EU Tax Omnibus Directive

On 24 June 2026 the European Commission released the EU Taxation Omnibus Directive, alongside a recast of the Directive on Administrative Cooperation (DAC).

Together, the Omnibus Directive and recast propose some fundamental changes to several EU Directives, which, if accepted, will need to be transposed into local law of Member States.

The stated aim of the proposed measures is clear – simplification and reduction of administration for taxpayers e.g. reduction of inefficient reporting practices, duplicate reporting or measures which serve the same broad policy intent, particularly in the context of Pillar Two.

The packages include proposed changes to EU legislation which is particularly relevant to alternative asset managers, fund promoters and institutional investors e.g. interest limitation rules, anti-hybrid rules, the parent-subsidiary directive.

We have included a brief summary of the key relevant aspects below, together with our thoughts on possible impact and implementation considerations.

Philip Murphy

Partner, Head of Asset Management Tax

KPMG in Ireland

mail
call

Overview

The Omnibus Directive anticipates that Member States should adopt and publish legislation by 31 December 2028 to transpose the Directive into national law, with most provisions applicable from 1 January 2029 (albeit some measures are proposed to apply from either 1 January 2032 or 1 January 2037).

Omnibus Directive

1. Withholding taxes (WHT)

Current position

The Omnibus Directive proposals aim to address some of the conditions of the current Interest and Royalties Directive and Parent‑Subsidiary Directive which must be satisfied to make payments without WHT, namely:

The minimum holding requirements for withholding tax exemptions to apply (i.e. 25% shareholding for interest and royalties and 10% for dividends, with an optional 2 year holding period); and
Prior authorisation or administrative procedures for verifying that a taxpayer satisfies the conditions to qualify for a WHT exemption at the time of payment.

Proposed changes from 1 January 2037

Removal of the current minimum shareholding requirements which will allow qualifying EU companies to access WHT exemptions on interest, royalties and dividends regardless of participation level or holding period (subject to anti‑abuse rules).
Extension of the list of eligible companies that can access benefits under the Interest and Royalties Directive (which has a different implementation date to the equivalent measure under the Parent-Subsidiary Directive).
Broadening the scope of the Parent‑Subsidiary Directive to extend dividend WHT exemption to payments made to pension funds, irrespective of legal form and the fact that they are not “subject to tax”.
Removal of any prior authorisation or administrative procedures required before an exemption can be relied on – instead, taxpayers will have to instead self‑assess their entitlement to exemptions or reduced WHT, with tax authorities given authority to perform verification checks after WHT relief has been claimed. This proposed change is applicable to both the Interest and Royalties Directive and Parent‑Subsidiary Directive.

Proposed changes from 1 January 2029

Extension of the list of eligible companies that can access the Parent‑Subsidiary Directive (which is a different implementation date to the equivalent measure under the Interest and Royalties Directive).

Our initial thoughts

Removal of minimum shareholding requirement

WHT should not apply to all payments made by EU entities to eligible entities – this is a fundamental change the current status quo and should in theory allow for more flexibility when making investments across private credit, infrastructure and private equity strategies, as it opens the possibility of exemption for smaller (including 0%) shareholdings, in addition to more commercial flexibility in the context of voting and other rights.

However, the proposals reference that measures can be subject to anti-abuse rules e.g. local beneficial ownership requirements. Depending on implementation, this could lead to a scenario where there are more investment jurisdiction challenges and a fragmented approach where countries adopt local beneficial ownership rules or different interpretations of the concept, as is presently the case,
Eligible companies

Extending the list of eligible companies that can access the benefits of both the Interest and Royalties Directive and Parent‑Subsidiary Directive is a welcome development and serves to align the scope of the two Directives with company forms that are currently available in Member States.

Broadening the scope of the Parent‑Subsidiary Directive to pension funds is welcome and potentially opens the door for this exemption to also apply to other forms of tax-exempt vehicles (such as corporate funds).
Partnerships and non-corporates

A key practical implementation point will be how partnerships and other non-corporate forms are treated, particularly whether exemption at source will be able to apply in such cases or if they will need to avail of a refund mechanism (noting that there are proposals to make such mechanisms more streamlined).
Implementation

The 2037 implementation date is far from ambitious and unnecessarily delays much needed reforms. In our view, a 2029 start date for all changes should be the objective.

2. Safeguards against double non‑taxation

Current position

There is currently no harmonised measure across EU Member States which focuses on double non-taxation however certain jurisdictions have introduced unilateral measures in this context e.g. the Outbound Payment rules in Ireland.

Proposed changes from 1 January 2029

Introduction of a mandatory safeguard for outbound payments of interest and royalties to jurisdictions that do not levy corporate income tax or apply a nominal zero tax rate on the interest or royalty income.
Member States will be required to apply WHT or deny deductibility of interest or royalty payments where payments are made to entities in jurisdictions that do not levy corporate income tax or apply a nominal zero tax rate, in circumstances where no WHT is applied at source.
No similar safeguard measures have been proposed for dividends (or other distributions) as they are already taxed within the EU, either at the level of the paying company or the recipient company.
Carve‑outs are proposed to apply where the recipient is subject to a qualified top‑up tax under Pillar Two or forms part of a Multinational Enterprise group (i.e. where it is taxed under the EU Minimum Tax Directive or BEPS Pillar Two rules).

Our initial thoughts

Offshore corporate blocking

This change could have a fundamental impact on structures which have utilised Cayman or other offshore corporate blocking entities in the context of their broader fund structure – payments of interest to such vehicles have in most cases been workable to date however could now be impacted.

