1. Introduction
On 24 June, the European Commission published its proposed Tax Simplification Omnibus Directive proposal. The headline of the press release left no room for doubt: “European Commission proposes landmark tax simplification package to streamline compliance and boost competitiveness”. They certainly know how to package it in Brussels, but what does the directive proposal actually entail?
The directive aims to simplify a number of existing directives in the field of direct taxation and to better align the conditions for the application of the various directives. The directives that the Omnibus proposal relates to are the Parent Subsidiary Directive (PSD), the Merger Directive (MD), the Interest and Royalties Directive (IRD), the Anti-Tax Avoidance Directive (ATAD), FASTER and the Directive on tax dispute resolution mechanisms (DRM).
2. But first: the process…
Simplification is one of the main themes for this European Commission. Rules in secondary EU law can be unclear or incohesive. As such, the objective is to propose, negotiate and adopt simplification directives in different fields of law. As those directives should amend several existing directives at the same time, they are called Omnibuses. As said, the European Commission now also proposed one in the field of direct taxation.
From a procedural perspective, it has been agreed within the Council that all simplification omnibus proposals – including this tax-related one – will be dealt with by the Antici group (staff from the Permanent Representations to the EU) under the Council configuration of General Affairs. Not in the usual ECOFIN.[1] This unusual change would then take place in order to minimise discussions on tax technicalities and make it easier to get the simplification directive adopted. I consider this approach to be preposterous.[2] The objective does not justify the means. Simplification is certainly welcomed, but if a rushed adoption leads to unforeseen technical tax complications, the quick and simplifying solution does not improve the effect of the rules. My message would therefore be: take your time, think things through and make well-considered decisions, taking all technical aspects into account as well.
Even though the European Commission seems ambitious on the substantive content of the Tax Simplification Omnibus. The intended timing does not automatically mirror this ambition. EU Commissioner Hoekstra had previously indicated informally that he hopes agreement on the Omnibus directive proposal will be reached by the end of 2027. The Omnibus proposal also implies this[3] and envisages implementation in 2028, after which the rules must be applied from 2029. However, a few exceptions are permitted. They actually relate to some fundamental parts of the Tax Simplification Omnibus; all adjustments to the IRR and MDR (apart from the update to the list of qualifying legal forms) will not come into force as at 2037, and the mandatory EUR 3 million threshold in the earnings stripping rule will not apply as at 2032. I wonder whether this timeline is feasible. There is considerable scope for negotiation on the various elements, and I find it hard to imagine that all Member States will be in agreement on every point. The text may, of course, still be amended in the Council, but that in turn raises the question to what extent this would still be acceptable to the European Commission. If – in the European Commission’s view – too little of the proposal remains, the European Commission always has the option of withdrawing the directive proposal. That would, in my opinion, be uncomfortable for Brussels, certainly following the announcement that this proposal is part of a ‘landmark tax simplification package’.
3. Substantive issues with the proposal
Besides the procedural aspects, there also is a lot to do about the substance of the proposal. Just to give some examples, I included a non-exhaustive list of potential issues.[4]
1. The proposal includes a major shift in application of withholding taxes on dividend, interest and royalty payments. Under the current PSD and IRD, a withholding tax exemption is only mandatory if, amongst others, two companies are related by a certain minimum shareholding requirement. For the PSD the required shareholding is 10%, for the IRD it is 25%. It is now proposed – for simplification purposes – to remove this shareholding requirement. Consequently, all intra-EU payments of dividends, interest and royalties should be exempt from withholding tax. This would cost the Member States in total billions of tax revenues. During the oral hearing in the European Parliament, this major shift was compared to the introduction of the EU Customs Union in 1958; member states were reluctant then as well, but now they are used to it. EU Commissioner Hoekstra calculated that the EUR 8 billion benefit for taxpayers should not be overestimated considering the aggregate budgets of the Member States.[5] Removing the thresholds is easy from the directives’ perspectives. After implementation, however, it can cause for a big problem as the domestic implementing legislation could be extendable to third country situations under the free movement of capital principle. I doubt whether that effect would be desirable. In order to simplify and streamline the PSD and IRD, an alternative – that was tabled – would be to lower the IRD threshold to 10% as well. The reference to 10% thresholds in the MD is not changed by the proposal.
2. The scope of the PSD’s withholding tax exemption is extended to pension funds without differentiating in the way of establishment of the pension fund. If simplification and streamlining is an objective of the proposal, the question could be raised why the IRD’s withholding tax exemption is not extended to pension funds as well.
3. The Tax Simplification Omnibus introduces a mandatory anti-abuse approach for EU outbound interest and royalty payments in the IRD. Member States have the option to apply a withholding tax on these outbound payments or to introduce a rule limiting the deductibility of the payment. The institutional question that can be raised here is whether the IRD is the correct place to introduce a rule limiting the deductibility of interest or royalty payments. Of course, from a substantive perspective that can be explained very well. In CJEU Scheuten Solar Systems, however, the CJEU clarified that the IRD only relates to withholding taxes and not to corporate income tax provisions relating to interest and royalty payments. As such, I suggest that the proposed deduction limitation rule should be included in ATAD instead of the IRD. The objective of the European Commission is to prevent interest and royalty payments from leaving the EU untaxed. It could, however, be questioned whether the EU is competent to act in this way. In this respect, I also refer to AG Kokott’s opinion in the Belgian CFC-case, in which she states that harmonisation is not an objective in itself and that, whilst Article 115 TFEU does provide a basis for harmonisation, this is limited to situations where there is a direct impact on the functioning of the internal market in the field of direct taxation. Subsequently, the question is why mandatory withholding tax in EU outbound situations is not extended to the PSD.
