Please note: On Monday, 29 June (4:00 p.m. CEST/10:00 a.m. EDT) EY will host the webcast "Decoding EU's simplification package: first insights of the Tax Omnibus and DAC Recast" — registerhere.

Executive summary

On 24 June 2026, the European Commission (the Commission) released proposals for a Tax Omnibus Directive and a recast of the Directive on Administrative Cooperation (DAC), as part of the European Union's (EU) broader simplification and competitiveness agenda. The proposals consolidate and amend several existing EU direct tax Directives and information-exchange rules, with the stated aim of reducing complexity, administrative costs and overlaps while preserving core anti-abuse and transparency safeguards.

The proposed Tax Omnibus introduces amendments across key EU direct tax Directives, most notably broadening access to withholding tax (WHT) relief on intra-EU interest and royalty payments and dividend distributions under the Interest and Royalty Directive (IRD) and Parent-Subsidiary Directive (PSD) by removing minimum participation thresholds and holding-period requirements, while adding safeguards against double non-taxation under IRD and making related changes to Faster and Safer Tax Relief of Excess Withholding Taxes Directive (FASTER).

It also substantially revises the Anti-Tax Avoidance Directive (ATAD) interest limitation rule, introduces an EU-wide Research and Development (R&D) allowance, amends the General Anti-Abuse Rule (GAAR) provisions to expressly cover WHT and Pillar Two top-up taxes, simplifies Controlled Foreign Company (CFC) rules and removes the imported hybrid mismatch rule. The proposal also aligns the Tax Merger Directive (TMD) with recent EU company law developments and enhances access to and operation of the EU dispute resolution framework.

The DAC recast aims to reduce reporting obligations under the Mandatory Disclosure Rules (MDR) by creating carve-outs for certain Pillar Two in-scope groups, reducing the list of hallmarks, extending reporting deadlines and updating legal professional privilege rules. Other changes would adjust DAC7 platform reporting, streamline DAC4/DAC9 notification obligations, update DAC1 and DAC5 information access rules and introduce a digital Tax Identification Number (TIN) verification tool.

Both proposals will require unanimous agreement among Member States in the Council for adoption. The final scope and timing of several measures may change during the legislative process.

Detailed discussion

Background

The Commission's proposals for the DAC recast and Tax Omnibus forms part of the broader Commission agenda to reduce administrative costs and, more generally, enhance the competitiveness of the EU.

The Tax Omnibus proposal forms part of the EU's wider "Omnibus" regulatory approach, and seeks to address issues derived from the coexistence of several overlapping EU direct tax Directives, which have been implemented differently across the 27 Member States. Specifically, it aims to mitigate complexity and address inconsistencies, while the DAC recast proposal intends to mitigate challenges derived from the expansion of DAC through the multiple amendments.

The Tax Omnibus also builds on evaluations of the existing Directives and a structured consultation process. The DAC's built-in evaluation mechanism began on 12 September 2019 with a first evaluation report covering the period between 2013 and 2017 and including DAC and amendments from DAC2 to DAC4. The ATAD was also subject to an evaluation in 2024. In that same year, the Commission held a public consultation on DAC, covering DAC2 to DAC6.

On 12 February 2025, the Commission presented its communication for a "simpler and faster Europe," setting out the objective to reduce overall administrative costs by 25% (and 35% for small and medium-sized Enterprises (SMEs)). Within this context, the Commission highlighted the need to simplify EU tax rules to enhance competitiveness, reduce fragmentation and cross-border barriers, and improve the coherence of the EU tax framework. The Commission announced an intention to streamline the DAC was announced in its 2025 Work Programme on 11 February 2025.

On 11 March 2025, Member States also called for a more streamlined and coordinated approach to EU tax legislation, as reflected in the conclusions on tax decluttering and simplification adopted by the Council of the European Union (Council).

The Commission's 2026 Work Programme (Annex I), published on 25 October 2025, formally announced the intention to propose the Tax Omnibus in the second quarter of 2026.

On 19 November 2025, the DAC was subject to a second evaluation report covering the period between 2018 and 2023 and including DAC and amendments from DAC2 to DAC6.

