Last week, the European Commission adopted an ambitious tax simplification package comprising two legislative proposals: the direct taxation Omnibus (“the Tax Omnibus”); and the Recast of the Directive on Administrative Cooperation (“the Recast DAC”) (together “the Tax Simplification Package”). The Tax Simplification package will simplify the tax rules across the European Union, reduce the compliance burden on businesses, and strengthen the overall competitiveness of the region. The Tax Simplification package should bring savings on compliance costs of businesses of €7.9 billion.
The European Commission has prepared a fact sheet to assist interested parties navigate the new package of measures. The Tax Omnibus will have the widest impact on tax policy, including the introduction of EU-wide minimum standards on the tax treatment of investment in R&D related intangible assets. The proposals for intangible assets are expected to boost EU GDP by around 0.2 percent per year.
The Tax Omnibus has been on the European Commission’s agenda for some time now and tax policymakers have been expecting its publication ahead of Ireland taking up its term as President of the Council of the European Union. Over time, EU direct tax legislation has become increasingly complex due to the accumulation of multiple directives, differences in national implementation, and evolving international tax developments.
As a result, businesses operating cross-border face higher compliance costs, legal uncertainty, and administrative burdens. The Tax Omnibus is a response to the cumulative development of EU law in the field of taxation and the unavoidable yet significant complexity these developments have spawned. The Tax Omnibus seeks to address this complexity and the divergence in national implementation of EU tax directives.
The Tax Omnibus proposes amendments to the following directives:
- The Parent-Subsidiary Directive (Council Directive 2011/96/EU);
- The Interest and Royalties Directive (Council Directive 2003/49/EU);
- The Tax Merger Directive (Council Directive 2009/133/EU);
- The Anti-Tax Avoidance Directive (Council Directive (EU) 2016/11644 as amended by Council Directive (EU) 2017/952); and,
- The Dispute Resolution Directive (Council Directive (EU) 2017/1852).
The Tax Omnibus is complimented by the Recast DAC. The various Directives on Administrative Cooperation (“DACs”) are the main body of EU legislation governing administrative cooperation in direct taxation. The DACs provide harmonised tools to assist Member States’ tax authorities combat tax fraud, evasion and avoidance. The Recast DAC will consolidate the existing framework and its subsequent amendments into a single, coherent legal instrument. Its main objective is to simplify the rules, reduce administrative burdens for businesses, and strengthen the competitiveness of the EU while maintaining strong safeguards against tax fraud, evasion, and avoidance.
The initiative is strongly supported by stakeholders, including businesses and Member States, who have highlighted the excessive compliance burden created by overlapping and fragmented rules. The proposed changes are expected to significantly reduce compliance costs and administrative effort, particularly for SMEs, while ensuring that tax authorities continue to receive high-quality information for risk assessment and enforcement.
The Tax Simplification Package also supports the implementation of the EU Minimum Taxation Directive (Pillar Two) and will simplify and eliminate overlapping provisions within the ATAD, ensuring that the existing direct tax framework remains coherent. When the Tax Omnibus and the Recast DAC Recast are taken together, they should simplify certain reporting obligations and procedures for MNE groups in scope of the Pillar Two Directive.
Following the announcement of the Tax Simplification Package, Commissioner Hoekstra commented:
"Europe needs simpler rules to deliver better results. Our tax simplification proposals offer solutions will radically improve clarity and legal certainty for businesses and tax administrations alike. They will reduce overall compliance costs for European businesses by almost €8 billion per year, including €3.3 billion in annual administrative costs. This brings total savings from our simplification agenda so far to over €18 billion – almost half of our goal for this mandate. Our proposals will also help remove obstacles to cross-border investment and economic activity, strengthening the EU’s Single Market and advancing the Savings and Investments Union. By simplifying the Directive on Administrative Cooperation, we are also advancing our regulatory deep cleaning agenda. The European Commission is determined to keep building a more competitive and prosperous Europe – we won’t stop until we get there"
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