Entity Setup
Strategic Entity Setup in the EU: Pillar 2, CFCs & Simplification on the Horizon
EU’s planned Omnibus direct taxation reform introduces harmonised CFC rules, changes to ATAD, and powers abolishing multiple withholding taxes—key shifts for how entities should be structured.
By NomadicTax Research Team • 5-8 min read • August 14, 2026
## What Reforms Are Emerging?
- **Direct Taxation Omnibus Proposal (24 June 2026)**: The EU Commission unveiled a simplification package to modernise firm-level tax rules—includes **abolishing withholding taxes** on cross-border dividends, interest and royalties between companies in different EU Member States, and extends such exemptions to pension institutions. ([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?utm_source=openai))
- **Common minimum standard for R&D asset expensing**: Full and immediate expensing of tangible R&D assets proposed across all member states. Encourages investment in innovation. ([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?utm_source=openai))
- **Simplification of ATAD**: The interest limitation rules will be modernised; de minimis thresholds raised; some low-risk borrowings excluded. This reduces complexity especially for entities with group financing across EU jurisdictions. ([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?utm_source=openai))
- **DAC Recast**: Consolidates all nine Administrative Cooperation (DAC) directives into one and removes overlapping reporting requirements—especially relevant for Pillar 2 top-up tax, country-by-country reports, etc. ([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?utm_source=openai))
## Implications for Structuring Entities
### Cross-Border Holding Structures
- With withholding tax abolition for intra-EU transactions, holding companies across the EU become more efficient. Dividend and royalty flows will no longer be taxed at source under certain conditions.
- Entities should explore the extension of the **Parent-Subsidiary Directive** to include pension institutions for better returns. ([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?utm_source=openai))
### Financing and Debt Structures
- Raised thresholds under ATAD interest limitations mean that **smaller or less leveraged entities** may escape complexity.
- Some third-party borrowing and market-based financing will be excluded—this helps in designing financing that avoids unnecessary ATAD exposure. ([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?utm_source=openai))
### Pillar 2 & CFC Interaction
- Omnibus reforms intend to **streamline the overlap** between Controlled Foreign Company (CFC) rules and the global minimum tax (Pillar 2), reducing double regulation or contradictory demands. ([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?utm_source=openai))
- Entities operating in low-tax jurisdictions must watch for evolving harmonised CFC designs. Top-up tax reporting requirements may ease under DAC recast. ([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?utm_source=openai))
## Actionable Entity Setup Tips
- **Select holding jurisdiction carefully**: Jurisdictions with favourable implementation of Parent-Subsidiary, I&R, and merger directives will become more attractive starting once Omnibus and DAC changes take effect.
- **Review debt financing plans**: Use financing forms more likely to be excluded from ATAD’s limits or that are considered low-risk; avoid combinations that drag into harsh ATAD treatment.
- **Plan for Pillar 2 compliance**: Entities must anticipate top-up tax reporting under the Pillar 2 Directive and align with DAC recast simplifications.
- **Think R&D capital-intensive**: If your business holds or plans to acquire R&D-heavy tangible assets, accelerating them under full immediate expensing can produce cash flow and tax timing benefits.
## Examples
- A fintech company in **Lithuania** holding royalty income from subsidiaries in Germany: future withholding tax abolition could increase cash flow currently lost in deductions.
- A manufacturing group financing via market debt in **France**: with ATAD simplifications and raised de minimis, we’ll see reduced risk of denied interest deductions or renegotiated financing terms.
- For multinational entities with pension schemes in the Netherlands or Sweden: future alignment lets pension institutions benefit like other companies under the Parent-Subsidiary framework.
## Key Timing & Risk Areas
- These Omnibus and DAC Rec-related proposals are **not yet enacted**. They were adopted as proposals on **24 June 2026** and require approval by the European Parliament and Council. ([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?utm_source=openai))
- National transposition of DAC amendments under Directive (EU) 2025/872 has been delayed in some Member States, exposing risk for enforcement. ([malta.representation.ec.europa.eu](https://malta.representation.ec.europa.eu/news/july-infringements-package-key-decisions-2026-07-08_en?prefLang=de&utm_source=openai))
- Pillar 2 is already in effect as EU law since 1 January 2024, but harmonisation of reporting and interaction with CFCs is still in a proposal state. ([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?utm_source=openai))
## Summary
Entity planners should closely monitor legislative developments since the Omnibus package will reshape withholding taxes, CFC and ATAD rules, and R&D incentives. Early strategic decisions—choice of holding location, financing forms, pension institution involvement—can yield competitive advantage as reforms are enacted.