Further political backing was provided in the "One Europe, One Market Roadmap" of 23 April 2026, agreed as a joint declaration by the Commission, the European Parliament and the Council, confirming the commitment of EU institutions to advance key legislative initiatives across strategic priorities, including Tax Omnibus. Most recently, the Commission reiterated tax simplification as a priority area in its Communication on "A Simpler, Clearer and Better Enforced EU Rulebook" of 28 April 2026, in which taxation is identified among 12 areas targeted for simplification (Annex I). In preparation for the DAC recast, the Commission launched a call for evidence (covering issues not included in the 2024 public consultation) open until 30 March, gathering stakeholder input, including the contribution from EY. Feedback from this process was presented at the Platform for Tax Good Governance meeting on 14 April 2026.

Tax Omnibus

The Tax Omnibus introduces amendments to most of the EU direct tax Directives, including IRD,¹ the PSD,² the ATAD,³ the TMD,⁴ the DRM⁵ and the FASTER (WHT relief).⁶ A high-level overview of the key changes is set out below.

Interest and Royalty Directive

The proposal broadens the availability of WHT relief on intra-EU interest and royalty payments and simplifies related access procedures. In particular, the proposal introduces the following amendments:

• Removes the current minimum holding requirement for companies to qualify as "associated companies"

• As a result, intra-EU interest and royalty payments can qualify for the IRD WHT exemption even when the recipient does not hold a participation in the payer.

• Introduces a safeguard against double non-taxation if interest or royalty payments are made to recipients in jurisdictions with no Corporate Income Tax (CIT) or a zero nominal CIT rate on such income flows

• In such cases, the source Member State need either to levy WHT or deny deductibility of the corresponding payment.
• The proposed safeguard does not apply if either:

• The recipient is subject to a qualified domestic top-up tax, without refunds or related financial benefits.
• The recipient is part of a MNE group subject to the Pillar Two rules or equivalent Organisation for Economic Co-operation and Development (OECD) Model Rules. However, this exclusion does not apply if the ultimate parent entity of that MNE group is located in a jurisdiction with a qualified side-by-side regime.

• Clarifies the treatment of Permanent Establishments (PEs) by replacing the current tax-deductibility test with an activity-based test

• A PE is treated as payer if the interest or royalty expense is incurred for the purposes of its activity in the Member State where it is situated.

• Limits Member States' ability to require prior authorization or administrative procedures to verify IRD eligibility at the time of payment.

• This does not prevent ex post controls or the application of anti-abuse rules, including beneficial ownership requirements.

• Determines that, for cases within the scope of FASTER, IRD relief is granted through the FASTER relief-at-source or quick refund procedures

• If tax is nevertheless withheld outside these procedures, domestic refund mechanisms should ensure repayment within a reasonable timeframe.

• Updates the Annex, including company forms benefiting from IRD provisions to cover all relevant entities, and empowers the Commission to revise the Annex through delegated acts

Tax Merger Directive

The proposed TMD amendments mainly aim to align the Directive with more-recent EU company law developments on cross-border reorganizations, in particular, with the Company Law Directive.⁷

The proposal updates the TMD definitions to cover additional forms of cross-border reorganizations, including simplified mergers and divisions by separation, with the aim to also ensure tax neutrality in these forms of reorganizations. It also introduces rules for cross-border conversions, extending tax-neutral treatment to transfers of office in which the relevant assets remain connected with the departure Member State, either because the company remains tax resident there or because the assets remain linked to a PE.

The proposal also updates the Annex listing eligible company forms and empowers the Commission to amend it through delegated acts to reflect new company forms introduced by Member States.

Parent-Subsidiary Directive

In line with the amendments introduced to the IRD, the proposal also broadens the availability of tax-neutral profit distributions under the PSD. In particular, the proposal introduces the following amendments:

• Removes the current minimum participation threshold and holding-period requirement for PSD benefits

• As a result, qualifying dividends and other profit distributions between EU companies could benefit from the PSD irrespective of the level or duration of the participation. The broader scope applies both to the source-state WHT exemption and to the residence-state mechanism for eliminating double taxation through exemption or credit.

• Retains the Member State option to deny deductions for participation-related charges or distribution losses, but only for holdings of at least 10% of the capital of the subsidiary  
• Limits the possibility that Member States require prior authorization or administrative procedures to verify PSD eligibility at the time of distribution

• This does not prevent ex post controls or the application of anti-abuse rules, including beneficial ownership requirements.
• If WHT is nevertheless levied, refund claims need to be available for at least two years, with repayment generally required within one year after receipt of the claim and supporting information. For in-scope publicly traded securities, PSD relief needs to be available through FASTER procedures.

