a) where the mismatch outcome arises under point (9), first subparagraph,

points (b), (c), (d), (e) or (g), or where an adjustment is required under Article

EN 25 EN

9a, the definition of associated enterprise is modified so that the 25 per cent

requirement is replaced by a 50 per cent requirement;’;

(c) point (5) is amended as follows:

(1) the introductory wording is replaced by the following:

‘‘financial undertaking’ means any of the following entities or permanent

establishments of such entities in one or more Member States:’;

(2) point (a) is replaced by the following:

‘(a) a credit institution as defined in point (1) of Article 4(1) of

Regulation (EU) No 575/2013 of the European Parliament and of the

Council*

______

*Regulation (EU) No 575/2013 of the European Parliament and of the

Council of 26 June 2013 on prudential requirements for credit institutions

and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1,

ELI: http://data.europa.eu/eli/reg/2013/575/oj). ’;

(3) the following points (aa), (ab) and (ac) are inserted:

‘(aa) an investment firm as defined in point (1) of Article 4(1) of

Directive 2014/65/EU the European Parliament and of the Council*;

(ab) an alternative investment fund manager (AIFM) as defined in point

(b) of Article 4(1) of Directive 2011/61/EU of the European Parliament

and of the Council**;

(ac) a management company of an undertaking for collective investment

in transferable securities as defined in point (b) of Article 2(1) Directive

2009/65/EC of the European Parliament and of the Council***;

______

*Directive 2014/65/EU of the European Parliament and of the Council of

15 May 2014 on markets in financial instruments and amending

Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014,

p. 349, ELI: http://data.europa.eu/eli/dir/2014/65/oj)

**Directive 2011/61/EU of the European Parliament and of the Council

of 8 June 2011 on Alternative Investment Fund Managers and amending

Directives 2003/41/EC and 2009/65/EC and Regulations (EC)

No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1,

ELI: http://data.europa.eu/eli/dir/2011/61/oj).

***Directive 2009/65/EC of the European Parliament and of the Council

of 13 July 2009 on the coordination of laws, regulations and

administrative provisions relating to undertakings for collective

investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p.

32, ELI: http://data.europa.eu/eli/dir/2009/65/oj).;

(4) point (d) is replaced by the following:

‘(d) an institution for occupational retirement provision as defined in

point (1) of Article 6 of Directive 2016/2341 of the European Parliament

and of the Council*;

EN 26 EN

_____

*Directive (EU) 2016/2341 of the European Parliament and of the

Council of 14 December 2016 on the activities and supervision of

institutions for occupational retirement provision (IORPs) (OJ L 354,

23.12.2016, p. 37, ELI: http://data.europa.eu/eli/dir/2016/2341/oj). ’;

(5) point (f) is deleted;

(6) points (g), (h) and (i) are replaced by the following:

‘(g) an undertaking for collective investment in transferable securities

within the meaning of Article 1(2) of Directive 2009/65/EC;

(h) a central counterparty or ‘CPP’ as defined in Article 2, point (1) of

Regulation (EU) No 648/2012 of the European Parliament and of the

Council*;

(i) a central securities depository or ‘CSD’ as defined in Article 2(1),

point (1) of Regulation (EU) No 909/2014 of the European Parliament

and of the Council**;

____

*Regulation (EU) No 648/2012 of the European Parliament and of the

Council of 4 July 2012 on OTC derivatives, central counterparties and

trade repositories (OJ L 201, 27.7.2012, p. 1,

ELI: http://data.europa.eu/eli/reg/2012/648/oj).

**Regulation (EU) No 909/2014 of the European Parliament and of the

Council of 23 July 2014 on improving securities settlement in the

European Union and on central securities depositories and amending

Directives 98/26/EC and 2014/65/EU and Regulation (EU)

No 236/2012 (OJ L 257, 28.8.2014, p. 1,

ELI: http://data.europa.eu/eli/reg/2014/909/oj). ’;

(7) the following points (j) to (o) are added:

‘(j) an insurance or reinsurance special purpose vehicle authorised in

accordance with Article 211 of Directive 2009/138/EC;

