EU Taxation Omnibus and Recast of DAC

Direct Taxation Omnibus

Directives concerned and key amendments

1. The Interest and Royalties Directive (IRD – Directive 2003/49/EC)
The minimum shareholding requirement applicable to the concept of "associated companies" is removed, meaning that interest and royalty payments between companies within the EU may be exempted regardless of the shareholding. As a general rule, Member States may no longer require prior authorisation to verify whether the conditions for the exemption are met – eligibility is instead to be self-assessed by the taxpayer, subject to ex-post checks. A safeguard is introduced to prevent double non-taxation: the source state must either levy withholding tax or deny the right to deduct payments to recipients in jurisdictions that have no corporation tax or apply a zero tax rate.

2. The Merger Directive (TMD – Directive 2009/133/EC)
The definitions are aligned with Directive 2017/1132 to include "simplified mergers" and "divisions by separation", in order to ensure that the TMD remains fit for purpose. A new chapter on rules for cross-border reorganisations is introduced, including rules on the transfer of a company's registered office, to ensure that the principle of tax neutrality is applied.

3. Parent-Subsidiary Directive (PSD – Directive 2011/96/EU)
The proposal extends the scope of the Directive by removing the minimum shareholding requirement, meaning that dividends and profit distributions between companies within the Union may be exempted regardless of shareholding. The scope of the PSD is also extended to pension funds, regardless of their legal form.

4. The Anti-Tax Avoidance Directive (ATAD – Directive 2016/1164)
This is the area with the most extensive changes:

• R&D tax relief (new): A new chapter on R&D tax relief is introduced into the ATAD as a minimum standard, ensuring full deductibility for qualifying R&D expenditure (i.e. capital expenditure on machinery, equipment and tangible fixed assets used directly for R&D). Taxpayers may either deduct the qualifying expenditure immediately in the tax year in which it is incurred, or in any of the four subsequent tax years.
• Interest limitation rule: The 30% limit of EBITDA is made mandatory for all Member States, and loans from unrelated companies (third-party loans) are exempt from the rule provided they are used to finance the borrower's own operations. A downturn safeguard is also introduced, meaning that the interest limitation rule does not apply where a taxpayer's EBITDA falls by at least 50%. 
• CFC rules (controlled foreign companies): An exemption from the CFC rule is introduced for taxpayers subject to the Pillar 2 framework, as the objectives and effects of these rules largely overlap with the income inclusion rule. Further, an exemption for SME groups is introduced, and Model A is made the sole applicable method - the option to use Model B is removed.
• Hybrid rules: The rules on imported hybrid mismatches are removed from the ATAD, as their application has proved particularly complex for both taxpayers and tax authorities.
• General Anti-Abuse Rule (GAAR): The GAAR is explicitly broadened to cover all direct taxes to which companies are subject, including withholding taxes and top-up taxes under Pillar 2.

5. The Dispute Resolution Mechanism Directive (DRM – Directive 2017/1852)
The concept of "simultaneous submission" is replaced by a time limit of 30 calendar days, which addresses divergent national interpretations of the concept. A new Article 19a empowers the Council to adopt implementing acts containing binding technical and procedural rules to ensure the uniform and effective application of the Directive.

6. The FASTER Directive (Directive 2025/50)
The proposal adjusts the scope of FASTER to ensure that it covers refunds in connection with the IRD and the PSD.

Implementation and entry into force
Member States shall adopt the laws and regulations necessary to comply with the Directive by 31 December 2028 at the latest and shall apply the provisions from 1 January 2029. However, certain provisions shall apply from 1 January 2037 (including parts of the IRD and PSD amendments) and provisions on interest limitation from 1 January 2032. Adoption of the Directive requires unanimity in the Council under Article 115 TFEU, and the Omnibus proposal will now be submitted to the European Parliament for consultation and the Council for adoption
 

Recast of DAC 

DAC forms the EU's framework for administrative cooperation in direct taxation, but has been expanded incrementally through nine amending directives (DAC2–DAC9), resulting in a fragmented and complex body of rules with reduced legal clarity and predictability. The Commission also highlights that certain reporting and notification requirements generate large volumes of information with limited tax relevance — particularly in relation to DAC6, DAC7, and the notifications under DAC4/DAC9 — leading to disproportionate compliance costs for businesses. Structurally, the Commission proposes to consolidate DAC1 and all subsequent amendments into a single coherent legal act, combined with a package of targeted simplifications.

