The European Commission’s proposed overhaul of EU direct taxation rules could reduce compliance costs and related financial burdens by €6.6 billion annually, while simplifying cross-border business operations and encouraging investment, according to a briefing published by the European Parliament’s Research Service (EPRS) on Tuesday.

The proposal, known as the tax omnibus package, was presented by the European Commission in June 2026 and seeks to streamline a range of existing rules covering cross-border payments, corporate restructuring, interest deductions, anti-tax avoidance measures, tax dispute resolution and research and development (R&D) investment.

The package is intended to reduce administrative burdens arising from the interaction of European and international tax frameworks, which the Commission considers increasingly complex for businesses operating across multiple jurisdictions.

According to the EPRS, direct taxation remains primarily a national competence, although the EU has introduced common provisions to facilitate cross-border business activity and safeguard member states’ tax bases.

The coexistence of different European and international rules has increased the complexity of the system and, in some cases, can create overlapping compliance obligations or the risk of economic double taxation, the Commission has said.

The proposal would amend six existing EU directives, including those governing parent and subsidiary companies, interest and royalties, mergers, anti-tax avoidance and mechanisms for resolving tax disputes.

The European Parliament is expected to deliver an opinion on the proposal, while the Council of the European Union will decide unanimously. The package is currently being examined by the European Parliament’s Committee on Economic and Monetary Affairs.

Changes to withholding taxes and interest deductions

Among the proposed changes is an expansion of withholding tax exemptions on dividends, interest and royalties paid between businesses in different EU member states.

This would be achieved through the removal of certain minimum ownership thresholds and holding-period requirements, potentially making it easier for companies to transfer income between related businesses operating across the bloc.

The proposal also introduces a new safeguard against double non-taxation for interest and royalty payments made to third countries.

Where the recipient is located in a jurisdiction that does not tax the relevant income, or applies a zero corporate income tax rate, the member state from which the payment originates would, under specific conditions, be required either to withhold tax on the payment or deny the corresponding tax deduction.

The proposed changes also affect rules limiting the deductibility of interest expenses.

The existing threshold of 30 per cent of earnings before interest, taxes, depreciation and amortisation (EBITDA) would become mandatory, alongside a compulsory €3 million safe harbour for the deduction of net borrowing costs.

The measures are intended to provide greater consistency in how businesses’ financing expenses are treated across the EU.

Common tax deduction for research and development investment

The package also proposes a common EU tax deduction for certain tangible assets used in research and development activities, in a move intended to encourage investment in innovation.

Businesses would be permitted to deduct the full cost of eligible expenditure, including facilities and machinery used directly for R&D, either in the tax year in which the expenditure is incurred or in one of the following four tax periods.

To qualify, the assets would have to be used exclusively for research and development activities for at least three consecutive years.

Member states would nevertheless retain the ability to maintain more favourable national tax provisions, allowing existing incentives to remain in place where they offer businesses greater benefits.

The proposed deduction forms part of the Commission’s broader effort to make the EU tax framework more supportive of investment while reducing the administrative burden on companies.

€6.6 billion in annual savings projected

The Commission’s impact assessment, cited by the EPRS, estimates that the proposed package could reduce compliance costs and related financial burdens by approximately €6.6 billion per year.

Of this amount, around €2 billion would come from recurring administrative cost savings.

The expected savings would arise from simplifying existing rules, reducing overlapping requirements and making the treatment of certain cross-border transactions more consistent.

However, the measures would not all take effect at the same time.

Most provisions are expected to apply from January 1, 2029, while certain changes would be introduced over longer transitional periods.

The mandatory €3 million threshold under the interest limitation rules is scheduled to take effect in 2032, while key changes to withholding tax exemptions are envisaged for 2037.

The extended implementation timetable reflects the need to allow businesses and national tax authorities to adjust to the revised framework.