EU Tax Simplification Package – DAC Recast and Omnibus on Taxation

On June 24, 2026, the European Commission published two companion proposals that together would materially simplify and recalibrate the EU direct tax framework if adopted. For multinational businesses and funds, the significance of the package lies not only in the simplification narrative but also in the fact that the proposal touches several of the most commercially relevant EU tax directives at once. This is not a narrow housekeeping exercise: it is an attempt to reshape important parts of the EU direct tax rulebook in a more business-facing direction while retaining anti-abuse protections

The first—the DAC Recast (COM(2026) 308)—consolidates the nine existing Directives on Administrative Cooperation (DAC1–DAC9) into a single codified text, while introducing targeted simplifications to reduce reporting obligations for businesses. The second—the Omnibus on Taxation (COM(2026) 560)—amends six separate EU direct tax directives in a coordinated manner: the Interest and Royalties Directive (IRD), the Parent-Subsidiary Directive (PSD), the Tax Merger Directive (TMD), the Anti-Tax Avoidance Directive (ATAD), the Dispute Resolution Mechanism Directive (DRM), and the FASTER Directive. Where the DAC Recast focuses on how tax authorities exchange information, the Omnibus targets the substantive tax rules themselves—interest deductibility, CFC taxation, withholding taxes, hybrid mismatches, cross-border reorganizations and intragroup flows.

Important: Both proposals still require unanimous Council approval, and not all Member States have been consulted in advance. The measures described in this newsletter are proposals, not enacted law. Their final form may evolve materially during negotiations. Businesses should treat the package as a directional signal rather than a basis for immediate restructuring.

The Commission envisions a phased implementation: DAC6 reporting simplifications from January 1, 2028; ATAD, TMD, and DRM amendments from January 1, 2029; the full DAC recast from January 1, 2030; and the most far-reaching Omnibus changes (full withholding tax exemption on intra-EU payments) deferred to January 1, 2037. The Commission estimates combined compliance cost savings of approximately EUR 6.6 billion per year once fully implemented.

The key areas of reform are set out below.

Part I: The DAC Recast

The following is a short recap of the nine DAC directives that are covered by the Commission’s recast effort:

• DAC1 (2011) – Requires Member States to automatically exchange information on five categories of cross-border income and capital: employment income, directors' fees, pensions, immovable property, and royalties.
• DAC2 (2014) – Implements the OECD Common Reporting Standard (CRS) in the EU, requiring financial institutions to report account data for automatic exchange between tax authorities.
• DAC3 (2015) – Mandates automatic exchange of information on advance cross-border tax rulings and advance pricing arrangements (APAs).
• DAC4 (2016) – Requires Country-by-Country Reporting (CbCR) for MNE groups with consolidated revenues exceeding EUR 750 million.
• DAC5 (2016) – Grants tax authorities access to beneficial ownership information held under anti-money laundering (AML) registers.
• DAC6 (2018) – Introduces mandatory disclosure rules (MDR) requiring intermediaries and, in certain cases, taxpayers to report cross-border tax arrangements meeting specified "hallmarks" indicative of aggressive tax planning.
• DAC7 (2021) – Requires digital platform operators to report information on sellers earning income through their platforms.
• DAC8 (2023) – Implements the OECD Crypto-Asset Reporting Framework (CARF), imposing reporting obligations on crypto-asset service providers. First reporting began January 1, 2026.
• DAC9 (2024) – Enables central filing and automatic exchange of top-up tax information returns under the EU's Pillar 2 global minimum tax directive.

For tax departments of multinationals with significant EU operations, DAC4, DAC6, and DAC9 are the most directly relevant—they impose filing, notification, or reporting obligations on MNE groups themselves (or their intermediaries). The following key changes are proposed to these directives:

DAC6 – Mandatory Disclosure Rules

The most significant change for large multinationals is a full exemption from DAC6 reporting for MNE groups within the scope of Pillar 2 Directive, provided no benefits are granted to any group member that would lower taxation below the 15% minimum rate.

For groups outside Pillar 2 scope, the proposal deletes the generic "Category A" hallmarks—which accounted for approximately 35% of all DAC6 disclosures—substantially reducing reporting volumes. The reporting deadline is also extended from 30 to 90 days from the first step of implementation, and the definition of reportable arrangements is narrowed to include only arrangements that are actually "implementable." These changes would apply from January 1, 2028.

Note: This exemption is narrower than the headline may suggest. US-parented groups and other groups relying on a qualifying side-by-side regime may still need arrangement-level analysis unless all relevant participants are protected by a QDMTT or the arrangement otherwise remains outside DAC6.