Five Key Changes 

1. DAC6 (Mandatory Disclosure Rules): Relief Exemption for Pillar 2 Groups
Companies within the scope of the Pillar 2 Directive are proposed to be exempt from DAC6 reporting. The exemption is justified on the basis that a minimum tax rate of 15% is expected to neutralise aggressive tax planning and that these MNE groups are already subject to close scrutiny by tax authorities. However, the exemption is narrow: it applies only where no benefit is granted to any group entity that reduces taxation below 15%.

2. Removal of Category A Hallmarks
The generic hallmarks in Category A are removed from Annex IV in order to reduce reporting that in practice provides limited added value. Guidance on the application of the Main Benefit Test (MBT) to the remaining hallmarks is part of the preferred package.

3. Extended Reporting Deadline and New Trigger Point
The start of the reporting period is linked to when the "first step in implementation" has actually been taken — for example, signing of an agreement that makes implementation irrevocable or legally binding. The deadline for intermediaries is proposed to be extended from 30 to 90 days, to allow for better quality and completeness of reporting.

4. Legal Professional Privilege (LPP) Clarified
The concept of legal professional privilege is defined in line with Court of Justice case law, limited to lawyers and other professionals who are legally authorised to represent clients before a court.

5. DAC4 + DAC9 (CbCR and Pillar 2 Notification): One Notification Instead of Duplication
The Commission seeks to streamline the notification requirements for MNE groups linked to DAC4 (country-by-country reporting) and DAC9 (central filing of top-up tax information returns). The preferred solution is a single notification obligation covering both, with a harmonised deadline, a common notification template, and central filing.

A "single notification" is submitted by a "filing constituent entity" on behalf of all EU entities in the group and is automatically shared with the relevant Member States within three months.

Timeline: Key Dates for the Diary
Certain simplification measures — including parts related to DAC6 and DAC7 — are to be transposed into national law by 31 December 2027 and applied from 1 January 2028. Other, more IT-intensive changes — including extended DAC1 availability, notification streamlining — are to be transposed by 31 December 2029 and applied from 1 January 2030.Adoption requires unanimity in the Council.
 

Deloitte comment

Positives

• Fewer data points to collect: Removal of ownership thresholds under the IRD/PSD eliminates the need to track and evidence participation levels across group structures.
• Fewer returns to file: A single DAC4/DAC9 notification replaces separate filings by each subsidiary; upfront authorisation procedures for WHT relief are abolished in favour of self-assessment with ex post controls.
• Fewer local analyses: CFC rules are deactivated for MNEs within scope of Pillar 2, removing the need for dual-track CFC/Pillar 2 computations..

Shortcomings

• Beneficial ownership remains unharmonised: Despite stakeholder calls for a common EU definition, the proposals leave beneficial ownership to be determined under each Member State's domestic rules — sustaining the need for local analysis and advisory support across jurisdictions.
• DAC6 carve-out is narrower than expected: The exemption is disqualified if any entity in the group benefits from a measure that allows taxation below 15%, requiring continued group-wide DAC6 monitoring even for largely compliant Pillar 2 groups.

What Should Businesses Do Now?

Map the impact on current processes: Groups should assess, sooner rather than later, how the proposals affect their existing compliance workflows — in particular around withholding tax procedures, CFC computations, CBCR/Pillar 2 notifications and DAC6 reporting. Where processes can be consolidated or eliminated, this should be scoped now so that internal teams are ready well ahead of the 2028–2030 implementation windows.

Identify opportunities to streamline: The proposals create a genuine opportunity to realign compliance delivery models — reducing duplication between Pillar 2 and legacy obligations, moving from pre-approval to self-assessment, and centralising reporting through single notifications. Groups should consider how these changes interact with their operating model and whether external advisory spend can be redirected or reduced.

Engage early and make your voice heard: The proposals are still in the legislative process and require unanimity — which means there is meaningful room to influence the final text. Businesses should engage through:

• Industry and representative bodies 
• Informal consultation channels with their national tax authorities
• Responses to any Commission follow-up consultations

Be specific about where the proposals fall short: Vague feedback is easy to dismiss. Businesses should articulate clearly where they continue to face difficulties — whether that is the absence of a harmonised beneficial ownership definition, the fact that the carve-out for external lending will not necessarily mean a relief where a group has an internal treasury function, or the breadth of the DAC6 carve-out condition. Concrete examples of compliance cost and operational friction carry weight in the legislative process and increase the likelihood that gaps are addressed before adoption.