(k) a financial holding company as defined in point (20) of Article 4(1) of

Regulation (EU) No 575/2013 and an insurance holding company as

defined in point (f) of Article 212(1) of Directive 2009/138/EC or a

mixed financial holding company as defined in point (15) of Article 2 of

Directive 2002/87/EC of the European Parliament and of the Council*,

which is part of an insurance group that is subject to supervision at the

level of the group pursuant to Article 213 of Directive 2009/138/EC and

which is not exempted from group supervision pursuant to Article 214(2)

of that Directive;

(l) a payment institution as defined in point (4) of Article 4 of Directive

(EU) 2015/2366 of the European Parliament and of the Council**;

(m) an electronic money institution as defined in point (1) of Article 2 of

Directive 2009/110/EC of the European Parliament and of the

Council***;

EN 27 EN

(n) a crowdfunding service provider as defined in point (e) of Article 2(1)

of Regulation (EU) 2020/1503 of the European Parliament and of the

Council****;

(o) a crypto-asset service provider as defined in point (15) of Article 3(1)

of Regulation (EU) 2023/1114 of the European Parliament and of the

Council*****.

____

*Directive 2002/87/EC of the European Parliament and of the Council of

16 December 2002 on the supplementary supervision of credit

institutions, insurance undertakings and investment firms in a financial

conglomerate and amending Council Directives 73/239/EEC,

79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and

Directives 98/78/EC and 2000/12/EC of the European Parliament and of

the Council (OJ L 35, 11.2.2003, p. 1,

ELI: http://data.europa.eu/eli/dir/2002/87/oj).

**Directive (EU) 2015/2366 of the European Parliament and of the

Council of 25 November 2015 on payment services in the internal

market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU

and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC

(OJ L 337, 23.12.2015, p. 35,

ELI: http://data.europa.eu/eli/dir/2015/2366/oj).

***Directive 2009/110/EC of the European Parliament and of the

Council of 16 September 2009 on the taking up, pursuit and prudential

supervision of the business of electronic money institutions amending

Directives 2005/60/EC and 2006/48/EC and repealing Directive

2000/46/EC (OJ L 267, 10.10.2009, p. 7,

ELI: http://data.europa.eu/eli/dir/2009/110/oj).

****Regulation (EU) 2020/1503 of the European Parliament and of the

Council of 7 October 2020 on European crowdfunding service providers

for business, and amending Regulation (EU) 2017/1129 and Directive

(EU) 2019/1937 (OJ L 347, 20.10.2020, p. 1,

ELI: http://data.europa.eu/eli/reg/2020/1503/oj).

*****Regulation (EU) 2023/1114 of the European Parliament and of the

Council of 31 May 2023 on markets in crypto-assets, and amending

Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives

2013/36/EU and (EU) 2019/1937 (OJ L 150, 9.6.2023, p. 40,

ELI: http://data.europa.eu/eli/reg/2023/1114/oj). ’;

(3) Article 3 is replaced by the following:

‘Article 3

Minimum level of harmonisation and minimum level of protection

1. Member States may decide to maintain or adopt alternative domestic measures

instead of introducing those laid down in Chapter Ia if they establish that such

domestic measures treat qualifying expenditure more favourably than the rules of

Chapter Ia.

EN 28 EN

2. Chapter II shall not preclude the application of domestic provisions or agreement-

based provisions aimed at safeguarding a higher level of protection for domestic

corporate tax bases.’;

(4) the following Chapter Ia is inserted:

‘CHAPTER Ia

RESEARCH AND DEVELOPMENT

Article 3a

Research and development allowance

1. Taxpayers shall be entitled to a research and development allowance (the

‘allowance’) for qualifying expenditure. That allowance shall be deductible from

their taxable base.

2. The amount of the allowance shall be equal to the amount of the qualifying

expenditure.

3. By way of derogation from paragraph 2, where a disposal value arises in respect of

that expenditure, the amount of the allowance shall be limited to the amount by

which that expenditure exceeds the disposal value.

4. The allowance shall be claimed in the tax period in which the qualifying

expenditure is incurred, or in any of the four subsequent tax periods.

5. No claim for the allowance may be made after expiry of the fourth tax period

following the tax period in which the qualifying expenditure was incurred.

