Questions and answers on the tax simplification package

1. What is the objective of this simplification package?

The Competitiveness Compass, building on the Draghi report, sets a clear vision for a more prosperous and competitive EU economy. To achieve this, the EU must create a business-friendly environment where companies can thrive without being held back by excessive administrative burdens. Simple regulation is therefore key to a more competitive and attractive Europe.

As part of this effort, the Commission is recalibrating EU rules to make them more growth-friendly and easier to apply, while also maintaining their effectiveness. There is currently an unprecedented simplification drive, aiming to reduce administrative burdens by at least 25% – and, for SMEs, by at least 35%– before the end of this mandate. This should translate to at least €37.5 billion in annual cost savings by 2029.

To deliver on this, the Commission has and will put forward omnibus proposals and other legislative initiatives with a significant simplification dimension. Indeed, half of the proposals for the 2026 Commission work programme have a strong simplification dimension.

Today's proposal is another testament to our efforts to cut red tape and, at the same time, ensure fair taxation, a level playing field, and maintain a high level of protection against tax fraud, evasion and avoidance. By reducing duplication and overly complex or inefficient rules, improving legal certainty, and securing common solutions, we will make it easier for businesses to operate across the EU – boosting investment, growth, and competitiveness.

2. What are the main elements?

Direct Taxation Omnibus

The tax Omnibus Directive will reduce compliance costs, improve legal certainty, and create a more investment-friendly tax framework. Key measures include:

- Simplifying cumbersome rules to improve the internal Single market: The Omnibus introduces an exemption from withholding tax on all cross-border payments of dividends, interest, and royalties between companies in the EU. By removing upfront procedural requirements and simplifying refund processes, the measure will facilitate financing, encourage investment, and enhance competitiveness. This measure alone should bring EU taxpayers savings and benefits of around €5.3 billion annually.

- Facilitating Financing: The Omnibus removes unnecessary restrictions on genuine third-party and market financing, making it easier for businesses to invest in the internal market. The Omnibus also simplifies the interest limitation rule in the Anti-Tax Avoidance Directive (ATAD) by eliminating implementation options and making the de minimis threshold mandatory. These changes will bring about compliance and administrative reductions amounting to over €500 million per year.

- Eliminating Duplication: The Omnibus removes overlapping provisions between the Controlled Foreign Company (CFC) rules and the global minimum tax (Pillar Two), reducing unnecessary complexity and overlaps. This measure should save businesses approximately €160 million in compliance costs annually.

- Enhancing legal certainty: The introduction of a single-model approach for the CFC Framework will simplify its application across the EU, ensuring greater clarity and uniformity, reducing compliance costs by about €45 million per year.

- Improving Dispute Resolution: The Omnibus addresses issues related to the interpretation and application of the Dispute Resolution Mechanism Directive to make it easier to use for taxpayers.

- Facilitating cross-border operations: By expanding the scope of the Tax Merger Directive, all cross-border business reorganisations covered by EU corporate law can take place without immediate taxation.

- Boosting Competitiveness: The proposal introduces a common minimum standard for the tax treatment of investment in R&D related tangible assets across the EU, making the Union a more attractive location for investment in research and innovation. This is estimated to grow EU GDP by around 0.2% per year, providing a boost to the economy. 

Recast of the Directive on Administrative Cooperation (DAC)

The recast of the DAC codifies the nine existing directives into a single, coherent legal instrument, improving legal certainty and clarity for businesses and tax administrations. In addition, it introduces some key measures, such as:

- Removing reporting obligations for certain cross-border arrangements: The recast removes reporting obligations for 3,000 Multinational Enterprise (MNE) groups subject to the minimum 15% tax rate under Pillar 2 rules, generating compliance cost savings of around €300 million. It also eliminates reporting requirements for all other EU businesses for certain cross-border tax arrangements that provide limited added value for tax administrations, reducing reporting volumes by 35% and saving €40 million annually.

- Supporting the Circular Economy: The recast increases the reporting threshold for the online sales of goods, removing reporting obligations on over 10 million private sellers, particularly those selling second-hand goods. This measure delivers compliance cost savings of €678 million for digital platforms.