4. The phrasing of ATAD’s suggested new R&D facility to stimulate innovation is rather unclear. The assumption is that the costs of qualifying R&D expenditure are immediately and fully deductible in the year in which they are incurred. As a result, they are not first capitalised after which depreciation follows. The costs may also be deducted in any one of the following four years. I interpret this as a one-off deduction of the full amount in one of those years, rather than a spread deduction. After all, in the latter case, the costs must be capitalised and depreciated, which does not appear to be the intention. The text of the facilty is, however, ambivalent and unclear. The reason for placing the provision in ATAD is rather practical: ATAD is the only existing instrument applicable to corporate income tax as a whole. The fact that ATAD was intended to counter abuse apparently did not limit the European Commission in its ambition to now include a measure that orders Member States to start handing out tax incentives.
5. The CFC rules would be modified as well. Where ATAD currently allows the application of CFC rules under a Model A (non-distributed sources of income of the CFC) or Model B (profits of the artificial CFC), the latter option would be abolished. Besides that, Pillar Two groups will be outscoped from the CFC rules. The effect of Pillar Two rules is to a certain extent comparable to CFC legislation, so it was already addressed that a parallel application of both sets of rules would be overkill. If, however, the Side-by-Side rules are applied, companies would still be in scope of ATAD’s CFC rules. This seems to send the wrong signal. Even though I personally consider the entire Pillar Two system to be too complicated, the effect of agreeing that other systems – i.e., the US system – are equivalent to the Pillar Two system should also have effect here. In other words: if we agree that the effects of Pillar Two and the US system are comparable and, as a consequence of that, US headquartered groups do not need to meet the Pillar Two ruleset, they should also be put at par with Pillar Two groups for the exemption of ATAD’s CFC rules. In the proposal, that is not the case.
6. In the MD, definitions are aligned with the EU Mobility Directive. Strikingly, this does not appear to be the case with regard to the ‘partial division’. The MD’s definition of this requires the transfer of a ‘branch of activity’, whilst the EU Mobility Directive refers to ‘a part of its assets and liabilities’. The latter concept appears to be much broader, as the CJEU has ruled in Andersen og Jensen that a ‘branch of activity’ means that the transferred assets and liabilities must be capable of functioning by its own means. I would favor corresponding definitions for the partial division.
4. Some concluding remarks
I appreciate the idea of simplifying the existing EU directives in the field of direct taxation. Still, we have a long way to go. The content of the proposals shows ambition of the European Commission, but at the same time it can be expected that the Member States will have lots of discussions in the Council on the results to be achieved and policy choices to be made. That was already showed by the leaked document on the positions of several Member States towards elements of the proposal.[6]
Apart from that, the process can and should lead to discussions. Speed should never trump quality of legislation. ATAD already showed that including too many policy options creates a patchwork of different approaches and interpretations of the same set of harmonized rules. If the Tax Simplification Omnibus would only need to be a rapid solution, this would run the risk of resulting in again too many different approaches towards the amended versions of the existing directives. Let’s try, for once, to come with real harmonized solutions. And let’s not, again, accept different policy options from which Member States can pick and choose from – and potentially don’t need to amend their existing national legislation – only in order to be able to say that ‘we unanimously agreed on the Omnibus proposal’. Reaching ‘a’ result should not be the narrative, but reaching ‘the’ lasting result should be.
[1] Also see E. Lamer, ‘EU Tax Officials Fear Upcoming Omnibus May Bypass Their Scrutiny’, 121 Tax Notes Int’l 1048 (9 February 2026). DG TAXUD did, however, take the lead in the preparation of the Omnibus proposal. See the impact assessment accompanying the Omnibus proposal, appendix I.
[2] Also see E. Lamer, ‘EU Tax Officials Fear Upcoming Omnibus May Bypass Their Scrutiny’, 121 Tax Notes Int’l 1048 (9 February 2026).
[3] The Omnibus proposal naturally makes no mention of the date of adoption, but by requiring implementation by 31 December 2028 and allowing Member States sufficient time to do so, it suggests adoption will take place before the end of 2027. However, this is not a strict deadline.
[4] More extensively and in Dutch, I have elaborated on these in Jasper Korving, Het richtlijnvoorstel voor de Europese fiscale vereenvoudigingsomnibus; Omnibus: quo vadit?, WFR 2026/200.
[5] E. Lamer and S. Petitjean, ‘Tax Simplification Gains Outweigh Revenue Losses, Hoekstra Says’, 2026 TNTI 121-1.
[6] E. Lamer, ‘EU Tax Omnibus Goes Beyond Simplification, Countries Say’, 123 Tax Notes Int’l 2066 (Sept. 21, 2026).