Article 3b

Exclusions from qualifying expenditure

1. Qualifying expenditure shall not include expenditure incurred for the acquisition

of:

(a) land or rights over land, except where the expenditure relates to:

(i) a building or structure already constructed on the land;

(ii) rights over such a building or structure; or

(iii) plant or machinery which forms part of such a building or structure;

(b) a dwelling.

2. By way of derogation from paragraph 1, point (b), expenditure relating to a

building that includes a dwelling shall be treated as qualifying expenditure where

both of the following conditions are fulfilled:

(a) the parts of the building other than the dwelling are used for research and

development;

(b) no more than 20% of the expenditure relating to the building is attributable

to the dwelling.

Where the conditions laid down in the first subparagraph are fulfilled, the

expenditure relating to the entire building shall be treated as qualifying expenditure.

EN 29 EN

Where the condition in the first subparagraph, point (a), is fulfilled but the condition

in point (b) of that subparagraph is not, only the proportion of the expenditure

corresponding to the part of the building used for research and development shall be

treated as qualifying expenditure.

Article 3c

Minimum use of qualifying expenditure and balancing charge

1. Qualifying expenditure for which the allowance is claimed shall be used wholly

and exclusively for research and development for a continuous period of at least

three years. That three-year period shall start no later than one year after the end of

the tax period for which the allowance is first claimed.

2. If the condition laid down in paragraph 1 is not fulfilled, the allowance shall not be

granted or, if it has already been granted, it shall be withdrawn, and the amount of

the allowance shall be included in the taxable base of the tax period in which that

condition ceases to be met.

The first subparagraph shall not apply where the failure to satisfy that condition

results either from force majeure or from circumstances beyond the reasonable

control of the taxpayer.

3. Where a taxpayer ceases to own, demolishes or otherwise disposes of an asset

linked to qualifying expenditure in respect of which that taxpayer has claimed the

allowance, the disposal value of that asset shall be brought into account for tax

purposes.

If the disposal value exceeds any unclaimed allowance, a balancing charge shall

arise.

The amount of the balancing charge, which shall be included in the taxable income

of the taxpayer for the tax period in which the disposal occurs, shall be the lower of

the following amounts:

(a) the amount by which the disposal value exceeds any unclaimed allowance;

(b) the allowance claimed.’;

(5) Article 4 is amended as follows:

(a) in paragraph 1, the first subparagraph is replaced by the following:

‘Exceeding borrowing costs shall be deductible in the tax period in which they

are incurred only in an amount equal to 30 percent of the taxpayer's earnings

before interest, tax, depreciation and amortisation (EBITDA).’;

(b) paragraph 2 is replaced by the following:

‘The EBITDA shall be calculated by adding back to the income subject to

corporate tax in the Member State of the taxpayer the tax-adjusted amounts for

exceeding borrowing costs, the tax-adjusted amounts for depreciation and

amortization as well as the amount of qualifying expenditure deducted from the

taxable base pursuant to the rules laid down in Chapter Ia or domestic

provisions that provide for higher tax deductibility of such qualifying

expenditure. Tax-exempt income shall be excluded from the EBITDA of the

taxpayer.’;

(c) the following paragraph 2a is inserted:

EN 30 EN

‘2a. Member States shall exclude from the scope of paragraph 1 exceeding

borrowing costs incurred on low-risk third-party loans.

For the purpose of the first subparagraph, a low-risk third-party loan means a

loan that meets the following conditions:

(a) it is not provided by an associated enterprise or permanent

establishment or by an entity of the same consolidated group for financial

accounting purposes; and

(b) it is used to finance exclusively the own activities of the borrowing

entity itself, and no financing goes to an associated enterprise or

permanent establishment or to an entity of the same consolidated group

for financial accounting purposes.

For the purposes of the condition set out in point (b), a loan shall not be used,

directly or indirectly, to fund capital contributions or other equity contributions

resulting in financing an associated enterprise or permanent establishment or an

entity of the same consolidated group for financial accounting purposes.

Where the first subparagraph applies, any income arising from low-risk third-

party loans shall be excluded from the EBITDA of the taxpayer, and any

excluded exceeding borrowing cost shall not be included in the exceeding

borrowing costs of the group vis-à-vis third parties referred to in paragraph 5,

point (b).’;

(d) paragraph 3 is replaced by the following:

‘By derogation from paragraph 1, the taxpayer shall be given the right to

deduct exceeding borrowing costs in an amount equal to EUR 3 000 000.

