Matheson EU Legislative Insights
Expert analysis of the EU legislation shaping Ireland’s Presidency agenda.
Matheson EU Legislative Insights is a fortnightly update focusing on key aspects of the legislative agenda during the course of Ireland’s Presidency of the Council of the European Union.
Every two weeks, Matheson experts will review a key piece of legislation to provide an “at-a-glance” summary of its strategic context, objectives and implications. Should you have any queries in respect of the contents of the update, please do not hesitate to contact your usual Matheson LLP contact or any member of our team detailed below.
In focus: Tax Simplification Omnibus
What is the Tax Simplification Omnibus?
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”).
What are the proposed key changes and their practical implications?
Improved treatment of intra-EU payments
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.
More liberal treatment of borrowing costs
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.
At a glance: Tax Simplification Omnibus
| What it is | A legislative package aimed at simplifying EU tax rules, reducing compliance burdens for businesses and modernising the EU’s direct tax framework so that it is more efficient and better adapted to the current economic environment. |
| The legal instrument | A Simplification of Direct Taxation (Omnibus) amending the existing direct tax framework. |
| Common name | Tax Simplification Omnibus |
| Who it targets | Multinational Enterprises (“MNEs”) operating in the EU. |
| Publication date | 24 June 2026 |
| Current stage | On 24 June 2026, the European Commission adopted the Tax Simplification Omnibus, which has now been submitted to the European Parliament for consultation and to the Council for adoption. |
| Key institutional lead (Commission) | Commissioner Wopke Hoekstra (EPP / Netherlands) |
| Key Matheson contacts | Olivia Long and Caroline Austin |
CFC rules — a controversial carve-out and significant change for Ireland
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).
R&D expenditure — new capital allowance
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.
Anti-hybrid rules
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.
Better access to dispute resolution processes
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.