- Eliminating Duplicate Notifications: The recast streamlines the notification process for MNE groups by introducing a single notification requirement for country-by-country reporting and central filing of top-up tax information returns. This measure will save over €260 million annually.

- Improving Taxpayer Identification: The recast introduces a new verification tool for taxpayer identification numbers, ensuring that tax administrations can efficiently and effectively identify all reported taxpayers.

- Enhancing coverage of information exchanged: The recast enhances the existing framework for automatic exchange of information on certain categories of income and capital by requiring that all information available on all categories is exchanged while, at the same time, providing a legal basis to tax authorities to access this information.

These measures will significantly reduce compliance costs for EU businesses by more than €1.3 billion annually while ensuring that tax administrations remain fully equipped to safeguard their tax revenues and combat tax fraud, evasion, and avoidance.

The Tax Omnibus Directive and the recast of the DAC represent a significant step forward in creating a more efficient, competitive, and business-friendly tax environment in the EU. By simplifying complex regulations and reducing compliance burdens, these reforms will support investment, innovation, and growth, ultimately strengthening the Internal Market and enhancing the EU's global competitiveness.  

Omnibus on Direct Taxation

3. Why are you proposing an Omnibus on Direct Taxation?

Over the past decade, the EU has significantly developed its direct taxation framework. Most notably, developments have addressed the challenges arising from globalisation, digitalisation, the rise of aggressive tax planning practices and the need to strengthen the functioning of the internal market, while safeguarding its integrity. This framework has delivered important results. However, the cumulative effect of successive legislative initiatives has also increased complexity and compliance costs for businesses operating cross-border.

Since these directives were designed at different times, each reflecting distinct contexts, inconsistencies or overlaps have emerged. The layered development of these directives, combined with divergent choices in national implementation and evolving international tax developments, including the implementation of the global minimum tax rules under Council Directive (EU) 2022/2523, has resulted in increased complexity within the Union corporate tax framework. This complexity has raised the compliance burdens for businesses that operate cross-border, as well as for tax administrations.

The proposal addresses these issues by ensuring that the Union's direct tax framework remains coherent, proportionate and effective. Its goal is to simplify the acquis in direct taxation, reduce unnecessary compliance burdens, enhance legal certainty, and facilitate cross-border activity in the internal market.

1. Which Directives are affected?

The proposal introduces amendments to six major directives:  

• Parent and Subsidiary Directive (PSD) 

• Interest and Royalties Directive (IRD) 

• Tax Merger Directive (TMD)  

• Anti-Tax Avoidance Directive (ATAD)  

• Dispute Resolution Mechanism Directive (DRM) 

• FASTER Directive, which will also be amended to ensure that its scope accommodates updates to the PSD and IRD.  

5. What changes are you proposing today?

The proposal contains several measures aimed at removing the remaining tax barriers to cross-border activity, strengthening competitiveness and simplifying the EU tax framework, all while retaining a high level of protection against tax fraud, evasion and avoidance.

1. Boosting competitiveness of the internal market 

The Omnibus removes tax barriers to cross-border business activity and introduces common solutions to support innovation and competitiveness across the EU.  

Key measures include:  

• Removing withholding taxes on all cross-border payments of dividends, interest and royalties between companies in the EU, thereby eliminating a longstanding tax barrier to cross-border investment, strengthening the internal market and contributing to a stronger Savings and Investment Union.  

• Introducing a common minimum standard of generosity to the tax treatment of investment in R&D related tangible assets across the EU, encouraging research and innovation across the internal market and making the Union a more attractive location for research investments.  

2. Simpler and more effective tax rules 

The Omnibus updates provisions that are no longer fit for purpose, and removes duplicative or overly complex provisions to improve the coherence of the EU direct tax framework.  

Key measures include:  

• Eliminating duplication between the controlled foreign company (CFC) rules and the global minimum tax (Pillar Two) 

• Removing the rules on imported hybrid mismatches, as these have proven overly complex while delivering no or limited results.  

• Simplifying the CFC framework with a single-model approach.  

• Improving the dispute resolution mechanism by addressing specifically identified problems of interpretation and procedural impediments. 