The amount referred to in the first subparagraph shall be adjusted every year in

accordance with the following formula:

= −1 −1

−2

Where:

is the indexed amount applicable from 1 July of calendar year y until 30 June

of calendar year y+1.

−1is the indexed amount applicable from 1 July of calendar year y-1 until 30

June of calendar year y.

−1is the annual average Harmonised Index of Consumer Prices for the

Union (EU27) for calendar year y-1, as published by Eurostat.

−2is the annual average Harmonised Index of Consumer Prices for the

Union for calendar year y-2, as published by Eurostat.

The resulting amount shall be rounded to the nearest EUR 10 000.

For the purposes of paragraph 1, second subparagraph, the amount of EUR 3

000 000 shall be considered for the entire group.’;

(e) the following paragraph 3a is inserted:

EN 31 EN

‘3a. By derogation from paragraph 1, a taxpayer shall be given the right to fully

deduct exceeding borrowing costs incurred in a tax period where the taxpayer

demonstrates that its EBITDA for that tax period has decreased by at least 50

per cent compared to the EBITDA of the immediately preceding tax period.

The derogation provided for in the first subparagraph shall only apply to the

tax period in which the decrease in EBITDA occurs.’;

(f) paragraph 4 is replaced by the following:

‘4. Member States may exclude from the scope of paragraph 1 exceeding

borrowing costs incurred on:

(a) loans which were concluded before 17 June 2016, but the exclusion

shall not extend to any subsequent modification of such loans;

(b) loans used to fund a long-term public-benefit project where the

project operator, borrowing costs, assets and income are all in the Union.

For the purposes of the first subparagraph, point (b), a long-term public-benefit

project means a project to provide, upgrade, operate or maintain a large-scale

asset that is considered in the general public interest by a Member State

Where the first subparagraph, point (b), applies, any income arising from a

long-term public-benefit project shall be excluded from the EBITDA of the

taxpayer, and any excluded exceeding borrowing cost shall not be included in

the exceeding borrowing costs of the group vis-à-vis third parties referred to in

paragraph 5, point (b).’;

(g) the following paragraph 4a is inserted:

‘4a. Member States shall exclude from paragraph 1 exceeding borrowing costs

incurred on loans used to fund defence products or other products for defence

purposes belonging to any of the categories set out in Article 1, points (a) and

(b) of Council Regulation (EU) 2025/1106*, where the taxpayer, borrowing

costs, assets and income are all in the Union.

For the purpose of the first subparagraph:

(a) ‘defence products’ means goods, services, and works that fall within

the scope of Directive 2009/81/EC** of the European Parliament and of

the Council, as set out in Article 2 thereof;

(b) ‘other products for defence purposes’ means any good, service and

work other than those falling within the scope of Directive 2009/81/EC,

as set out in Article 2 thereof, which are necessary for or aimed at

defence purposes and intended specifically for military purposes.

Where the first subparagraph applies, any income arising from defence

products or other products for defence purposes in critical capability areas shall

be excluded from the EBITDA of the taxpayer, and any excluded exceeding

borrowing cost shall not be included in the exceeding borrowing costs of the

group vis-à-vis third parties referred to in paragraph 5, point (b).

The first subparagraph shall apply only to loans concluded during the first five

tax periods following 1 January 2029.

____

EN 32 EN

*Council Regulation (EU) 2025/1106 of 27 May 2025 establishing the Security

Action for Europe (SAFE) through the Reinforcement of the European Defence

Industry Instrument (OJ L, 2025/1106, 28.5.2025,

ELI: http://data.europa.eu/eli/reg/2025/1106/oj).