That said, the impact in Ireland is expected to be low given that Ireland has already implemented legislation in this regard (i.e. the Outbound Payment rules).
Zero-tax or low-tax jurisdictions

The concept of zero-tax or low-tax jurisdictions is not defined in the proposed measures, nor are there any specifics on treatment where there are fiscally transparent entities. The detail on both of these aspects will be important in assessing the possible impact on structures.

3. Interest Limitation Rules (ILR)

Current position

Tax deductible net borrowing costs are capped at the higher of 30% Earnings Before Interest Tax Depreciation and Amortisation (“EBITDA”) or a fixed monetary threshold, with certain exclusions available where conditions are satisfied.
Some Member States set lower stricter limits to the EBITDA threshold, such as the Netherlands (24.5%) and Finland (25%).
Member States can apply an optional de minimis safe harbour threshold of up to €3m. Most Member States adopted the €3m maximum safe harbour, however some implemented a lower amount (e.g. Netherlands and Italy).

Proposed changes from 1 January 2029
(with the exception of the safe harbour, which is proposed from 1 January 2032)

The 30% EBITDA limit on net interest deductions will be mandatory across all Member States.
The €3m safe harbour will be mandatory (with net interest expense of up to €3m being deductible), with an automatic annual adjustment of the €3m threshold based on inflation.
Exclusion of third‑party loans from the scope of the ILR provided the borrowed funds are used for the borrower’s own economic activity. It is currently unclear whether funds which are used for intragroup lending will qualify for exclusion and the position where there is a fiscal unity or ILR group is similarly unclear.
The proposed measures introduce several exclusions and targeted adjustments to the application of the ILR, including an update to the definition of “financial undertaking” to align with recent EU financial regulatory frameworks including MiFID II and regulations for AIFM and UCITS.

Our initial thoughts

Third-party debt

The proposed changes are generally favourable and will result in greater harmonisation across the EU however the exclusion for third-party debt would potentially not apply to a number of different structures if the borrower is required to use the funds for “own activity”.

Many private equity or infrastructure structures involve a single entity (or entities) which borrow and on-lend to underlying SPVs for acquisition purposes. It will therefore be important to monitor the specific legislation in this regard as it is negotiated by Member States, particularly how the concept of “own activity” is construed, in addition to how the exclusion operates where there is a fiscal unity or ILR group in place.
Investment focus areas

Certain changes to the rules may open up new investment focus areas for managers. For example, the long-term public infrastructure exclusion is proposed to be extended for certain qualifying defence sector investments.
Financial undertakings

The amendment to the list of “financial undertakings” (which are currently exempt from the rules) could impact some existing structures which rely on entities being regarded as a financial undertaking (e.g. AIFs).

4. Other considerations

The draft Omnibus Directive includes a number of other proposals which might be relevant to some structures or strategies:

Modernisation of the Tax Merger Directive to better match current EU company law and common group restructuring practices.
While not specific to the asset management sector, introduction of an EU wide R&D allowance as a minimum standard. A key feature of the proposal is to allow full deductibility of qualifying R&D expenditure (including specified capital costs). The proposed measures should not preclude the application of domestic provisions that allow for a more favourable tax deduction.
Exempt taxpayers that are subject to Pillar Two and Small & Medium Enterprises from Controlled Foreign Company (CFC) rules mandated by ATAD 1, whilst mandating a specific approach to CFC rules (which would necessitate a different model than is currently used in some jurisdictions).
Removal of the imported mismatch concept from the anti-hybrid rules.
Improvement of the cross‑border tax dispute resolution by addressing practical challenges in its application.
Extension of the FASTER Directive to require fast-track procedures to apply on a mandatory basis to refund claims in respect of income qualifying for WHT exemptions under the Interest and Royalties Directive and the Parent-Subsidiary Directive.

DAC recast

Alongside the Omnibus Directive, the recast Directive on Administrative Cooperation (DAC) proposes to consolidate previous DACs into a single instrument, whilst also amending certain aspects of a number of DACs, clarifying definitions, procedures and timelines for administrative cooperation.

Many of the DACs in scope will be less relevant to asset managers however changes proposed to DAC 6, which requires mandatory disclosure of certain cross-border tax arrangements, may be of interest.

The key changes proposed in this regard are:

Reporting requirements

A carve out from the reporting requirements for entities that are subject to Pillar Two;
Hallmark A

Removal of Hallmark A, which relates to confidentiality, arrangements with standardised documentation / structures or where the fee is contingent on a tax advantage;
Reporting period

Extension of the reporting period from the current 30 days to 90 days, with the reporting period only commencing once the first step in implementation has been made;
Reportable cross border arrangements

Clarification on the meaning of reportable cross border arrangement to ensure that only arrangements which are implementable; and
Professional privilege

Certain changes to the legal professional privilege concept

There was some speculation that the recast of DAC 6 would include mandatory reporting related to circumstances where there is a lack of substance, in lieu of the measures proposed by the previously mooted (but now defunct) ATAD 3 (“unshell”) proposals.

There is nothing on substance included in the specific changes to DAC 6 which are proposed however it will be necessary to monitor any developments in this regard through the negotiation process.

How KPMG can support you

If you would like to discuss what the EU Taxation Omnibus Directive and DAC recast could mean for your fund structures or broader business, please contact your usual KPMG contact or any of the team below: