Euro Tax Flash from KPMG's EU Tax Centre

On November 19, 2025, the European Commission published a report on the evaluation of Council Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC).

Whilst the report overall concludes that the DAC provides a robust and well-functioning legal framework, it also outlines the lessons learned from the evaluation exercise and points to a number of action points that the Commission intends to explore to further improve the functioning of the Directive. The report underscores the need to streamline and simplify the DAC as well to establish common EU guidance to ensure that the Directive is applied more consistently across all Member States. It also calls for stronger penalty regimes and improved processes to automatically reconcile DAC data with national data.

With respect to DAC6, the report highlights the EC’s intention to clarify and streamline current hallmarks while maintaining the integrity and objectives of the system. Furthermore, the report notes that the EC will assess the possibility of incorporating principles and concepts from the previous Directive proposal to prevent the misuse of shell entities for tax purposes (Unshell) into the mandatory disclosure rules.

On May 7, 2024, the European Commission (EC or Commission) launched a public consultation concerning Directive 2011/16/EU, on administrative cooperation (DAC). The consultation formed part of a comprehensive evaluation aimed at assessing the effectiveness, efficiency, and ongoing relevance of the DAC and its subsequent amendments (DAC2 to DAC6). Additionally, it sought to assess the Directive's alignment with other policy initiatives and priorities, as well as its contribution to the overall objectives of the European Union.

Interested parties were invited to submit their feedback until July 30, 2024. The EC received a total of 39 responses, including a response letter submitted by KPMG member firms in the EU – see Euro Tax Flash Issue 553. In addition, the European Court of Auditors (ECA) published a report on “Combatting harmful tax regimes and corporate tax avoidance” on November 28, 2024. Amongst others, the ECA report highlighted concerns in relation to an inconsistent interpretation and application of DAC6 rules, a limited use of DAC6 information by tax authorities, low quantity and quality of DAC6 reports and low levels of penalties for non-compliance with DAC6 obligations. The ECA report further provided recommendations to resolve the identified risks and called on the EC to address the recommendations by end of 2026 or end of 2027, respectively. For more details, please refer to E-News Issue 204.

On March 11, 2025, the ECOFIN Council adopted conclusions on a tax decluttering and simplification agenda with a view to contributing to the EU´s competitiveness. The Council's conclusions guide the European Commission on future tax initiatives, emphasizing the need for a reduction of administrative and reporting burdens, while maintaining efforts against tax fraud, evasion, and avoidance. The Council called on the Commission to review existing EU legislation to eliminate outdated and overlapping rules, particularly focusing on the DAC and the Anti-Tax Avoidance Directive (ATAD). The conclusions further called for clearer tax legislation and consistent application of EU tax rules, suggesting the development of guidelines in collaboration with the Member States. For more details, please refer to Euro Tax Flash Issue 558. 

On November 19, 2025, the European Commission published a report on the evaluation of the DAC (report). This represents the second evaluation of the DAC, covering the period from 2018 to 2023, which follows a first DAC evaluation conducted in 2018, with the results published in 2019.

The report is supported by an accompanying Commission Staff Working Document (SWD), which is based on the findings of an study conducted by a third party, the results of public consultations undertaken by the Commission, data provided by Member States and other inputs such as the outcome of relevant work undertaken under the Commission’s Fiscalis programme and the reports prepared by the ECA.

The overall conclusion of the report – based on the five Better Regulation criteria¹ – is that the DAC works effectively and efficiently, and the costs associated with it are commensurate with the benefits generated. Furthermore, the report finds that the DAC is broadly coherent, it has added value compared with national and international alternatives and it remains very relevant to achieving its objectives.

However, the report also outlines the lessons learned from the evaluation exercise and points to a number of action points that the Commission will explore or take, in consultation with relevant stakeholders, to further improve the functioning of the Directive. Key action items include:

According to the report, the EC aims to consolidate the various DAC amendments (DAC1 to DAC9) into a single cohesive text to improve clarity. In addition, the EC will consider action to enhance the coherence of the Directive by eliminating duplications, resolving inconsistencies, and potentially the removal or simplification of reporting requirements that may be unnecessarily burdensome. According to the report, the EC further intends to develop and publish common EU guidance on previous and future DAC amendments, in cooperation with the Member States to minimize inconsistent interpretation and application of the DAC by Member States.

With respect to the mandatory disclosure rules (MDRs) under DAC6, the report notes that the EC will review the need for potential amendments, particularly regarding the current hallmarks. In this context, the report refers to feedback received from private stakeholders, tax authorities, as well as the ECA, who have all highlighted challenges in interpreting the provisions of the MDRs. According to the feedback, these challenges lead to an inconsistent application of the rules, legal uncertainty and level playing field issues, which in turn increase the administrative burden associated with compliance with the rules. The report also refers to feedback from, primarily, business stakeholders who consider some of the DAC6 hallmarks to be no longer fit for purpose. According to the report, the EC’s intention is to clarify and streamline the current hallmarks, while maintaining the integrity and objectives of the system.

