Euro Tax Flash from KPMG's EU Tax Centre

On June 24, 2026, the European Commission published a Tax Omnibus proposal aimed at simplifying EU tax rules, reducing compliance burdens for businesses, and strengthening the competitiveness of the Internal Market.

Key proposed updates include:

• Parent-Subsidiary Directive / Interest & Royalties Directive: Removal of holding requirements – broad withholding tax exemption for intra-EU dividends, interest and royalties between eligible companies, withholding tax relief on dividends paid to pension institutions.
• ATAD: Introduction of EU-wide R&D allowance, changes to Interest Limitation Rules (e.g., mandatory deductibility threshold of 30 percent tax EBITDA, EUR 3 million de-minimis safe harbor made mandatory, exclusion for qualifying third-party debt, exclusion for public benefit projects and defense sector), carve out from scope of CFC rules for groups in scope of Pillar Two and SMEs, mandatory application of categorical passive-income approach for CFCs, extension of the scope of the GAAR to withholding tax and Pillar Two top-up taxes, and removal of rules on imported mismatches.
• Dispute Resolution Directive: Clarification of the scope, simplification of the complaint process, clearer rejection grounds with safeguards (e.g., 30-day remedy period), earlier taxpayer notification requirement if no agreement is reached, extension of the scope to include admissibility issues, and simplified filing mechanism for SMEs and individuals.
• Merger Directive: Alignment of scope with recent EU company law developments (to include simplified mergers and divisions by separation), and extension of tax neutrality to cross-border conversions. 

On March 11, 2025, the ECOFIN Council adopted conclusions setting a tax decluttering and simplification agenda with a view to contributing to the EU’s competitiveness. The conclusions represent the Council’s views and aim to guide the European Commission (EC) on possible upcoming initiatives in the field of taxation, in the context of improving the EU’s competitiveness and reducing administrative and reporting burdens.

With respect to existing EU legislation, the Council conclusions called on the EC to reduce reporting, administrative and compliance burdens and eliminate outdated and overlapping rules by reviewing pieces of EU law that aim to achieve similar objectives and could therefore be considered redundant. The Council conclusions further proposed increasing the clarity of tax legislation and adopting a more consistent approach to the application of EU tax rules, for example by developing guidelines in close cooperation with Member States, where relevant.

On February 16, 2026, the EC launched a call for evidence on an “Omnibus on taxation”. The objective of the Tax Omnibus initiative is to simplify the existing EU direct taxation legal framework and boost competitiveness in the internal market, without undermining the objectives of the existing corporate tax Directives. The Tax Omnibus includes the review and potential amendment of several key EU direct tax directives – notably the Anti‑Tax Avoidance Directive (ATAD), the Parent‑Subsidiary Directive (PSD), the Interest and Royalties Directive (IRD), the Merger Directive (TMD) and the Directive on Tax Dispute Resolution Mechanisms (DRM). Interested parties were invited to submit their feedback by March 30, 2026. The EC received a total of 117 responses, including a response letter submitted by KPMG member firms in the EU.

For more information, please refer to Euro Tax Flash Issue 577.

Interest and Royalties Directive (IRD)

The Interest and Royalties Directive (IRD)¹ aims to eliminate the double taxation of cross-border intra-group interest and royalty payments. The IRD abolishes withholding taxes on royalty and interest payments levied by the EU source country, provided that the beneficial owner of the payment is an associated company in another Member State or a permanent establishment situated in another Member State. Two companies are regarded as “associated companies” where one company holds a direct participation of at least 25 percent in the capital of the other, or where both companies are held through a direct participation of at least 25 percent by the same shareholder². Member States have the option of not applying the Directive where the conditions for exemption have not been maintained for an uninterrupted period of at least two years. In addition, Member States may apply administrative or prior authorization/certification procedures to verify a priori whether access to the exemption from withholding tax should be granted.

