The Taxation Omnibus introduces amendments to the Parent-Subsidiary Directive, Interest and Royalties Directive, Tax Merger Directive, Anti-Tax Avoidance Directive and Dispute Resolution Mechanisms Directive, together with a targeted amendment to the FASTER Directive on withholding tax relief (Proposal). This initiative reworks rules that were adopted at different points in time and that, taken together, have grown complex, overlapping and in places out of line with more recent international developments, in particular the global minimum tax under Pillar Two. 

The Proposal will now be submitted to the Council for adoption. Based on its current wording, Member States will have to adopt the Proposal ultimately by 31 December 2028 and generally apply the provisions as of 1 January 2029. Most changes to the Parent-Subsidiary Directive and the Interest and Royalties Directive as well as the mandatory safe harbour of the interest deductibility limitation rule apply as of a later date. 

Below, we set out the background and the key changes of the Proposal.  

Background

In recent decades, the EU has adopted a broad range of direct tax directives aimed at facilitating cross-border activities, preventing tax avoidance, and eliminating double taxation. While these instruments have played a significant role in strengthening the EU market, the Commission observes that their cumulative development, combined with divergent national implementation and evolving international tax developments, has significantly increased the complexity of the EU tax framework and the compliance burden for cross-border businesses.  

The aim of the Taxation Omnibus is therefore to simplify and streamline the existing framework while preserving the original objectives and the level of protection against tax avoidance. Hence, the Proposal supports the Commission’s broader objective of enhancing the EU’s competitiveness. 

Key changes 

Impact and next steps  

If adopted, the revisions in the Taxation Omnibus will be very welcome for businesses operating across the EU. The most tangible effects of the Taxation Omnibus are likely to be the broader and procedurally lighter withholding-tax exemptions under the IRD and PSD, the new R&D allowance, the reshaped interest deduction limitation rule, and the alignment of CFC rules with Pillar Two.  

The Taxation Omnibus confirms a trend in the Commission’s tax agenda, focusing on a business-friendly climate and increasing the tax competitiveness of the EU. The Taxation Omnibus can be seen as an attempt to recalibrate existing measures, most of which have been adopted against a different background.  

At the same time, these ambitions are likely to trigger discussions in the Council of the EU. The proposed changes can have material budgetary consequences for Member States. As the adoption of the Taxation Omnibus requires unanimous consent of all Member States, the Taxation Omnibus may change prior to adoption.  

We will continue to monitor the legislative process. Should you wish to discuss what the Taxation Omnibus may mean for your structure or your cross-border operations, please do not hesitate to contact your tax adviser or one of our experts.