DAC4 / DAC9 – Country-by-Country Reporting and Pillar 2 Notifications

Currently, every constituent entity of an MNE group subject to CbCR (DAC4) and Pillar 2 reporting (DAC9) must separately notify its local tax authority of its group membership and filing arrangements—under two different sets of rules with different deadlines. The proposal would replace the two local notification streams with a single notification covering both DAC4 and DAC9, filed by one EU entity on behalf of the entire group, using a common template and a harmonized deadline. This would simplify notifications rather than eliminate the underlying CbCR or Pillar Two information obligations. These changes would apply from January 1, 2030.

Note: DAC4’s CbCR is distinct from the EU’s public Country-by-Country reporting requirement under the EU Accounting Directive (Directive 2021/2101). While both require CbC data, they serve different purposes: DAC4 reporting is exchanged confidentially between tax authorities for risk assessment, whereas the Accounting Directive mandates public transparency.

Part II: The Omnibus on Taxation

Proposed Changes Applicable from January 1, 2029: ATAD, TMD, and DRM

For multinational tax departments, the most impactful changes relate to three areas of ATAD: interest deductibility, CFC rules, and imported hybrid mismatches.

Interest Limitation Rule. The ATAD currently limits the deductibility of net borrowing costs to 30% of EBITDA, but gives Member States significant flexibility—different safe harbors, different thresholds, optional carve-outs—resulting in a highly fragmented landscape across the EU. The proposal harmonizes this rule in several important ways.

• The 30% EBITDA cap becomes mandatory (Member States may no longer impose lower limits). Jurisdictions like the Netherlands, Finland and Slovakia will have to amend their local gap.
• The EUR 3 million de minimis safe harbour becomes mandatory and indexed to inflation.
• Borrowing costs from third-party (non-associated enterprise) loans are excluded from the limitation, provided the financing is used for the borrower’s own activities and not on-lent within the group.
• A profitability shock safeguard is introduced: if EBITDA drops by 50% or more, the limitation does not apply for that year.
• The group escape rule and carry-forward mechanism become mandatory; the standalone entity exemption is removed as redundant.

CFC Rules. The proposal simplifies CFC taxation in three ways.

• Model A becomes the only permitted approach, eliminating fragmentation across Member States, where they can choose between Model A (the core idea of Model A is to tax only specified type of income of the CFC – typically passive income categories) and Model B (the core idea of Model B is to tax profits that are artificially diverted to the CFC).
• Model A becomes the only permitted approach, eliminating fragmentation across Member States, where they can choose between Model A (passive income categories) and Model B (arm' length based).
• MNE groups within scope of the Pillar Two Directive are exempted from CFC rules (on the basis that the Income Inclusion Rule already addresses the same profit-shifting risks). As with the DAC6 carve-out, this exemption does not apply where the ultimate parent entity is in a side-by-side regime jurisdiction and the CFC receives financial benefits that undermine the 15% minimum.
• SMEs are carved out entirely.

Imported Hybrid Mismatches. The ATAD's rules on imported hybrid mismatches—which apply to situations where a deduction in a given jurisdiction indirectly funds a hybrid mismatch outcome arising between parties in other (EU and non-EU) jurisdictions - are removed. These rules have proven difficult for both taxpayers and tax administrations to apply, in particular in case of transactions occurring between entities located in an EU and a non-EU jurisdiction, because the EU entity is typically deprived of the information needed to identify the overseas mismatch.

R&D Immediate Expensing. A new chapter is introduced into ATAD establishing an EU-wide minimum standard for the immediate expensing of capital expenditure on tangible R&D assets (plant, machinery, and tangible assets used directly for R&D). Taxpayers may deduct the full cost in the year incurred, or spread it over the following four tax periods. The measure aims to close the competitive gap with the US and UK, which already permit immediate R&D expensing.

Other 2029 Changes. The TMD is updated to align with the EU Mobility Directive by adding new restructuring transaction types (notably cross-border conversions and divisions). The DRM receives procedural clarifications to address interpretive divergences—for example, clarifying that complaints may be submitted to competent authorities within a reasonable timeframe rather than on the same day, and that multiple affected persons in a dispute each have standing to file.

Proposed Changes Deferred to January 1, 2037: IRD, PSD, and FASTER

The second wave of amendments carries the largest financial impact of the entire Omnibus but will not apply until January 1, 2037. These changes fundamentally reshape the withholding tax landscape for intra-EU cross-border payments and, once adopted, will be final amendments to the underlying directives—not subject to any further review or sunset clause.

Full Withholding Tax Exemption on Intra-EU Payments. The proposal extends the scope of both the IRD and PSD to provide a full exemption from withholding tax on all intra-EU payments of interest, royalties, and dividends, regardless of the percentage of capital held by the recipient in the paying company. Today, the IRD requires a minimum 25% direct holding and the PSD requires a minimum 10% holding for the exemption to apply. These thresholds would be eliminated entirely. The Annexes listing eligible company forms would also be updated and aligned across both directives to ensure consistent coverage. Pension funds / pension institutions would be added as eligible shareholders.

