A European Commission proposal to overhaul EU direct tax rules could reduce compliance costs and related financial burdens by around €6.6bn a year, according to the Commission’s own impact assessment. The figure appears in a briefing by the European Parliamentary Research Service (EPRS), published on Tuesday, which outlines the main points of the package. The proposal aims to simplify the framework, cut administrative costs and encourage investment.
What the tax omnibus covers
The proposal, known as the tax “omnibus”, was submitted by the Commission in June 2026. It covers, among other things, cross-border payments, corporate reorganisations, interest deductions, anti-tax-avoidance rules, the resolution of tax disputes and the tax treatment of certain investments in research and development.
Why the Commission says change is needed
The EPRS notes that direct taxation remains primarily a national responsibility. The EU has, however, introduced common provisions to facilitate cross-border business activity and protect member states’ tax bases.
The coexistence of different European and international rules has made the system more complex. According to the Commission, this can in some cases create overlapping compliance obligations or the risk of economic double taxation.
Six directives to be amended
The proposal would amend six existing directives, including those on parent and subsidiary companies, interest and royalties, mergers, anti-tax avoidance and mechanisms for resolving tax disputes.
The European Parliament gives its opinion on the proposal, while the Council decides unanimously. The proposal is being examined by the Parliament’s Committee on Economic and Monetary Affairs.
Changes to withholding taxes and interest
The proposed changes include widening exemptions from withholding tax on dividends, interest and royalties paid between companies in different member states. This would be done by removing certain minimum shareholding thresholds and holding periods.
A new safeguard against double non-taxation is also proposed for interest and royalty payments to third countries. Where the recipient is located in a country that does not tax the relevant income or applies a zero corporate tax rate, the member state from which the payment originates would, under certain conditions, have to either withhold tax or disallow the related tax deduction.
The proposal also changes the limitation on interest deductions. The 30% threshold based on earnings before interest, taxes, depreciation and amortisation (EBITDA) would become mandatory. A mandatory safe-harbour threshold of €3 million would also be introduced for the deduction of net borrowing costs.
Common tax deduction for research and development
In the field of research and development, the proposal introduces a common European tax deduction for certain tangible assets used for research and development activities.
Companies would be able to deduct the full cost of eligible expenses, such as facilities and machinery used directly for research and development. The deduction could be claimed either in the year the expense is incurred or in one of the following four tax periods.
To qualify, the assets would have to be used exclusively for research and development for at least three consecutive years. Member states would also be able to retain more favourable national rules.
Estimated savings and timeline
According to the EPRS, the Commission’s impact assessment estimates that the package could save around €6.6bn a year in compliance costs and related financial burdens. This includes approximately €2bn in recurring administrative costs.
Most provisions are expected to apply from 1 January 2029. Some measures have longer transition periods:
- the mandatory €3 million threshold under the interest limitation rules is scheduled for 2032
- key changes to withholding tax exemptions are set for 2037