• Extends the WHT exemption to certain pension institutions, irrespective of legal form and by derogation from the subject-to-tax condition
• Updates the Annex listing the company forms benefiting from PSD provisions to cover all relevant entities. The Commission is empowered to revise the annex through delegated acts

Anti-Tax-Avoidance Directive

The Commission proposes significant changes to ATAD, not only to simplify existing rules and address overlaps. In particular, the proposal introduces the following amendments:

• Introduces an R&D allowance as a minimum-standard EU framework for full deductibility of qualifying capital expenditures on plant, machinery and other tangible assets used directly for R&D or to support R&D facilities

• Taxpayers can claim the allowance immediately or over any of the four subsequent tax periods, subject to minimum-use and anti-abuse conditions. Member States would remain free to apply more favorable domestic R&D deductibility rules. The proposal also adjusts the earnings before interest, taxes, depreciation and amortization (EBITDA) calculation for purposes of the Interest Limitation Rule to ensure that the new R&D allowance does not reduce a taxpayer's capacity to deduct interest.

• Substantially revises the Interest Limitation Rule, in particular, the 30% EBITDA cap becomes mandatory across Member States, preventing the application of lower national thresholds

• At the same time, the €3m safe harbor will become mandatory within the first three years of the Directive's entry into force, and the €3m amount will be adjusted for inflation. The proposal also excludes from the scope of the rule low-risk third-party loans, provided that the financing is used for the borrower's own activities and not for intra-group on-lending or indirect group financing. In addition, the standalone entity exclusion is removed, while the group escape rule and carryforward mechanisms become mandatory. Accordingly, the rule becomes more harmonized, but not fully uniform in every technical respect.
• Further, targeted changes aim to make the Interest Limitation Rule more proportionate and less procyclical. Taxpayers may fully deduct exceeding borrowing costs in a tax period in which EBITDA has declined by at least 50% compared to the preceding period. The existing exclusion for long-term public infrastructure projects is expanded to cover long-term public-benefit projects more broadly. In addition, a temporary mandatory exclusion is introduced for loans used to finance qualifying defense-related products, subject to EU nexus and timing conditions.

• Broadens the scope of the GAAR to cover all direct taxes that companies are subject to, in particular, WHT and Top-up Taxes under Pillar Two
• Amends the CFC rules by making Model A (entity approach) the single approach and deleting Model B (transactional approach)

• The proposal introduces carve-outs for Small and Medium-Sized Enterprises (SMEs) and for taxpayers that are part of groups subject to Pillar Two, subject to specific limitations for groups headquartered in jurisdictions with a qualified side-by-side regime. Existing CFC exemptions for low levels of passive income and certain financial undertakings become mandatory.
• Removes the imported hybrid mismatch rule, which the Commission considers complex and disproportionate in practice, and updates the definition of financial undertaking to reflect developments in EU financial regulation

Dispute Resolution Mechanism

The proposed DRM amendments include procedural changes intended to clarify access to, and the operation of, the EU dispute resolution framework. In particular, the following key amendments are proposed:

• The proposal clarifies the concept of "affected person," including for disputes involving multiple taxpayers affected by the same question in dispute. It also refines the complaint process, including by replacing the current "simultaneous submission" requirement with a 30-calendar-day submission window, limiting the grounds for rejection and allowing taxpayers to remedy certain deficiencies before a complaint is rejected.
• The amendments also seek to accelerate and improve access to the dispute resolution phase. If competent authorities agree that no resolution can be reached, they need to inform the taxpayer without delay rather than waiting for the Mutual Agreement Procedure (MAP) period to expire. The proposal also allows an Alternative Dispute Resolution Commission to be used for decisions on complaint admissibility, not just for the substantive resolution of the dispute.
• The proposal further includes changes to the interaction between the DRM and other dispute resolution procedures. Other ongoing procedures are suspended once a DRM complaint is submitted and terminated only when the DRM complaint has been accepted by all relevant competent authorities.
• Additional amendments are intended to support more consistent application and monitoring of the DRM.

Directive on faster and safer relief of excess withholding taxes

The proposal introduces targeted amendments to FASTER to ensure that full WHT exemptions claimed under the revised IRD or PSD are not excluded from the Directive's relief-at-source or quick refund procedures. Corresponding amendments are also made to the IRD and PSD to ensure that WHT relief is granted through FASTER, albeit limited to cases falling within FASTER's scope, i.e., income from publicly traded securities where the paying company may not be able to verify entitlement at the time of payment.

