Authors: Mark Galea Salomone, Luke Bonnici, Alessia Bonanno - WH Partners

On 24 June 2026, the European Commission adopted a tax simplification package aimed at streamlining the compliance burdens faced by businesses operating within the internal market, while maintaining the EU’s robust stance against tax fraud, avoidance, and evasion.

The package consists of two proposals: the Direct Taxation Omnibus and the Recast of the Directive on Administrative Cooperation (DAC). Together, these proposals seek to address the complexities that have come to characterise the European corporate tax landscape following the introduction of numerous EU tax directives, the Pillar 2 global minimum tax, and the differing implementation approaches adopted by Member States.

In a nutshell, the Direct Taxation Omnibus proposes amendments to several key EU direct taxation directives, namely the Parent and Subsidiary Directive (PSD), the Interest and Royalties Directive (IRD), the Merger Directive, the Anti-Tax Avoidance Directive (ATAD), the Dispute Resolution Mechanisms Directive, and the FASTER Directive. Complementing these amendments, the DAC Recast seeks to consolidate and streamline the numerous changes made to the DAC over the past decade, creating a more coherent and simplified framework for administrative cooperation in the field of taxation.

The Direct Taxation Omnibus

The Direct Taxation Omnibus has three core objectives: establishing simpler and more effective tax rules to replace overlapping, complex, and obsolete provisions, facilitating business financing by removing tax-related obstacles, and enhancing the competitiveness of the internal market by eliminating tax barriers to cross-border economic activity.

1. Abolition of Withholding Taxes

The Taxation Omnibus simplifies withholding tax relief under both the PSD and the IRD by broadening the availability of withholding tax exemptions on cross-border dividends, interest, and royalty payments through the removal of minimum shareholding requirements. In addition, pension institutions will benefit from a full exemption from dividend withholding tax, irrespective of their legal form.

The proposal also abolishes the pre-authorisation requirement for establishing eligibility for withholding tax relief, replacing it with a self-assessment system at source supported by controls by tax authorities. Where eligibility cannot be verified at the time of payment, fallback mechanisms will apply, extending the FASTER Directive’s relief-at-source and quick-refund procedures to payments benefiting from the expanded exemptions, while requiring Member States to grant refunds within a reasonable timeframe where withholding tax has nevertheless been levied.

2. Anti-Tax Avoidance Revisions

The Taxation Omnibus streamlines the ATAD’s interest limitation rules, removing implementation options and requiring Member States to offer the same key simplification measures. Furthermore, the proposal revises the Interest Limitation Rule (earnings stripping rule) by reducing Member State discretion through the introduction of mandatory provisions, including a fixed deduction limit of 30% of EBITDA. It also excludes low-risk third-party borrowing and market-based financing arrangements from its scope, providing targeted relief where there is no significant risk of tax avoidance and avoiding unnecessary constraints on ordinary bank and market financing.

The proposal also addresses the interaction between the Controlled Foreign Company (CFC) rules and Pillar 2 by removing overlapping requirements and reducing compliance burdens. Taxpayers forming part of a multinational enterprise group or large-scale domestic group within the scope of the Pillar 2 Directive will be exempt from the CFC rules for the relevant tax period, eliminating duplication where both regimes address the same risks. In addition, the proposal consolidates the CFC rules by removing the option to apply the alternative model based on non-genuine arrangements and making the existing exclusions for low levels of passive income and certain financial undertakings mandatory. It also abolishes the imported hybrid mismatch rules.

3. Extension of the Merger Directive

The Taxation Omnibus expands the scope of the Merger Directive to encompass modern forms of corporate reorganisations, including cross-border conversions. In doing so, it ensures that mergers, divisions, and asset transfers may be undertaken on a tax-neutral basis without triggering an immediate tax liability.

4. Improvement to Dispute Resolution Mechanism

The Taxation Omnibus simplifies the operation of the Dispute Resolution Mechanisms Directive by clarifying that, where the same disputed issue affects multiple taxpayers, each qualifies as an affected person and may submit a complaint individually or through another affected person acting on their behalf. It replaces the requirement for the simultaneous submission of complaints with a 30-day filing period, while limiting the grounds for rejection to an exhaustive list. Furthermore, before rejecting a complaint, the competent authority must allow the affected person 30 days to remedy any deficiencies, and rejected complaints may be resubmitted within the applicable statutory time limits.

5. Common Minimum Standard for R&D Investments

To promote research, innovation, and high-value investment across the EU, the Taxation Omnibus establishes a unified minimum standard for the tax treatment of investments in R&D-related tangible assets. Under the proposal, taxpayers may either deduct qualifying expenditure in full in the year it is incurred, provided the assets are used for R&D for at least three years, or spread the deduction over the following four tax periods. By introducing full and prompt expensing across all Member States, the measure aims to enhance the EU’s attractiveness as a destination for research, innovation, and strategic investment.

The DAC Recast

The DAC Recast seeks to improve legal certainty and enhance clarity by consolidating the nine existing DAC directives into a single, coherent legal instrument. In doing so, it introduces a range of targeted simplifications and improvements designed to reduce administrative burdens for businesses operating across the EU while creating a more efficient and effective framework for administrative cooperation.

1. Cross-Border Arrangements: DAC6 Reforms

The DAC Recast narrows the scope of reporting for potentially aggressive cross-border arrangements. Entities within the scope of the Pillar 2 Directive are exempt where no benefit is granted within the group that would reduce taxation below the 15% minimum rate. The proposal also limits reportable arrangements to those that are actually implemented, removes the Category A Hallmarks, replaces the reference in Hallmark C1 to the OECD list of non-cooperative jurisdictions with the Code of Conduct assessment, and provides for the development of substance criteria under Hallmark D2. In addition, the reporting deadline for intermediaries is extended to 90 days, calculated from the first concrete step in implementation, while the rules on legal professional privilege are updated to reflect the case law of the Court of Justice of the EU.

2. Digital Platforms: DAC7 Simplifications

The DAC Recast simplifies the DAC7 reporting regime for the sale of goods through digital platforms by abolishing the current activity threshold and increasing the monetary reporting threshold from €2,000 to €3,000. By excluding low-value transactions from reporting, the proposal aims to reduce administrative burdens for online sellers, platform operators, and tax authorities alike.

3. Single Filing for Country-By-Country Reporting: DAC4 and DAC9

The DAC Recast streamlines the notification obligations for multinational groups under country-by-country reporting (DAC4) and the central filing of the top-up tax information return (DAC9) by replacing multiple entity-level notifications with a single group-wide notification submitted on behalf of all group entities. Filed using a standardised template and a harmonised deadline aligned with the country-by-country reporting timeline, the notification will be exchanged between the relevant tax authorities, significantly reducing compliance burdens for multinational groups.

4. Taxpayer Identification and Verification

The DAC Recast introduces a centralised digital tool for the verification of tax identification numbers (TINs), enhancing the accuracy of taxpayer identification while reducing reporting errors. Although Member States’ tax authorities will be required to use the system, its use by reporting entities will remain voluntary, allowing those that opt in to benefit from simplified reporting requirements.

What Happens Next?

The tax simplification package now moves to the next stage of the EU legislative process, with the European Parliament set to be consulted before the Council considers its adoption. Reflecting the Commission’s objective of reducing administrative burdens, most of the simplification measures are intended to be fast-tracked for implementation by 2028, while the remaining reforms under the Taxation Omnibus are scheduled to take effect in 2030 and subsequent years. Nevertheless, businesses should begin assessing the potential implications of the proposed measures now, as the planned simplifications may influence existing financing arrangements, group structures, and corporate tax obligations well before they enter into force.