EU: Updates on tax initiatives in EC 2026 Work Programme
Unshell and transfer pricing directives withdrawn; EU digital services tax proposal still pending
Share
october 22, 2025
The European Commission (EC) on October 21, 2025, published its 2026 Work Programme, which includes updates on the following tax-related initiatives:
New initiatives
- Tax omnibus: Simplification proposals designed to address interactions between different pieces of EU legislation—in particular the Directive on Administrative Cooperation (DAC)—is expected to be published in the second quarter of 2026.
Withdrawn initiatives
- Rules to prevent the misuse of shell entities for tax purposes (Unshell): High-risk indicators proposed under this initiative may be incorporated into the DAC6 hallmarks as part of the tax omnibus project.
- Enhanced cooperation in the area of financial transaction tax (FTT): Proposed introduction of a tax on qualifying financial transactions withdrawn.
- Debt-equity bias reduction allowance (DEBRA): Proposed introduction of a new limitation on interest deductibility, which would need to be applied alongside the interest limitation rules under ATAD, abandoned for now.
- Transfer pricing directive: Proposed implementation of common transfer pricing rules into EU law may be replaced with creation of new EU transfer pricing platform aimed at determining consensus-based non-legally binding solutions to practical transfer pricing issues.
Pending proposals
- Business in Europe framework for income taxation (BEFIT): Common rules for determining the corporate tax base for EU-based entities that are part of a group with global consolidated revenues above a certain threshold.
- Head office tax system for micro, small and medium-sized enterprises (HOT): Proposal to allow certain EU-based standalone small and medium-sized enterprises (SMEs) that operate in other EU member states only through permanent establishments (PEs) to make a five-year election to determine the taxable results of the PEs according to the rules of the member state of their head office.
- EU digital services tax: Proposed coordinated approach to taxing revenues from certain digital services to avoid potential disparities arising within the EU as a result of the unilateral application of digital service taxes.
- Corporate taxation of a significant digital presence: Proposed introduction of a taxable nexus for digital businesses operating within the EU.