This is intended to support the practical application of the expanded IRD and PSD exemptions, particularly for publicly traded securities held through financial intermediaries where the paying company may not be able to verify entitlement at the time of payment.

DAC recast

DAC recast recodifies the Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation⁸ into one single, streamlined legal framework including DAC2 on Common Reporting Standard,⁹ DAC3 on exchange of information on tax rulings,¹⁰ DAC4 on country-by-country reporting,¹¹ DAC5 on access to beneficial ownership information,¹² DAC6 on mandatory disclosure of cross-border arrangements,¹³ DAC7 on digital platforms reporting and joint audit provisions,¹⁴ DAC8 on crypto-assets reporting and Common Reporting Standards amendments¹⁵ and DAC9 on administrative cooperation to support Pillar Two.¹⁶

Broadly, the recast is intended to make the DAC framework more coherent, reduce certain reporting and compliance burdens, and improve the quality and usability of information exchanged between tax authorities. A high-level overview of the key changes is set out below.

Reportable cross-border arrangements (current DAC6)

The proposed DAC recast includes changes to the MDR for reportable cross-border arrangements, with the stated aim of making DAC6 reporting more proportionate and reducing reporting with limited operational value for tax administrations.

A key proposed change would exclude from DAC6 reporting reportable cross-border arrangements involving entities that are part of groups effectively subject to the Pillar Two Global Anti-Base Erosion (GloBE) rules. The carve-out is subject to conditions intended to ensure that the group remains effectively subject to minimum taxation, including in side-by-side regime cases. Specifically, arrangements are carved-out if each of the participants in the arrangement is part of an MNE group or large-scale domestic group falling under Pillar Two GloBE rules, unless the ultimate parent entity of that group is located in a jurisdiction with a qualified side-by-side regime for the respective period. However, the carve-out applies regardless of the application of a side-by-side system if the participant is subject to a qualified domestic top-up tax for the respective tax period and no refund or direct or indirect financial benefit is granted in relation to that tax..

The proposal also narrows the list of hallmarks. The generic Category A hallmarks are removed from Annex IV, while Hallmark C1 is updated by replacing the reference to OECD work on noncooperative jurisdictions with a reference to the EU Code of Conduct process for assessing third-country jurisdictions. The substance criteria under Hallmark D2 will be further developed through a Council Implementing Act. Also, the Commission announced that guidance will be developed on the application of the Main Benefit Test.

The reporting trigger and timing rules are also simplified. The reporting period starts when the first step in implementation of the reportable cross-border arrangement has been made, rather than by reference to the current alternative triggers. The reporting deadline is generally extended from 30 to 90 days. As a consequence of the narrowed trigger framework, the definitions of "marketable arrangement" and "bespoke arrangement" are removed.

The proposal also updates the legal professional privilege rules in response to recent Court of Justice of the European Union case law. In broad terms, the changes clarify when privileged intermediaries may be exempt from reporting and how related client notification obligations apply.

Information reported by Platform Operators (current DAC7)

The proposed DAC recast adjusts the DAC7 reporting threshold for sales of goods through digital platforms by removing the current activity threshold (currently 30 sales) and increasing the monetary threshold from €2,000 to €3,000. It also includes targeted changes intended to improve the quality of platform reporting and strengthen coordination between tax authorities, including in relation to non-EU platform operators. Furthermore, the definitions of a Platform Operator and an Excluded Platform Operator are amended, reflecting recent work on the OECD level. Platform Operators facilitating less than €50,000 in the previous calendar year shall be excluded from the definition of Excluded Platform Operators.

Country-by-Country Reporting (CbCR) (current DAC4) and Information Exchange with respect to Top-Up Tax Information Returns under Art. 44 of Directive (EU) 2022/2523 (current DAC9)

The proposed DAC recast streamlines notification obligations for MNE groups that are subject to both DAC4 CbCR and DAC9 reporting for the GloBE Information Return (GIR). In broad terms, the proposal allows one group-level notification, using a common template and harmonized deadline, to identify the entity filing the CbCR and the entity filing the Top-up Tax Information Return (TTIR, similar to the OECD GIR), with the notification then exchanged between relevant tax authorities.

The proposal also moves the CbCR and TTIR templates out of the Directive's Annexes and relies instead on templates adopted through Implementing Acts. The draft does not propose changes to public CbCR under the Accounting Directive. The Commission distinguishes public CbCR from DAC4 CbCR, noting that DAC4 supports tax authority risk assessment while public CbCR serves a broader public-transparency objective.

