Cross-border business in the EU is set to become significantly less complex. On 24 June 2026, the European Commission published its proposal for the Direct Tax Omnibus, an initiative to simplify the EU’s direct tax rules. It amends various existing directives at once, covering withholding tax, mergers, anti-tax avoidance and dispute resolution. The Commission estimates that it will save businesses around €8 billion a year as part of a wider simplification package.

The proposal also marks a change of direction. In recent years, EU tax measures mostly introduced new rules to counter tax avoidance and added reporting obligations. This initiative instead aims to make the rules simpler and less costly to apply, while keeping the existing anti-avoidance safeguards in place. If adopted, most measures would take effect from 2029, and the main withholding tax changes from 2037.

Withholding tax (interest and royalties directive and parent-subsidiary directive)

At present, cross-border payments of dividends, interest and royalties between EU companies are exempt from withholding tax only where the companies hold a minimum stake in one another: 25% under the Interest and Royalties Directive and 10% under the Parent-Subsidiary Directive. Various amendments are proposed, such as removing the minimum shareholding requirements, extending the dividend exemption to pension funds, no prior approval from local tax authorities and fast-track refund possibilities.

The Parent-Subsidiary Directive would also gain an explicit anti-abuse provision aimed at the use of holding-company structures, which did not appear in the earlier leaked draft.

Tax merger directive

This directive allows companies to carry out cross-border reorganisations without being taxed straight away. The proposal would bring it into line with EU company law, so that newer types of restructuring are covered as well. Examples are simplified mergers and cross-border conversions.

Anti-tax avoidance directive

ATAD sets minimum rules to counter tax avoidance, including the limit on interest deduction. The proposal would adjust several of these rules and, for the first time, add a measure that supports investment rather than countering avoidance: a deduction for research and development (“R&D”).

New R&D deduction

Companies would be able to deduct the full cost of physical R&D assets, such as machinery and equipment, either in the year of purchase or spread over the following four years. The measure covers physical assets only, not staff costs or self-developed software or patents.

Interest deduction rules

ATAD limits how much interest a company can deduct from its profit. The proposal would relax this in several ways (at least from the perspective of the Netherlands):

• the limit would be set at 30% of profit (EBITDA) across the whole EU, so countries could no longer apply a stricter one;
• normal loans from independent (third-party) lenders would no longer count towards the limit;
• a minimum amount of interest would always be deductible, rising each year with inflation;
• companies would receive relief in a year when their profits fall sharply;
• two existing reliefs, the group escape and the carry-forward of unused capacity, would become mandatory for all countries; and
• the existing exemption for large public-interest projects would be widened, with a temporary one added for defence.

Foreign subsidiaries and other changes

Small and medium-sized groups, and groups already covered by the global minimum tax (Pillar Two), would be exempt from the rules on low-taxed foreign subsidiaries (the “CFC rules”). The only exception is for groups headquartered in a country with a so-called side-by-side regime, currently just the United States, where the subsidiary is not taxed locally.

The proposal would widen the general anti-abuse rule to all direct taxes. It would also remove the rules on imported hybrid mismatches (under ATAD2), which the Commission considers too complex and burdensome relative to what they achieve.

Dispute resolution mechanisms directive

The rules for resolving cross-border tax disputes would see a number of practical changes, including clearer deadlines and the option to correct and resubmit a complaint. For most companies, the effect on day-to-day practice would be limited.

Key changes for Dutch businesses

If adopted as proposed, the Netherlands would need to amend several provisions of its Corporate Income Tax Act (“CITA”):

• Interest limitation (Art. 15b CITA): raise the limit from 24.5% to 30% and the fixed threshold from €1m to €3m and introduce the new exceptions for third-party loans and groups.
• Participation exemption (Art. 13 CITA): this currently applies from a 5% shareholding, but relief would in principle have to extend to smaller holdings as well, and the dividend withholding tax exemption to EU corporate shareholders regardless of the size of their stake.
• CFC rules: the Netherlands would have to move from its current model to the single EU model.
• Box 2: removing the minimum shareholding could make it more attractive to hold investments through a personal holding company and defer tax until the gain is realised. The new anti-abuse provision confirms that countries can still address this.

As the main withholding tax changes would not take effect until 2037, there is no immediate urgency, but they could significantly impact the Dutch participation exemption and dividend withholding tax.

Impact and next steps

If adopted, the Omnibus would be a welcome development for businesses operating across the EU. It would simplify doing business in Europe and make it more cost efficient. Most measures would apply from 2029, with the increase of the fixed interest deduction amount to €3m from 2032, and the main withholding tax changes from 2037. As the proposal requires the unanimous approval of all Member States and would have a budgetary impact for them, the text may still change before it is adopted.

Questions?

Please don’t hesitate to contact our corporate tax colleagues for any questions or assistance.