Entity Setup
EU Proposals to Abolish Withholding Tax Between Companies: What Multinationals Need to Know
The European Commission has proposed ending withholding taxes on dividends, interest and royalties between EU companies—this could reshape financing strategies across the bloc.
By NomadicTax Research Team • 5-8 min read • August 16, 2026
## What’s Changing
On **24 June 2026**, the European Commission adopted a **Tax Simplification Package**. A central element is a legislative proposal to **abolish withholding taxes on cross-border payments of dividends, interest, and royalties between EU companies**. This comes under its “Direct Taxation Omnibus” Directive and a Recast of the Directive on Administrative Cooperation. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?prefLang=fi&utm_source=openai))
## Why It Matters
- Removes a longstanding barrier to **capital mobility** between member states.
- Simplifies compliance and reduces **administrative friction and costs**—the Commission estimates compliance cost savings of approximately **€7.9 billion per year**. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?prefLang=fi&utm_source=openai))
- Increases legal certainty and fairness for companies operating across borders within the EU.
## Affected Entities & Timing
- **EU-resident companies** making payments to other EU companies (dividends, royalties, interest) could be exempted from withholding taxes.
- Small- and medium-sized enterprises (SMEs) with cross-border business presence will benefit.
- These proposals must still follow EU legislative process; full implementation will require approval by member states and alignment of national laws. There is no uniform effective date yet. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?prefLang=fi&utm_source=openai))
## Examples of Planning Opportunities
- A holding company in Germany receiving royalties from a subsidiary in France would no longer have to factor in withholding tax costs—improving cash flow and simplifying net-of-tax return projections.
- Interest payments between affiliated EU companies may avoid withholding tax burdens, changing previously cautious financing arrangements.
## What Companies Should Do Now
1. **Inventory cross-border payments**: Identify all cross-border payments likely impacted under these categories across EU companies.
2. **Review loan/royalty agreements**: Evaluate current withholding tax buffers, clauses regarding deductions, and net yields.
3. **Align with national laws**: Once adopted, member states will need to transpose EU directives—watch local announcements.
4. **Update tax models**: Adjust effective tax rate forecasts, cash flow models, and transfer pricing strategies to reflect reduced withholding costs.
## Potential Risks and Considerations
- **Revenue impact for governments** may lead to lobbying; final form might include exceptions or thresholds.
- Transitional rules may apply; existing contracts may include clawback or gross-up clauses.
- Some payments might still be subject to withholding under anti-avoidance measures or where payments are routed through non-EU jurisdictions.
## Summary
If adopted, these EU proposals represent a significant shift in the EU direct tax landscape. Multinationals should prepare now to rethink their cross-border flows of dividends, interest, and royalties between EU entities, while keeping a close eye on legislative progress and national implementations.