The Omnibus proposes a number of changes aimed at broadening the scope as well as simplifying the procedural requirements for obtaining the withholding tax exemption, as outlined below:

Broader scope:

• Removal of the reference to associated companies: The proposal removes the existing association and holding requirements (i.e., minimum percentage and minimum duration of the holding). As a result, interest and royalty payments between companies established in the EU could qualify for the withholding tax exemption regardless of the level of participation held and the duration of the shareholding, provided the entities involved take one of the forms listed in the Directive, are subject to one of the taxes listed and the recipient is the beneficial owner of the payment.
• No changes to key definitions or the beneficial ownership requirement: The proposal does not amend the requirement that the recipient of the payment must be the beneficial owner of the interest or royalties. Likewise, no changes are proposed to the definitions of the terms ‘interest’ and ‘royalties’, which would remain unchanged.
• Clarifications with respect to permanent establishments: The proposal clarifies that the IRD applies to payments that represent an expense incurred in connection with the activities of a permanent establishment, irrespective of whether those payments are tax-deductible in the Member State in which the permanent establishment is situated.
• Extending the list of eligible companies (legal form): The proposal updates the list of company forms that can benefit from the Directive (included in the Annex to the Directive), to ensure that all entities which, by their nature, should fall within the scope of the Directive are explicitly covered. Additions include companies incorporated as a European Company (SE) and a European Cooperative Society (SCE), as well as several additional company forms in a number of Member States
• The Omnibus includes a proposal to empower the EC to adopt delegated acts to further amend the Annex, to encompass other company forms that may be constituted under national law in Member States or under EU law in the future. 

New safeguard clause:

• The proposal requires Member States to ensure that interest and royalty payments are subject to taxation at least once. Therefore, where the recipient of the payment is established³ in a non-EU jurisdiction that does not levy corporate income tax or applies a nominal zero tax rate to interest and royalty income, the Member State of the payer would be required to either levy a withholding tax on the payment or deny its deductibility.
• This protective measure would not apply where the recipient, for that tax period, is subject to a qualified domestic top‑up tax (QDMTT – subject to additional conditions), or is part of an MNE Group that is subject to the Pillar Two rules, unless the UPE of that MNE Group is located in a jurisdiction with a qualified side-by-side regime for the tax period⁴.

Streamlined relief procedure:

• No prior authorization / administrative procedures to verify eligibility: Under the proposal, Member States would no longer be allowed to require any prior authorization or administrative procedure for verifying whether the conditions for the withholding tax exemption are fulfilled at the time of payment⁵. According to the Explanatory Memorandum and the Preamble to the Directive, eligibility will instead be self‑assessed by the taxpayer, with ex post controls to be applied by each Member State in light of national anti‑abuse rules, including with regard to beneficial ownership.
• Refund claims: In cases where the paying company cannot determine in advance whether the conditions for the application of the exemption have been met by the recipient (for example, in the case of portfolio holders of securities held in nominee accounts), one of the following two procedures would apply:
  • In the case of interest payments in scope of the FASTER Directive⁶ (i.e., interest from publicly traded securities), Member States would be required to apply the fast-track refund procedures under FASTER.
  • In all other cases, the standard refund procedure provided under the current version of the IRD remains applicable.

Parent Subsidiary Directive (PSD)

The Directive currently eliminates double taxation of qualifying intra-EU profit distributions by exempting these payments from withholding tax in the Member State of the subsidiary and by eliminating taxation of such income at the level of the parent company (participation exemption or relief by credit).

The withholding tax relief is only available if the parent company has a minimum holding of 10 percent in the capital of its subsidiary and both entities take one of the forms listed in the Annex to the Directive⁷. Similar to the IRD, Member States may apply an additional requirement for the holding to be maintained for an uninterrupted period of at least two years.

The Omnibus proposes the following substantive and procedural amendments to the Directive, which would be renamed to reflect its expanded scope as the Council Directive on a common system of taxation applicable to dividends and other profit distributions between companies of different Member States:

Broader scope:

• Removal of the shareholding threshold and minimum holding period requirement: The proposal removes the minimum shareholding requirement, as well as the option for Member States to require a minimum holding period of up to two years. As a result, in line with the proposed changes to the IRD, dividends and other profit distributions between companies within the EU may benefit from the WHT exemption and participation exemption irrespective of the level of participation and the duration of the shareholding (subject to the condition related to the eligible company forms and the subject to tax condition).
• Withholding tax exemption extended to payments to pension funds: The proposal extends the scope of the Directive to cover withholding tax exemptions for payments made to pension institutions⁸ irrespective of their legal form and by way of derogation from the subject‑to‑tax condition.
• Extending the list of eligible companies (legal form): The proposal updates the list of company forms that can benefit from the Directive in the Annex, to ensure that all entities which, by their nature, should fall within the scope of the Directive are explicitly covered. In addition to the above, the revised list removes the residual clauses referring to “other companies subject to corporate tax” (or equivalent wording) that were included in the initial version for some Member States. As a result, Annex I Part A now generally contains an exhaustive list of qualifying legal forms. The United Kingdom has also been removed from the list.
• The Omnibus includes a proposal to empower the EC to adopt delegated acts to further amend the Annex to encompass other company forms that may be constituted under national law in Member States or under EU law in the future.

