A new tax simplification package, unveiled Wednesday by the European Commission, is designed to simplify EU tax rules and reduce compliance burdens for businesses.
The package, expected to save EU businesses around €8 billion annually, of which €3.3 billion in administrative costs, comprises of two proposals, the Taxation Omnibus and the Recast of the Directive on Administrative Cooperation (DAC).
This, says the Commission, will modernise the EU’s direct tax framework and strengthen the competitiveness of the Single Market while maintaining the existing strong level of protection against tax fraud, evasion and avoidance.
“Today’s simplification package sends a clear message: Europe is serious about competitiveness, making it easier for our businesses to grow, invest, and succeed on its soil”, said EU Climate Commissioner Wopke Hoekstra: “We are upholding high standards of tax transparency and fairness, and at the same time, we are decreasing the administrative burden and modernising our tax framework, saving approximately €8 billion.”
With the cumulative effect of successive legislative initiatives increasing complexity and compliance costs for businesses operating cross-border, the goal of the Tax Simplification Package is to simplify the ‘acquis’ in direct taxation, reduce unnecessary compliance burdens, enhance legal certainty, and facilitate cross-border activity in the internal market.
The Omnibus on Direct Taxation, it introduces key measures, such as:
- Simplifying cumbersome rules to improve the internal market: The Omnibus introduces an exemption from withholding tax on all cross-border payments of dividends, interest, and royalties between companies in the EU. By removing upfront procedural requirements and simplifying refund processes, the measure will facilitate financing, encourage investment, and enhance competitiveness. This measure alone should bring EU taxpayers savings and benefits of around €5.3 billion annually.
- Facilitating Financing: The Omnibus removes unnecessary restrictions on genuine third-party and market financing, making it easier for businesses to invest in the internal market. The Omnibus also simplifies the interest limitation rule in the Anti-Tax Avoidance Directive (ATAD) by eliminating implementation options and making the de minimis threshold mandatory. These changes will bring about compliance and administrative reductions amounting to over €500 million per year.
- Eliminating Duplication: The Omnibus removes overlapping provisions between the Controlled Foreign Company (CFC) rules and the global minimum tax (Pillar Two), reducing unnecessary complexity and overlaps. This measure should save businesses approximately €160 million in compliance costs annually.
The main objectives of the DAC recast proposal are to simplify, clarify and enhance the EU legal framework for administrative cooperation in the field of direct taxation. By bringing together the DAC and its eight amendments into one single legal text, the legislation is more user-friendly and coherent, thereby improving legal certainty.
The recast introduces some key measures, such as:
- Removing reporting obligations for certain cross-border arrangements: The recast removes reporting obligations for Multinational Enterprise (MNE) groups subject to the minimum 15% tax rate under Pillar 2 rules, generating compliance cost savings of around €300 million. It also eliminates reporting requirements for all other EU businesses for certain cross-border tax arrangements that provide limited added value for tax administrations, reducing reporting volumes by 35% and saving €40 million annually.
- Supporting the Circular Economy: The recast increases the reporting threshold for the online sales of goods, removing reporting obligations on over 10 million private sellers, particularly those selling second-hand goods. This measure delivers compliance cost savings of €678 million for digital platforms.
- Improving Taxpayer Identification: The recast introduces a new verification tool for taxpayer identification numbers, ensuring that tax administrations can efficiently and effectively identify all reported taxpayers.
The package will now be submitted to the European Parliament for consultation and the Council for adoption.
Executive Summary Impact Assessment of the Taxation Omnibus
Proposal for the Taxation Omnibus
