Tax Simplification Omnibus – simplifying EU tax rules, reducing compliance burdens

The Tax Simplification Omnibus aims to simplify EU tax rules and reduce compliance burdens for businesses.

The draft Tax Simplification Omnibus (the “TSO”) was published on 24 June 2026 and will revise the Anti-Tax Avoidance Directive, the Interest and Royalties Directive, the Parent-Subsidiary Directive and the Mergers Directive (together, the “Existing Directives”).

The Existing Directives provide for interest, royalties and dividends to be paid between EU-resident counterparties free of withholding tax, provided that the payer and recipient satisfy an association threshold (25% for interest and royalties and 10% for dividends). The association threshold would be removed entirely under the TSO, which would be a welcome simplification. Under the current proposal, Member States would not be required to implement the change until 1 January 2037.

If adopted in its current form, the interest limitation rule would be relaxed. This includes a proposal that third-party loans would fall outside the scope of the rule, provided that they are used to fund the borrowing taxpayer’s own activities. Although the proposals look promising in terms of delivering practical improvements to the administration of the interest limitation rule, it remains to be seen whether they will have political support at Member State level.

As part of the ongoing discussions on simplifying the Existing Directives, industry has consistently requested that the Controlled Foreign Company (“CFC”) rules be disapplied to groups within the scope of Pillar Two. That carve-out has been included in the TSO. For US-headquartered groups within the scope of the side-by-side safe harbour, the CFC rules would continue to apply unless the relevant CFCs are subject to a Qualified Domestic Minimum Top-up Tax (“QDMTT”) and do not receive related benefits.

The carve-out from the CFC rules for Pillar Two groups has already proved controversial. It has been reported that at least five Member States do not support the proposal. Separately, US business has written to the Commission requesting that the carve-out be extended to groups within the scope of the side-by-side safe harbour, on the basis that the current approach does not respect the equivalence of the US tax system.

More generally, the draft Directive would require Ireland to redesign its CFC regime. Under the Anti-Tax Avoidance Directive, Member States had a choice as to how to design their CFC rules. Ireland opted for a version that imposed a CFC charge by reference to significant people functions undertaken in Ireland. This option would be removed under the revised rules, and Ireland would have to shift to a CFC regime that automatically taxes low-taxed income falling within specified ‘passive’ categories (e.g., interest, royalties and income from financial services activities).

The TSO proposes a new allowance for the immediate expensing of research and development costs and expenditure on R&D facilities. We understand that this proposal is being driven by the European Commission. It remains to be seen whether EU Member States will be willing to commit exchequer resources to support it.

The imported mismatch rule will be deleted.  This is a welcome simplification, as the imported mismatch rule has been one of the most complex and administratively burdensome aspects of the anti-hybrid framework.

Procedural amendments are proposed to address situations in which more than one taxpayer has an interest in a matter being resolved under a mutual agreement procedure involving two EU Member States. These include clarifying who should file the complaint where multiple affected persons are involved. Member States must allow either each affected person to submit a complaint individually to their state of residence or one affected person to file on behalf of all affected persons. This reflects the increasingly multi-party nature of cross-border tax disputes.