**Directive 2009/81/EC of the European Parliament and of the Council of

13 July 2009 on the coordination of procedures for the award of certain works

contracts, supply contracts and service contracts by contracting authorities or

entities in the fields of defence and security, and amending Directives

2004/17/EC and 2004/18/EC (OJ L 216, 20.8.2009, p. 76,

ELI: http://data.europa.eu/eli/dir/2009/81/oj). ’;

(h) in paragraph 5, the introductory wording is replaced by the following:

‘Where the taxpayer is a member of a consolidated group for financial

accounting purposes, the taxpayer shall be given the right to either:’;

(i) paragraph 6 is amended as follows:

(1) the introductory wording is replaced by the following:

‘The Member State of the taxpayer shall provide for rules either:’;

(2) point (a) is replaced by the following:

‘(a) to carry forward, without time limitation, exceeding borrowing costs

which cannot be deducted in the current tax period under paragraphs 1 to

5; or’;

(3) point (b) is deleted;

(4) the following subparagraph is added:

‘The Member State of the taxpayer may also provide for rules to carry

back, for a maximum of three years, exceeding borrowing costs which

cannot be deducted in the current tax period under paragraphs 1 to 5.’

(j) the following paragraph 9 is added:

‘9. For the purposes of this Article, Member States shall not maintain or

introduce, in their national law, any provisions with a subject-matter that falls

within the scope of this Article if they lay down rules that diverge from those

laid down in this Article.’;

(6) in Article 6, paragraph 1 is replaced by the following:

‘1. For the purposes of calculating the tax liability, a Member State shall ignore an

arrangement or a series of arrangements which, having been put into place for the

main purpose or one of the main purposes of obtaining a tax advantage that defeats

the object or purpose of the applicable tax law, are not genuine having regard to all

relevant facts and circumstances. An arrangement may comprise more than one step

or part.’;

(7) Article 7 is amended as follows:

(a) paragraph 2 is amended as follows:

(1) point (a) is replaced by the following:

‘(a) the non-distributed income of the entity or the income of the permanent

establishment which is derived from the following categories:

EN 33 EN

(i) interest or any other income generated by financial assets;

(ii) royalties or any other income generated from intellectual

property;

(iii) dividends and income from the disposal of shares;

(iv) income from financial leasing;

(v) income from insurance, banking and other financial activities;

(vi) income from invoicing companies that earn sales and services

income from goods and services purchased from and sold to

associated enterprises, and add no or little economic value;

This point shall not apply where the controlled foreign company carries on a

substantive economic activity supported by staff, equipment, assets and

premises, as evidenced by relevant facts and circumstances.

Where the controlled foreign company is resident or situated in a third country

that is not party to the EEA Agreement, Member States may decide to refrain

from applying the preceding second subparagraph.’;

(2) point (b) is deleted;

(b) paragraph 3 is replaced by the following:

‘3. A Member State shall not treat an entity or permanent establishment as a

controlled foreign company under paragraph 1 if:

(a) one third or less of the income accruing to the entity or permanent

establishment falls within the categories under paragraph 2, point (a); or

(b) the entity is a financial undertaking and one third or less of the

entity's income from the categories under paragraph 2, point (a) comes

from transactions with the taxpayer or its associated enterprises.’;

(c) paragraph 4 is deleted;

(d) the following paragraphs 5, 6,7 and 8 are added:

‘5. For the purposes of this Article, the following definitions apply:

– ‘MNE group’ means a group as defined in Article 3, point (4), of

Directive (EU) 2022/2523;

– ‘large-scale domestic group’ means a group as defined in Article 3,

point (5), of Directive (EU) 2022/2523;

– ‘ultimate parent entity’ means an entity as defined in Article 3,

point (14), of Directive (EU) 2022/2523;

– ‘a jurisdiction with a qualified side-by-side regime’ means a

jurisdiction that is reported as having such status on the OECD

Central Record for purposes of the Global Minimum Tax in

accordance with the agreement of the OECD/G20 Inclusive

Framework on a Side-by-Side Package of 5 January 2026;

– ‘qualified domestic top-up tax’ means a tax as defined in Article 3,

point (28), of Directive (EU) 2022/2523.’

EN 34 EN

6. Member States shall ensure that paragraphs 1, 2 and 3 do not apply if the

taxpayer:

(a) is part of a small or medium-sized group in accordance with Article

3(5) and (6) of Directive (EU) 2013/34 of the European Parliament and

of the Council*;

(b) is not part of a group and is a micro, small or medium-sized

undertaking in accordance with Article 3(1), (2) and (3) of Directive

(EU) 2013/34; or

(c) is part of an MNE group or a large-scale domestic group, which for

the tax period falls within the scope of the rules laid down in Council

Directive 2022/2523** or, as regards third-country jurisdictions, the

OECD Model Rules, unless the ultimate parent entity of that MNE group

is located in a jurisdiction with a qualified side-by-side regime for the tax

period.

