What is the simplification package?
Published 24 June 2026, the EU Commission introduced two major legislative proposals—the Direct Taxation Omnibus Directive and the Recast Directive on Administrative Cooperation (DAC)—designed to simplify cross-border tax rules, reduce administrative burdens and harmonise aspects of direct taxation. Estimated savings amount to about €7.9 billion per year, with €3.3 billion in administrative cost savings for businesses. (taxation-customs.ec.europa.eu)
Key Areas for Tax Planning
- Abolition of withholding taxes on cross-border payments (dividends, interest, royalties) between EU companies. Plan to use these exemptions once the Omnibus is enacted.
- Extension of Parent-Subsidiary Directive to pension institutions will allow them to avoid withholding tax on dividends from EU subsidiaries. Useful if you're a pension fund or institutional investor.
- Full immediate expensing for R&D-related tangible assets proposed in all Member States—accelerates deduction, boosting incentives for investment in innovation.
- Harmonised Controlled Foreign Company (CFC) rules, aligned with the Pillar 2 global minimum tax, which remove overlapping obligations and make planning more predictable.
- Modernised interest limitation rules under ATAD: removal of certain options, increased de minimis thresholds, reducing compliance drag.
Strategies for Businesses to Capitalise
- Timing of investments: Delay large R&D-asset purchases until after reforms are enacted to benefit from immediate expensing in full.
- Restructure financing flows: Once interest limitation rules are simplified, re-evaluate high leverage structures currently limited under ATAD.
- Use cross-border entity combinations: Mergers or reorganisations may become easier under Tax Merger Directive expansions.
- For pension funds: Explore dividend receipts from EU affiliates under new extension of Parent-Subsidiary rules.
Risks & Watchpoints
- Legislation not yet adopted: These are proposals. Until Council & Parliament approve, benefits are uncertain and timelines unclear.
- National divergence before harmonisation**: Some Member States may retain more restrictive rules until harmonised standards kick in.
- Interaction with Pillar 2 / DAC: Simplified rules may intersect with new mandatory tax information exchange obligations—double-check disclosure risks.
Example Use Case
A tech company based in Austria considering moving its R&D centre from Italy:
- Post-Omnibus, the Austrian entity may immediately expense new R&D plant investment.
- Dividend flows back to Austrian parent from EU subsidiaries may be exempted from withholding.
- Ensure parent-subsidiary structures are reorganised before interest limitation changes take effect.
Proactive tax planning in light of these reforms can yield tangible cash-flow benefits. Companies that prepare now—analyzing country-specific implementation and legislative timing—are best positioned to benefit once reforms come into force.