3. Facilitating the financing of the economy  

The Omnibus removes tax obstacles that can discourage business investment and access to financing.  

Key measures include:  

• Simplifying the ATAD interest limitation rule by eliminating implementation options, to ensure that all Member States make the same key simplification mechanisms available across the EU, such as the group escape rule and carry-forward mechanism.  

• Excluding low-risk third party loans from the scope of the interest limitation rule to ensure that genuine bank and market financing is not subject to unnecessary restrictions.  

• Automatically updating the mandatory de minimis threshold under the interest limitation rule, to de facto relieve smaller businesses from compliance and allow tax administrations to focus on higher-risk cases.  

6. How will companies benefit from this proposal?

Companies of all sizes across the EU will benefit from these simplifications. If adopted and implemented as set out today, the measures are expected to reduce compliance and related financial costs by about €6.6 billion per year; out of which, €2 billion per year in recurrent costs related to administrative burden.

These simplifications will make it easier for companies to operate across borders, reducing compliance costs and fostering a more competitive business environment.

7. Will the level of protection of the internal market be preserved?

The Omnibus is designed to simplify, not deregulate. The proposal revisits existing directives to ensure that they remain effective and fit for purpose, while fully preserving the progress and protections achieved over the past decades. There will be no compromise on the existing level of protection against tax avoidance.

The Omnibus does not lower standards. The corporate tax directives will retain all their anti-tax abuse requirements, and Member States will keep their full enforcement powers, including the ability to monitor taxpayers and apply national anti-avoidance rules where necessary.

The ATAD remains as robust as before. The proposal reduces fragmentation and removes unnecessary barriers, without diluting protection. The outcome will be a more harmonised system, with fewer implementation options, making it easier for businesses to navigate across the single market, while maintaining strong safeguards against abuse.

In essence, the Omnibus improves the current framework by eliminating unnecessary duplication and reducing administrative burdens, without compromising the integrity of the EU's tax rules.

2. What is the timeline of the proposal and which procedure is applied?

The Omnibus proposal will now be submitted to the European Parliament for consultation and the Council for adoption. As has been the case for previous Omnibus proposals, this Omnibus on Direct Taxation will be treated under the Antici Group in Council.

DAC Recast

9.  What are the main objectives of the DAC recast proposal?

The main objectives of the DAC recast proposal are to simplify, clarify and enhance the EU legal framework for administrative cooperation in the field of direct taxation.

The recast format, by bringing together the DAC and its eight amendments into one single legal text, will ensure that the legislation is more user-friendly and coherent, thereby improving legal certainty.

In addition, the DAC recast proposal includes a number of simplification measures that are aimed at reducing the administrative burden for EU businesses, contributing to strengthening their competitiveness while not lowering the existing safeguards for tackling tax fraud, evasion and avoidance. 

Finally, some measures to improve the functioning of the Directive are included in the proposal. These provisions, which address key recommendations by the European Court of Auditors as well as the key findings of the DAC evaluation, will ensure that the Directive remains efficient and effective.

10. Which DACs are affected?

• The recast exercise concerns all DACs.
• The new measures included in the proposal concern DAC1, DAC4, DAC5, DAC6, DAC7 and DAC9.
• However, some provisions are of a general nature and will have an effect on all parts of the DAC.

11. What are the main simplification elements of the proposal and how will EU businesses, including SMEs, benefit?

The main simplification elements relate to DAC4/DAC9, DAC6 and DAC7.

First, the notification process for entities within the scope of DAC4 and DAC9 will be significantly streamlined. Currently each entity of an MNE group which is subject to DAC4 and DAC9 is required to notify the tax authority of the reporting entity for the group and by when the reporting will take place. The proposed measure will introduce a single notification covering DAC4/DAC9, where one entity will submit the notification on behalf of the entire group. There will be a standardised timeline and content for the notification, which will include the name of the reporting entity and where the reporting entity will report.  

Second, the requirement to report cross-border arrangements under DAC6 will be removed for entities that are subject to Pillar 2, provided that they fulfil certain conditions. For all other reporting persons, the generic Hallmarks A are deleted. In addition, the deadline for reporting is increased from 30 to 90 days and the starting point of the deadline is limited to when an arrangement is actually put into effect.