7. Notwithstanding paragraph 6, point (c), a Member State shall not treat an

entity or a permanent establishment as a controlled foreign company where the

taxpayer is directly or indirectly held by an ultimate parent entity that is located

in a jurisdiction with a side-by-side regime for the tax period, if both of the

following conditions are met:

(a) the entity or permanent establishment is subject to a qualified domestic

top-up tax for the tax period;

(b) no refund or direct or indirect financial benefit is granted in relation to

that tax.

8. For the purposes of this Article, Member States shall not maintain or

introduce, in their national law, any provisions with a subject-matter that falls

within the scope of paragraphs 5, 6 and 7 if they lay down rules that diverge

from those laid down in this Article.

____

*Directive 2013/34/EU of the European Parliament and of the Council of

26 June 2013 on the annual financial statements, consolidated financial

statements and related reports of certain types of undertakings, amending

Directive 2006/43/EC of the European Parliament and of the Council and

repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182,

29.6.2013, p. 19, ELI: http://data.europa.eu/eli/dir/2013/34/oj).

**Council Directive (EU) 2022/2523 of 15 December 2022 on ensuring a

global minimum level of taxation for multinational enterprise groups and large-

scale domestic groups in the Union OJ L 328, 22.12.2022, p. 1,

ELI: http://data.europa.eu/eli/dir/2022/2523/oj).’;

(8) in Article 8, paragraph 2 is deleted;

(9) in Article 9, paragraph 3 is deleted.

Article 5

Amendments to Directive (EU) 2017/1852

Directive (EU) 2017/1852 is amended as follows:

EN 35 EN

(1) in Article 2(1), point (d) is replaced by the following:

‘(d) ‘affected person’ means any person, including an individual, that is a resident of

a Member State for tax purposes, and whose taxation is directly affected by a

question in dispute. Where the taxation of more than one person is directly affected,

each such person shall be regarded as an affected person.’;

(2) Article 3 is amended as follows:

(a) paragraph 1 is replaced by the following:

‘1. Any affected person shall be entitled to submit a complaint on a question in

dispute requesting the resolution thereof. The complaint shall be submitted

within 3 years from the receipt of the first notification of the action resulting in,

or that will result in, the question in dispute, regardless of whether the affected

person has recourse to the remedies available under the national law of any of

the Member States concerned. The affected person shall submit the complaint

with the same information to each of the competent authorities of the Member

States concerned and shall indicate in the complaint which other Member

States are concerned. The affected person shall ensure that each Member State

concerned receives the complaint in at least one of the following languages:

(a) one of that Member State's official languages in accordance with national

law; or

(b) any other language that such a Member State accepts for this purpose.’;

By way of derogation from the first subparagraph, where the question in

dispute involves more than one affected person, each affected person shall be

allowed to submit the complaint only to the competent authority of its Member

State of residence.

In any event, the complaint shall be submitted to each of the competent

authorities of the Member States concerned within 30 calendar days from the

first submission. The last submission shall be made no later than 3 years from

the first notification as referred to in the first subparagraph.’;

(b) in paragraph 4, the last subparagraph is replaced by the following:

‘An affected person that receives a request in accordance with point (f) of

paragraph 3 shall reply within 3 months of receiving the request. A copy of this

reply shall also be sent to the competent authorities of the other Member States

concerned no later than 3 months of receiving the request.’;

(c) in paragraph 5, the following second subparagraph is inserted:

‘Before taking a decision on the admissibility of the complaint, the competent

authorities of the Member States concerned may consult each other with a view

to better understanding their respective positions.’;

(3) in Article 4(3), the following subparagraph is added:

‘Where all competent authorities of the Member States concerned agree that no

agreement can be reached, they shall, without delay and without awaiting the expiry

of the period provided for in paragraph 1, inform the affected person and provide the

general reasons for the failure to reach such agreement.’;

(4) in Article 5, paragraph 1 is replaced by the following:

EN 36 EN

‘1. Each competent authority of a Member State concerned may decide to reject a

complaint in any of the following cases:

(a) the complaint lacks information required under Article 3(3) (including any

information requested under Article 3(3)(f) that was not submitted within the

deadline specified in Article 3(4));

(b) there is no question in dispute;

(c) the complaint was not submitted within the 3-year period set out in Article

3(1);

(d) the complaint was not submitted within the 30-calendar days set out in

Article 3(1);

(e) the complaint was not submitted in a required language as referred to

Article 3(1) in at least one Member State;

(f) the complaint was not submitted with the same information to each of the

competent authorities of the Member States concerned as set out in Article

3(1).

