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)
- 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)
- 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)
- 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)
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)
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)
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)
- 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)
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)
- 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)
- 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)
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.