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• The Direct Taxation Omnibus Directive

  The Omnibus Directive is a broad reform package targeting several pillars of the EU's direct tax framework. Its central objective is to remove barriers to cross-border activity, eliminate regulatory overlap, and create a more investment-friendly tax environment within the Single Market.

  • Abolition of withholding taxes on cross-border payments

    The most significant measure is the proposed abolition of taxation on cross-border dividends, interest and royalties paid between EU companies, at no minimum shareholding requirement. This removes a longstanding friction point for cross-border investments. For multinational groups with complex EU holding and financing structures, this could be transformative, eliminating the need for relief-at-source procedures, refund claims and the associated administrative burden. 

    The scope of the Parent-Subsidiary Directive will also be extended to cover pension institutions in any legal form, allowing them to benefit from withholding tax exemptions on dividends received from other Member States.

  • ATAD interest limitation rules modernised

    The interest limitation rules under the Anti-Tax Avoidance Directive (ATAD) are modernised. The 30% EBITDA cap becomes mandatory across the EU, while a EUR 3 million indexable threshold is standardised. Interest on third party loans is excluded where funds are used for the borrower’s own activities, effectively targeting on lending structures. The regime is also made less procyclical, allowing full deductibility in case of a significant (>50% compared to the previous FY) EBITDA decline, and introducing a mandatory group escape for highly leveraged structures - particularly interesting in light of recent Dutch developments targeting fragmented, leveraged real estate structures.

  • R&D investment: Full and immediate expensing

    The Omnibus introduces a common minimum standard for the tax treatment of investments in R&D-related tangible assets, requiring Member States to allow full and immediate expensing. This harmonised approach reduces the disparity between national regimes and makes the EU more competitive as a destination for research-intensive investment.

  • CFC rules and Pillar Two alignment

    The proposal streamlines the interaction between Controlled Foreign Company (CFC) rules and the global minimum tax framework (Pillar Two). Overlapping requirements will be removed and a harmonised CFC model will be introduced, reducing the complexity that currently arises from applying both sets of rules in parallel. For groups already navigating Pillar Two compliance, this is a welcome development.

  • Tax dispute resolution and cross-border restructurings

    The package strengthens tax dispute resolution mechanisms to address procedural shortcomings that have historically delayed cross-border dispute settlement. In addition, the Tax Merger Directive will be expanded to cover more forms of corporate reorganisations recognised under EU company law, enabling mergers, divisions and asset transfers to be carried out on a tax-neutral basis across borders. The list of eligible company forms will also be extended.

• The DAC Recast

  The Recast of the Directive on Administrative Cooperation (DAC) consolidates and modernises the EU's framework for tax information exchange between Member States. The current DAC framework has been amended multiple times since its introduction in 2011 (through DAC2 to DAC8) resulting in a fragmented and increasingly complex set of rules. The Recast aims to consolidate all existing DAC layers into a single, coherent directive, improving clarity, reducing duplication and lowering the administrative burden on both tax authorities and reporting entities.

  Key objectives of the DAC Recast include:

  • Streamlining reporting obligations for financial institutions, platforms, and intermediaries, with the aim of reducing overlapping or redundant data requirements;

  • Improving data quality and usability of information exchanged between tax authorities, ensuring that the data collected actually serves the purpose of combating tax fraud and evasion;

  • Rationalising the scope of automatic exchange of information to focus on high-risk situations, while reducing compliance costs in lower-risk areas;

  • Modernising enforcement provisions to reflect current digital and cross-border business realities.
    
    

    The DAC Recast does not reduce the overall level of tax transparency or weaken anti-avoidance safeguards. Rather, it seeks to achieve the same policy goals more efficiently.

• What this means in practice

  For internationally active businesses, the package represents a significant shift in the EU tax landscape. The proposed abolition of taxation on intra-EU payments alone will require many groups to revisit their holding structures and financing arrangements.

  For EU pension institutions, it opens new ways to secure exemption from withholding taxes. The alignment of CFC rules with Pillar Two, together with the simplification of the DAC framework, will reduce redundant compliance work. And the modernisation of the ATAD interest limitation rules should not only ease ongoing reporting burdens but may also reduce the overall tax burden in certain cases, notably in the Netherlands (still applying a EUR 1m threshold).

  The proposals still require adoption by the Council of the EU,  unanimity is required in the area of direct taxation and implementation timelines will follow from there. Nonetheless, the direction of travel is clear, and forward-looking planning can start now. 

Borgen Tax will continue to monitor the legislative process closely.

If you have questions about how these proposals may affect your structure or compliance obligations, please do not hesitate to contact us.