Tax Planning
Maximizing Tax Planning in the Era of Zero Withholding in the EU
With the EU abolishing many cross-border withholding taxes in 2026, savvy tax planning strategies can unlock benefits for multinational businesses.
By NomadicTax Research Team • 5-8 min read • August 24, 2026
## Overview
2026 brings a major change: the European Union has proposed to **abolish withholding taxes** on cross-border payments of dividends, interest, and royalties among EU-resident companies. This opens new planning opportunities—but also calls for careful structuring to manage risks.([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))
---
## What’s Changing Under the EU's Tax Simplification Package
- **Direct Taxation Omnibus Directive**: proposes to eliminate withholding taxes on payments between EU companies.([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))
- **Recast of DAC**: merges multiple administrative tax cooperation directives (DAC1-DAC9) into coherent rules; cuts redundant reporting; financial thresholds raised or reporting requirements removed for low-value or frequent cross-border transactions.([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/a654ad8e-606b-4ad5-a8ff-3309554224d7_en?filename=Executive+Summary+of+Impact+Assessment_DAC_Proposal+for+a+Council+Directive+-+Taxation%E2%80%99.pdf&utm_source=openai))
---
## Strategic Tax Planning Opportunities
### A. Revision of Entity Structuring
- Reevaluate where subsidiaries are located—companies in EU member states will benefit directly from removal of withholding taxes.
- Consider whether holding companies can be established to act as interposed entities to centralize interest and royalty flows without incurring withholding taxes.
### B. Funding and Capital Flow Optimization
- Debt financing strategies: companies can more freely lend and borrow within group structure across EU without tax leakage.
- Royalty pipelines: licensing or IP arrangements may now retain more profits within the group.
### C. With Retain or Exit Strategies
- Entities in member states previously subject to withholding taxes should reassess cross-border contractual structures.
- Contracts with royalty-bearing or interest-bearing obligations may need redrafting.
---
## Risks, Caveats & Considerations
- **Implementation Lag**: Directives need transposition into domestic law; member states may delay or impose qualifying conditions.
- **Anti-Avoidance Rules (CFC, Exit Taxes, etc.)** remain in force under the EU Anti-Tax Avoidance Directive.([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/taxation/business-taxation/anti-tax-avoidance-directive_en?utm_source=openai))
- **Permanent Establishment & Hybrid Mismatches** can cause unexpected taxation or denial of benefits.
---
## Practical Checklist for Businesses
1. Map all interest, royalty, dividend flows in the group.
2. Identify regimes and member states likely to transpose the changes faster.
3. Monitor final versions of Omnibus & DAC Directives, particularly for definitions and exclusions.
4. Ensure treaty networks, CFC rules, and exit tax provisions don’t counteract benefits.
---
## Example Scenario: IP Royalty Stream
A Netherlands-based parent company licences patents to subsidiaries in Germany and Spain. Under today’s rules, royalties paid are often subject to withholding. Post-Directive, such payments may flow without withholding—enhancing cash flows and net returns. However, if downstream entities are thinly capitalized or based in states with exit taxes, those must be assessed carefully.
---
**Conclusion**: A major structural benefit looms for intra-EU corporate groups. Forward-looking planning can unlock efficiencies—but ensure structures heed both new rules and residual anti-avoidance safeguards.