The Council of the European Union has received a Commission proposal to simplify six EU direct tax directives, aiming to reduce compliance burdens and support growth and competitiveness for businesses operating cross-border in the EU. The proposal, submitted on 25 June 2026 (document 11141/26, COM(2026) 560 final), amends the Interest and Royalties Directive (IRD, 2003/49/EC), Parent-Subsidiary Directive (PSD, 2011/96/EU), Tax Merger Directive (TMD, 2009/133/EC), Anti-Tax Avoidance Directive (ATAD, EU 2016/1164), Dispute Resolution Mechanisms Directive (DRM, EU 2017/1852), and FASTER Directive (EU 2025/50).
Key changes include exempting all intra-EU interest, royalty and dividend payments from withholding taxes under IRD and PSD, removing upfront procedures for entitlement. Under ATAD, the proposal mandates application of CFC Model A and introduces a carve-out for Pillar 2 companies, along with SME carve-outs for CFC and interest limitation rules, and removes rules on imported hybrid mismatches. The proposal also aligns TMD with the Mobility Directive and introduces immediate expensing for tangible R&D assets. An impact assessment received an 'unqualified' opinion from the Regulatory Scrutiny Board.
The proposal is based on Article 115 TFEU and requires a special legislative procedure, meaning unanimous adoption by the Council after consulting the European Parliament and the European Economic and Social Committee. If adopted, the changes would significantly reduce tax compliance costs for cross-border businesses, particularly for intra-group payments, but may reduce tax revenues for some member states. The SME carve-outs and R&D expensing aim to support smaller firms and innovation, while the removal of hybrid mismatch rules could simplify compliance but may raise concerns about tax avoidance. The proposal now awaits Council deliberation and unanimous approval.