Furthermore, the report notes that the EC will assess the possibility of incorporating into the MDRs principles and concepts from the Directive proposal to prevent the misuse of shell entities for tax purposes (Unshell), which will be formally withdrawn within six months according to the EC 2026 work program – see E-News Issue 220.

According to the report, the EC intends to work together with Member States with a view to take stock of existing penalties regimes and to identify opportunities for improvement. The report notes that the EC considers it essential to have a robust penalties framework in place to ensure compliance with the reporting obligations under DAC2, DAC4 and DAC6.

In this context, the report refers to findings by the ECA highlighting the risk that the penalties applied by Member States do not create a sufficient deterrent effect to ensure full compliance with DAC2 and DAC6 reporting requirements.

The report notes that the EC plans to explore a more coordinated and automated approach for taxpayer identification at EU level to enable local tax administrations to reconcile DAC data received with national data. The EC aims to reduce administrative costs by helping local tax administrations to more efficiently process and use information received without the need to request or provide manual feedback to other Member States.

The report refers to a study recently launched by the EC to evaluate the legal and technical feasibility, as well as the costs and benefits, of introducing a common EU Taxpayer Identification Number (TIN) based on existing national identification numbers.

The report further proposes that the EC could explore developing a more centralized approach to the IT architecture used for DAC reporting and information exchange purposes. According to the report, this could involve moving from separate local IT systems to a single access point used by all Member States for exchanging and potentially also reporting information under the DAC.

The report further stresses that Member States are not effectively monitoring or publishing the outcomes resulting from the use of DAC data. According to the report, tax administrations should move towards a more systematic use of the DAC data received with a view to feeding the DAC data automatically into national risk analysis systems (in particular, with respect to DAC3, DAC4 and DAC6). In addition, the report identifies a need for binding performance indicators that can be used to measure and report the outcomes and impacts of the use of exchanged DAC data.

The evaluation provides insights into the upcoming DAC recast proposal, which is expected in the second quarter of 2026. In addition to the DAC recast, it is expected that the Commission will publish an Omnibus proposal in the second quarter of 2026 to amend multiple direct tax Directives. The Tax Omnibus is expected to include proposed changes to the ATAD, the Parent Subsidiary Directive, the Interest and Royalty Directive, and the Merger Directive.

Once published, it is expected that the EC will launch public consultations seeking feedback from interested stakeholders on the proposed changes to the Directives. Any changes to the Directives would require unanimous approval by EU Member States in the Council. 

Changes to DAC4 and DAC6

It remains to be seen whether the DAC recast will lead to a substantial reduction of reporting obligations with respect to DAC4 (Country-by-Country Reporting) and DAC6 (EU Mandatory Disclosure Rules), in particular due to the following considerations:

DAC4 / Country-by-Country Reporting:

DAC4 follows OECD Action Point 13 such that coordination with the OECD will be needed to achieve simplifications of the DAC4 reporting requirements.

In addition, according to the report, the DAC presents a positive cost-benefit ratio, where the costs associated with the DAC are commensurate with the benefits generated, with the largest share of benefits being attributed to DAC4.

Notably, the Staff Working Document stresses that the estimate of benefits is subject to larger uncertainties. According to the SWD, only a minority of Member States is able to track and monitor the tax benefits from the DAC, and the accuracy of the data could not be independently verified. Nevertheless, this raises the question whether all Member States are able to agree on making substantial amendments to DAC4 in light of the estimated tax benefits resulting from Country-by-Country Reporting information.

DAC6 / EU Mandatory Disclosure Rules:

The SWD notes that between a quarter and a third of Member States raised concerns relating to the uncertainty and divergent interpretations with respect to existing concepts (main benefit test) and hallmarks (A3, B2, B3, C4, E2 and E3). However, rather than amending the Directive, the SWD indicates that Member States favor establishing common guidance in close cooperation with the Commission.

The report further notes that the Commission will explore the feasibility of adding new hallmarks to the Directive, including substance criteria outlined in the former Unshell proposal.

In this context, the SWD indicates that a few Member States made a number of additional proposals for new hallmarks. This includes hallmarks targeting dividend stripping (hallmark B), conduit structures used for treaty or directive shopping, hybrid mismatches involving financial instruments, hybrid entities, and permanent establishments (hallmark C), transfers of intellectual property, transfer pricing mismatches, and profit allocation to permanent establishments (hallmark E). Proposals for new hallmarks further focus on structured real-estate arrangements using opaque entities, or potentially harmful arrangements based on the use of crypto assets. However, the SWD also notes that other Member States believe that – for the time being, no additional hallmarks are needed, as they still need time to become familiar with the existing hallmarks of DAC6.

Changes to penalty framework

Experience with discussions on specific levels of penalties shows that it achieving consensus among Member States on a revised penalty framework may prove to be challenging. Historically, Member States have generally agreed on penalties being effective, proportionate and dissuasive with discretion for countries to decide on the scope and levels of penalties. It should be noted that – with respect to DAC6 – penalties vary significantly between Member States ranging from, for example, a maximum of EUR 20,000 per year in Cyprus to a maximum of EUR 1,030,000 in the Netherlands (since January 1, 2024).