Procedural Simplification. As a corollary, Member States would no longer be permitted to impose prior authorization or upfront administrative procedures as a condition for accessing the withholding tax exemption. Instead, eligibility would be self-assessed by the taxpayer at the time of payment, with Member States retaining the right to conduct ex post controls and apply anti-abuse rules, including beneficial ownership requirements. For publicly traded securities—where the investor is typically unknown to the paying company—the proposal amends the FASTER Directive to ensure that the fast-track relief procedures are available.

Protective Measure Against Double Non-Taxation. To prevent the extended exemption from being used to route interest and royalty payments through the EU to zero-tax jurisdictions, the proposal introduces a mandatory safeguard: where the ultimate recipient is established in a jurisdiction that does not levy corporate income tax (or applies a zero rate), Member States must either impose a withholding tax or deny the tax deductibility of the payment at source.

Implications for Funds and Financial Services. Although the Omnibus is not a "funds directive," several of the 2037 changes are highly relevant to the funds market and deserve careful attention. The broadened withholding tax exemption could reduce leakage in EU holding and financing chains, and the extension to pension institutions is directly relevant to institutional investor profiles. For private equity, real asset, and private credit structures, a more predictable withholding tax landscape could improve treasury flows, repatriation planning, and holding-company efficiency across the EU.

Moreover, the new modifications to interest deduction rules are a welcome development, particularly regarding the challenging imported hybrid mismatch provisions (quite complex for instance for UK/US funds with a Luxembourg platform and portfolio companies in numerous EU Member States).

The relaxation of rules surrounding third-party loans is also a step in the right direction. However, the “prohibition” of on-lending within a group would be a significant drawback. This restriction could lead to higher loan pricing, as it is generally more efficient for lenders to provide financing to a single holding company, which can then fund affiliates through shareholder loans or capital increases. Such a prohibition stands in contrast to other EU tax rules that assess tax positions on a consolidated or group basis.

Additionally, the extension of the long-term public-benefit project exclusion to certain real estate projects, such as social housing, means that real estate funds and their portfolio companies might now benefit from provisions that were previously applicable mostly to private equity or infrastructure funds.

Regarding the parent–subsidiary exemption, it may be worth considering whether the withholding tax exemption for pension funds could be extended to cover other types of funds and AIFs.

Last but not least, the protective measure against double non-taxation could have significant unintended consequences for fund structures, particularly in the real estate sector. Many fund structures rely on tax-transparent or tax-exempt entities to pool investor capital while preserving tax neutrality. The requirement to impose a withholding tax or deny deductions where the recipient is a non-taxed entity on the basis that either the relevant jurisdiction does not levy corporate income tax or applies a zero income tax rate could generate material issues for structures that use entities in non-tax jurisdictions as "blockers" to avoid tainting the tax status of investors (e.g., to avoid concerns around commercially active income or unrelated business taxable income). These blockers are used not only by asset managers offering alternative entry points to the fund, but also by investors themselves when investing into funds where such an entry point would not otherwise be available. The introduction of such a rule could negatively impact the return on investment of a large number of structures that make use of these vehicles. It is worth noting that tax neutrality of funds is an acknowledged concept by the OECD, and appropriate carve-outs should be considered for interest payments made to vehicles qualifying as alternative investment funds — irrespective of their legal form — and vehicles fully held by such funds. Alternatively, the applicability of the rule could be constrained to recipients in the list of non-cooperative jurisdictions, in line with the defensive measures proposed by ECOFIN.

What should businesses do now?

Overall, the 24 June package is best understood as an important directional signal. The European Commission is trying to show that EU tax policy can support competitiveness and investments, not only anti-avoidance and reporting. Nevertheless, it must be acknowledged that this package still needs unanimous approval by the EU Council. If EU Member States fear an immediate tax revenue loss and they feel not being properly compensated by the benefits of the package, the approval process could be slowed down or some elements of the package could be downsized.

For multinational groups, the most relevant proposals concern withholding tax simplification, financing, reorganisations and the trimming of overlapping compliance rules.

For funds, the proposal is relevant because it may reduce tax friction in distribution, financing and portfolio structuring, while also potentially lowering reporting burdens for large, internationally active groups.

The immediate takeaway is therefore that businesses should start identifying which existing pain points this package could realistically address if it advances through the legislative process; i.e.(i) map existing DAC4, DAC6 and DAC9 notification processes, (ii) identify financing, CFC and hybrid mismatch positions that would change under the proposed ATAD amendments, and (iii) model whether the 2037 withholding tax changes and double non-taxation safeguard would improve or worsen fund and holding structures if the package advances.

DLA Piper's global tax team will continue to monitor developments and would be pleased to discuss how these changes may affect your business.