The competent authority shall give the affected person the possibility to remedy any

deficiencies and supplement the complaint within a 30-day period of receipt of the

request, failing which the complaint may be rejected. Where a complaint has been

rejected, the affected person may resubmit the complaint, provided that the

resubmitted complaint is lodged within the 3-year period referred to in Article 3(1).

When informing the affected person of the rejection in accordance with Article 3(5),

the competent authority shall provide the general reasons for its rejection.’

(5) in Article 8(5), the following third subparagraph is added:

‘The competent authorities shall raise any objection relating to an independent

person of standing at the latest before a final decision pursuant to Article 15(1) is

agreed by all competent authorities. Any objection raised after that moment shall

have no effect on the final decision so agreed.’;

(6) in Article 10, paragraph 1 is replaced by the following:

‘1. The competent authorities of the Member States concerned may agree to set up an

alternative dispute resolution commission (an ‘Alternative Dispute Resolution

Commission’) instead of an Advisory Commission to adopt a decision on the

acceptance of the complaint in accordance with Article 6 or to deliver an opinion on

how to resolve the question in dispute in accordance with Article 14. The competent

authorities of the Member States may also agree to set up an Alternative Dispute

Resolution Commission in the form of a committee that is of a permanent nature (a

‘Standing Committee’).’;

(7) in Article 11(2), second subparagraph, point (e) is replaced by the following:

‘(e) the composition of the Advisory Commission or Alternative Dispute Resolution

Commission (including the number and names of the members, and for independent

persons of standing details of their competence and qualifications, and any conflicts

of interest of the members);’;

(8) in Article 16, paragraph 5 is replaced by the following:

‘5. The submission of a complaint as provided under Article 3 shall suspend any

other ongoing proceedings under the mutual agreement procedure or dispute

EN 37 EN

resolution procedure under an agreement or convention that is being interpreted or

applied in relation to the relevant question in dispute as of the date of the first receipt

of the complaint by any of the competent authorities of the Member States

concerned. The suspension ends on the day when the complaint is rejected by all the

competent authorities or the Advisory Commission or when the affected person

decides to withdraw the complaint. Where the complaint is accepted by all competent

authorities of the Member States concerned, those other proceedings shall be

terminated with immediate effect.’;

(9) Article 17 is amended as follows:

(a) in the first paragraph, the second sentence is replaced by the following:

The competent authority of that Member State shall notify the competent

authorities of all the other Member States concerned at the same time and

within 2 months of receipt of such communications and shall transmit a copy

of the complaint and of the relevant information received from the affected

person.

(b) the following third paragraph is added:

‘An affected person referred to in the first paragraph, point (b), who makes use

of the derogation laid down in that paragraph shall clearly state this in the

complaint’;

(10) the following Article 19a is inserted:

‘Article 19a

Council Implementing acts

1. On the basis of a proposal from the Commission, the Council may adopt

implementing acts laying down any other technical or procedural rules necessary to

ensure a streamlined and consistent application of the procedures provided for in this

Directive, in particular as regards:

(a) the complaint stage referred to in Articles 3 and 5;

(b) the mutual agreement procedure referred to in Article 4;

(c) the dispute resolution stage referred to in Article 6, including the rules on

the functioning of the Advisory Commission and Alternative Dispute

Resolution Commission referred to in Article 10.

(d) the interaction between procedures under this Directive and proceedings

before national courts.

(11) Article 21 is replaced by the following:

‘Article 21

Review

1. The Commission shall, by 31 December 2030 and every five years thereafter,

examine and evaluate the functioning of this Directive, including the potential need

to amend specific provisions, and submit a report to the European Parliament and the

Council.