Third, the activity threshold for reporting sales of goods under DAC7 is removed and the current monetary threshold is increased from €2,000 to €3,000. By removing low value reporting, this measure will benefit online sellers of goods, platform operators and tax administrations alike. It will support the circular economy, while preserving the ability of Member States to effectively apply their national taxation rules.

The total compliance cost savings for business from these simplification elements alone will be around €1.3 billion. The benefits will be particularly important for SMEs, platform operators and MNE groups.

12. How has the Commission ensured that the reductions in the reporting requirements will not impact on the ability of Member States to effectively tackle tax fraud, evasion and avoidance?

The proposal and its provisions have been designed in close consultation with Member States.

The simplification measures have been designed to:

• 1. remove duplicate reporting/notification obligations and
  2. remove reporting requirements for information that has been found to be of low value for tax administrations in combatting tax fraud, evasion and avoidance.

The overall outcome is expected to make the DAC framework more proportionate, efficient and effective. Member States will not lose any information that they need and, at the same time, will have more capacity to analyse information that is relevant for combatting tax fraud, evasion and avoidance.

13. Which are the main improvements to the DAC and how will the costs associated with these improvements impact all relevant stakeholders?

The proposal contains a number of targeted improvements that aim to make the DAC framework more effective and efficient.

For DAC1, the proposal strengthens the completeness of information exchanges by ensuring that information on all relevant categories of income and capital can be exchanged and by allowing tax administrations to make better use of information already available at national level.

The proposal also introduces a new Taxpayer Identification Number (TIN) verification tool, which will improve the quality of exchanged information and significantly increase automatic matching rates.

These measures require limited implementation efforts for tax administrations. In the context of the DAC1 measure - as the information is already held by public authorities at the governmental level- tax administrations can obtain it in the most cost-effective manner through data sharing agreements with these other authorities. In the context of the TIN measure, tax administrations will be required to implement limited adaptation costs to connect to the TIN verification infrastructure. These costs are estimated at approximately €15–25 million across all Member States combined, while the EU central component is estimated at €1–2 million.

However, these costs are expected to be outweighed by the benefits arising from more complete and better-quality information, reduced follow-up requests and more efficient risk analysis.

14. How will the proposal affect EU citizens?

Increasing the competitiveness of EU business by reducing administrative burden and the associated costs will benefit EU citizens and the EU as a whole.

The main measures that have a direct effect on citizens are those affecting DAC7 and DAC1.

The amendments to DAC7 mean that many citizens selling their second-hand goods will no longer need to be reported by the platform, unless they are above the monetary threshold. This simplifies online sales for citizens, reduces the burden for tax authorities to process low-value reporting and supports the circular economy, while maintaining the protection against tax avoidance and evasion.

The changes to DAC1 mean that Member States who are exchanging information on for instance employment income of non-residents should first verify if the required information is already available at state level, whether in the tax administration or another state level administration. This will mean that they do not need to ask citizens to provide the same information several times, in line with the Commission's Once-Only Principle.

15. How will the TIN verification tool work in practice?

The TIN verification tool is proposed to be mandatory for the tax administrations of Member States and voluntary for reporting entities.

The reporting entities that choose to use the TIN verification tool will be relieved of reporting several additional identification data points, which will save costs for them.

The main principle of the tool is to validate the correctness of the TIN. In that sense the tax administration/reporting entity will enter the name of the reporting subject and their TIN into a central validation tool. The tool will then confirm whether the TIN is associated with the correct reporting subject i.e. taxpayer.

The Commission will set up and maintain this tool. The technical details of the TIN verification tool will be defined in a Commission implementing act.

16. What is the timeline of the proposal and which procedure is applied?

The DAC proposal will now be submitted to the European Parliament for consultation and the Council for adoption. Most of the simplification measures are frontloaded and should be implemented by 2028. This reflects the urgency of reducing the administrative burden for EU businesses and strengthening the competitiveness of the EU.

The rest of the measures, including those that aim to improve the effective functioning of the Directive, should be implemented by 2030.