European Commission Adopts Tax Simplification Package to Boost EU Tax Competitiveness, Reduce Administrative Burdens

Key Takeaways The European Commission adopted the Tax Simplification Package (TSP) on 24 June 2026, aiming to cut business compliance costs by approximately EUR 8 billion per year, including EUR 3.25 billion in recurring administrative costs. The core of the TSP is a proposed Omnibus Directive amending six EU tax directives: the Interest and Royalty 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. Withholding tax relief would expand significantly: the minimum holding requirements under the IRD (25%) and PSD (10%) would be abolished, and a self-assessment regime would replace prior authorisation procedures. Interest limitation rules would be eased through a mandatory 30% of EBITDA deduction, a mandatory EUR 3 million safe harbour, and a temporary exclusion for defence-sector financing. A new EU-wide R&D allowance would permit full deductibility of eligible R&D expenses, and CFC rules would be simplified with an exemption for companies subject to Pillar Two minimum taxation. Negotiations begin in 2026 and are targeted to conclude in Q4 2027; subject to unanimous Council adoption, implementation is due by 31 December 2028, with entry into force on 1 January 2029, certain key measures deferred to 2032 and 2037. Background In an effort to harmonise tax law across the European Union, numerous directives have been adopted in recent years, resulting in an increasingly challenging regulatory framework. This complexity has led to legal uncertainties and administrative burdens that have become a growing concern for corporate groups and companies based or operating in the EU. On 24 June 2026, the European Commission adopted the Tax Simplification Package (TSP) to address this trend. The TSP aims to simplify European taxation, reduce compliance burdens for businesses, and strengthen the EU internal market. The TSP is estimated to lower compliance costs for businesses by approximately EUR 8 billion annually, covering EUR 3.25 billion per year in recurring administrative costs. One key element of the TSP is the draft Omnibus Directive which the European Commission has proposed to the Council of the European Union. If adopted, it would significantly modify the EU’s direct tax framework. The following proposed amendments are noteworthy: Broadening of Withholding Tax Exemptions Under the Interest and Royalty Directive and Parent-Subsidiary Directive The Interest and Royalty Directive (IRD