EU: Call for evidence on simplifying EU rules on direct taxation – omnibus

 

The EU Commssion is seeking evidence on simplifying EU rules on direct taxation.

The omnibus on taxation is an integral part of the Commission’s efforts to simplify EU law and will cut red tape for businesses, in order to boost competitiveness and improve the functioning of the EU legislative framework for corporate taxation (EU rules on parent companies and subsidiaries, interest and royalties, mergers, preventing tax avoidance, and dispute and resolution mechanisms).

The Political Guidelines of the European Commission set out the objective of making it easier and faster to do business in Europe by reducing administrative burdens and simplifying implementation. The Commission has committed to cutting administrative burdens by at least 25% for all businesses and by at least 35% for SMEs by the end of the mandate, while safeguarding the policy objectives of the relevant initiatives.

In the area of direct taxation, the Council adopted Conclusions on 11 March 2025 establishing a tax decluttering and simplification agenda aimed at strengthening the EU’s competitiveness.

The adoption of the Interest and Royalties Directive, the Tax Merger Directive, the Parent-Subsidiary Directive and the Anti-Tax Avoidance Directive marked important milestones in EU tax integration. However, since their adoption, both the legal framework and the economic environment have evolved significantly at EU and international level.

Feedback gathered through the Call for Evidence for the evaluation of the Anti-Tax Avoidance Directive, together with targeted consultations conducted by an external contractor, has consistently highlighted several recurring concerns. Certain provisions of the Anti-Tax Avoidance Directive may require revision, particularly in light of the implementation of a Global Minimum Tax through the Pillar 2 Directive and in response to broader economic developments, including rising interest rates and sustained inflation.

For example, the Controlled Foreign Company rules partially overlap with Pillar 2 provisions, potentially leading to economic double taxation and unnecessary administrative burdens. In addition, the Interest Limitation Rule does not adequately account for earnings volatility linked to an entity’s life cycle or broader macroeconomic conditions, nor does it sufficiently reflect sector-specific characteristics. As a result, the deductibility of interest expenses may be restricted beyond what was originally intended. Furthermore, the scope of the General Anti-Abuse Rule may need to be reassessed to ensure that it effectively covers all relevant direct taxes. These provisions should therefore be reviewed and adjusted to remain aligned with current market and economic realities, while preserving the Directive’s overarching purpose and objectives. Any amendments should be implemented in a harmonised manner across the EU.

With regard to the corporate tax directives, the Commission services have conducted extensive targeted consultations on their technical aspects, involving both Member States and approximately 50 multinational corporate groups and business associations. This evidence-gathering exercise has enabled the identification of widely shared concerns.

Several of the corporate tax directives allow Member States discretion in their national implementation. This flexibility has led to fragmentation, as Member States have exercised different options during transposition. Taxpayers report significant administrative burdens arising from the need to navigate divergent national rules, often subject to differing interpretations. This fragmentation generates both direct compliance costs and legal uncertainty.

Differences in the material scope of the Parent-Subsidiary Directive and the Interest and Royalties Directive have further contributed to an uneven landscape, influencing business structuring decisions. Moreover, the scope of the Tax Merger Directive is no longer aligned with that of the Merger Directive under company law, creating mismatches that undermine the competitiveness of the EU Single Market. Overall, the current framework does not sufficiently promote cross-border economic activity and weakens the effectiveness of the corporate tax directives.

Procedural requirements for accessing the benefits of the Parent-Subsidiary and Interest and Royalties Directives also vary considerably across Member States. Stakeholders indicate that, in some jurisdictions, these procedures are so burdensome that they discourage taxpayers from relying on the Directives, thereby affecting corporate structuring decisions. Such administrative complexity undermines the efficiency of the legal framework.

In addition, the Tax Dispute Resolution Mechanisms Directive has given rise to interpretative uncertainties that hamper its effective application. These ambiguities have resulted in inconsistent implementation and appear to deter stakeholders from making practical use of the Directive.

Against this background, and as announced in the Commission Work Programme 2026, the Commission intends to present, in the second quarter of 2026, a taxation Omnibus proposal aimed at streamlining, clarifying and strengthening the corporate tax directives (Interest and Royalties Directive, Tax Merger Directive and Parent-Subsidiary Directive), the Anti-Tax Avoidance Directive and the Tax Dispute Resolution Mechanisms Directive.

The corporate tax directives seek to eliminate double taxation on cross-border dividend, interest and royalty payments and to ensure tax neutrality for cross-border corporate reorganisations. The Anti-Tax Avoidance Directive aims to prevent aggressive tax planning within the EU, while the Tax Dispute Resolution Mechanisms Directive ensures the effective resolution of cross-border tax disputes. Although the fundamental objectives of these Directives remain valid, the detailed rules and mechanisms through which they operate require targeted adjustments to reflect developments in the tax framework and evolving economic and market conditions.