Exchange of several income categories and capital (current DAC1)

The proposed DAC recast amends the DAC framework for the automatic exchange of information on income and capital. The category of life insurance products is removed, given the Commission's view that it overlaps significantly with financial account reporting, while information on beneficial ownership is added for immovable property.

The proposal also broadens the concept of "available information" for DAC purposes, so that Member States need to take into account information held not only by tax authorities, but also in other national government-level registers and databases. As a result, Member States are expected to exchange information on all remaining DAC categories if such information is available under the revised concept.

Tax-administration access to AML information (current DAC5)

The proposed DAC recast also updates the DAC5-related provisions on tax authority access to anti-money laundering (AML) information, reflecting the revised EU AML framework. This includes updated access to beneficial ownership and bank account register information and appears intended to support the broader DAC objective of improving the quality and usability of information exchanged between tax authorities.

Taxpayer Identification Number verification tool

The proposed DAC recast introduces a digital TIN verification tool to improve the validity and automatic matching of taxpayer identification data exchanged under the DAC. If a TIN is verified through the tool, or the taxpayer is identified through a government or equivalent EU verification service, reporting entities are allowed to report more limited identification data, generally the taxpayer's name and verified TIN.

Next steps

EU leaders have called on the EU co-legislators to accelerate the adoption of the Omnibus simplification proposals. In this context, a dedicated Antici Group on Simplification has been established at Council level to advance negotiations on these proposals ahead of their approval by EU ambassadors (the Committee of Permanent Representatives of the Governments of the Member States of the EU, referred to as Coreper) and subsequent adoption by the Council.

Both proposals will require unanimous agreement among Member States for adoption, following negotiations at the Council level among EU Finance Ministers starting in the coming weeks. The European Parliament will be consulted as part of the process and will issue a nonbinding opinion.

According to the Action Plan attached to the Commission's Communication on a Simpler, Clearer and Better Enforced EU Rulebook, these tax initiatives should be examined as a matter of priority in 2026 and 2027. The Irish Presidency of the Council of the EU also intends to make significant progress on the DAC recast, and aims to conclude the negotiations by December 2026. It also expects to advance work on the Tax Omnibus, but signals it expects that work will continue in 2027.

The proposals include differentiated application timelines. Under the Tax Omnibus proposal, Member States would generally be required to adopt and publish the necessary measures by 31 December 2028. Although most measures would apply from 1 January 2029, specific provisions would only apply as from 1 January 2032 (e.g., the IRL safe harbor inflation indexation) or 1 January 2037 (e.g., the key changes to the IRD and PSD). Under the DAC recast proposal, application dates would vary by measure. Several changes are expected to apply from 1 January 2028 (e.g., most of the changes to the MDR requirements and the DAC7-threshold). Other provisions would apply from 1 January 2030. These timelines remain subject to Council negotiations and may change during the legislative process.

Implications

If adopted, the Tax Omnibus and DAC recast would mark an important shift in the EU tax agenda. Although the proposals are intended to reduce complexity and compliance burdens, several proposals would introduce new measures and processes. The package is significant, but also largely surgical in amending existing EU tax rules and their implementation in Member States, rather than reopening the broader design of EU corporate tax policy.

For businesses and investors, the most immediate implications may arise in relation to financing, profit repatriation, holding structures and reporting processes. The proposed IRD and PSD changes could largely remove source-state WHT on qualifying intra-EU intercompany interest, royalty and dividend flows, while the ATAD changes could materially affect interest deductibility, CFC taxation and R&D investment planning.

The DAC recast would be particularly relevant for multinational groups, intermediaries and platform operators. It could narrow DAC6 reporting in many cases, change reporting triggers and timelines, streamline DAC4/DAC9 notification obligations, adjust DAC7 platform reporting and introduce new data-quality processes, including TIN verification. Notably, the proposal introduces changes to the EU Minimum Tax Directive and to public CbCR under the Accounting Directive.

Given the Council's unanimity requirement, the final scope and timing remain uncertain, particularly for measures with revenue implications for Member States. Although the proposals are framed as simplification measures, Member State discussions may also raise broader questions about competitiveness, tax sovereignty and the balance between administrability, revenue protection, anti-abuse safeguards and attractiveness. Businesses should monitor negotiations, while identifying affected structures and compliance processes.