2. Member States shall communicate to the Commission relevant yearly statistical

data, as referred to in paragraph 3, for the evaluation of this Directive, for the

EN 38 EN

purpose of improving the mutual agreement procedures referred to in Article 4 to

resolve a question in dispute.

3. The Commission shall, in accordance with the procedure referred to in Article

20(2), adopt an implementing act establishing a list of statistical data to be provided

yearly by the Member States for the purposes of the evaluation of this Directive, as

well as the format and the conditions of communication of that information. The

statistical data collected pursuant to this Article shall be published on the

Commission’s website in anonymised form.’.

Article 6

Amendments to Directive (EU) 2025/50

Article 11 of Directive (EU) 2025/50 is amended as follows:

(1) in paragraph 2, point (d) is replaced by the following:

‘(d) an exemption of the withholding tax is claimed, except where such exemption

results from Council Directive 2003/49/EC* or Council Directive 2011/96/EU**

_________

* Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation

applicable to interest and royalty payments made between associated companies of

different Member States (OJ L 157, 26.6.2003, p. 49,

ELI: http://data.europa.eu/eli/dir/2003/49/oj).

** Council Directive 2011/96/EU of 30 November 2011 on the common system of

taxation applicable in the case of parent companies and subsidiaries of different

Member States (OJ L 345, 29.12.2011, p. 8,

ELI: http://data.europa.eu/eli/dir/2011/96/oj);’

(2) in paragraph 7, the second sentence is replaced by the following:

‘Member States may also maintain and apply an existing national relief-at-source

system to the cases referred to in paragraph 2, point (e), of this Article in which

verifications are performed in order to ensure equal treatment between domestic and

cross-border situations to comply with Chapters 2 and 4 of Title IV of the Treaty on

the Functioning of the European Union.’

Article 7

Transposition

(1) Member States shall adopt and publish, by 31 December 2028, the laws, regulations

and administrative provisions necessary to comply with this Directive. They shall

immediately inform the Commission thereof.

They shall apply those provisions from 1 January 2029.

However, Member States shall apply the provisions necessary to comply with Article

1, point (2)(b) to (h), (3)(c), and (5), Article 3, points (2) and (5) to (10), from 1

January 2037 and the provisions necessary to comply with Article 4, point (5)(d)

from 1 January 2032.

When Member States adopt those measures, they shall include a reference to this

Directive or shall be accompanied by such reference on the occasion of their official

EN 39 EN

publication. The methods of making such reference shall be laid down by

Member States.

(2) Member States shall communicate to the Commission the text of the main provisions

of national law which they adopt in the field covered by this Directive.

Article 8

Entry into force

This Directive shall enter into force on the twentieth day following that of its publication in

the Official Journal of the European Union.

Article 9

Addressees

This Directive is addressed to the Member States.

Done at Brussels,

For the Council

The President

    Resolutsiooni liik: Riigikantselei resolutsioon Viide: Rahandusministeerium /  / ; Riigikantselei /  / 2-5/26-01886

Resolutsiooni teema: Euroopa Liidu otsese maksustamise raamistiku lihtsustamine ja maksualase halduskoostöö tõhustamine

Adressaat: Rahandusministeerium Ülesanne: Tulenevalt Riigikogu kodu- ja töökorra seaduse § 152` lg 1 p 2 ning Vabariigi Valitsuse reglemendi § 3 lg 4 palun valmistada ette Vabariigi Valitsuse seisukohtade ja otsuste eelnõud järgmiste algatuste kohta, kaasates seejuures olulisi huvigruppe ja osapooli:

- 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

- Proposal for a COUNCIL DIRECTIVE on administrative cooperation in the field of taxation (recast), COM(2026)308

EISi toimiku nr: 26-0278 Tähtaeg: 02.10.2026

Lisainfo: Eelnõusid on kavas arutada valitsuse 15.10.2026. aasta istungil ning Vabariigi Valitsuse reglemendi § 6 lg 6 kohaselt sellele eelneval nädalal (07.10.2026) EL koordinatsioonikogus. Esialgsed materjalid EL koordinatsioonikoguks palume esitada hiljemalt 02.10.2026.

Kinnitaja: Nele Grünberg, Euroopa Liidu asjade direktori asetäitja Kinnitamise kuupäev: 30.09.2026 Resolutsiooni koostaja: Sandra Metste [email protected],  

.