Non-deductibility of management costs:

• The preexisting option for Member States to deny deduction of charges relating to the holding or losses connected with the distribution of profits (management costs) is limited to cases where there is a minimum participation of 10 percent, and therefore management costs are actually incurred.

Streamlined relief procedures:

• Similar to the IRD, the proposal prohibits Member States from requiring prior authorization or imposing an administrative procedure for verifying whether the conditions for the exemption are fulfilled at the time of payment. According to the Explanatory Memorandum and the Preamble to the Directive, eligibility will be self‑assessed by the taxpayer, subject to ex post controls and the application of anti‑abuse rules. 

Refund claims: Similar to the IRD, the proposal amends the refund procedures available in cases where relief at source was not applied by the paying company at the time of payment, but the substantive conditions for exemption are nevertheless met. In such cases, the proposal addresses the procedural rules in two different ways, depending on the situation:

• In the case of dividend payments in scope of the FASTER Directive⁹ (i.e., dividends from publicly traded securities), a new provision is proposed, which requires Member States to apply the fast-track refund procedures under FASTER for the reimbursement of the excess tax.
• In all other cases, a standard refund procedure would apply, similar to the IRD. Member States would be required to allow taxpayers to submit the refund request for the excess tax in a period that must run for at least two years after the date when the dividends were paid. The source Member State must repay any excess tax within one year of receiving a complete claim and the supporting information.

Merger Directive

The Tax Merger Directive (TMD) provides for the deferral of taxation of capital gains arising from reorganizations involving companies of different Member States until the actual disposal of the underlying assets. Reorganizations currently in scope of the TMD include mergers, divisions, partial divisions, transfers of assets and exchanges of shares.

The Explanatory Memorandum to the Omnibus notes that the current scope of the TMD no longer fully reflects recent developments in EU company law. In particular, Directive 2017/1132 relating to certain aspects of company law, as amended by Directive 2019/2121, introduced new forms of cross-border reorganizations that are not covered by the existing TMD framework. The draft therefore proposes the following amendments to the TMD:

• Aligning the scope of the TMD with developments in EU company law, by:
  • updating the definition of “Merger” in the TMD to include “simplified merger”, which occurs when one or more companies are dissolved and transfer all their assets and liabilities to another existing company, without issuing new shares, provided that ownership remains the same, and
  • updating the definition of “Division” to include “division by separation”, which occurs when a company transfers part of its assets and liabilities to one or more other companies in exchange for shares in the recipient company. The proposal further complements the existing framework by introducing a new chapter on tax neutrality rules for cross-border conversions, thereby expanding its scope beyond the previous coverage, which was limited to European Companies (SE) and European Cooperative Societies (SCE).
• With respect to cross-border conversions, the proposal includes an exemption from taxation of capital gains at the level of the converting company in the departure Member State (both now defined through proposed changes to the TMD), provided that:
  • The company remains tax resident in that Member State or the assets and liabilities remain effectively connected to a permanent establishment therein and continue to be subject to tax.
  • The tax continuity is preserved, with assets and liabilities maintaining their existing tax values and depreciation rules as if the conversion had not occurred.
  • Existing tax attributes are retained, including the carry-over of reserves and provisions and the preservation of loss carry-forward and carry-back (subject to conditions); and
  • No taxation occurs at shareholder level at the time of conversion, without prejudice to taxation upon subsequent disposal of shares.
• The proposal updates the list of company forms covered by the TMD and adjusts related provisions accordingly. The Omnibus includes a proposal to empower the EC to adopt delegated acts to further amend the Annex to encompass other company forms that may be constituted under national law in Member States or under EU law in the future.

Anti-Tax Avoidance Directive

The ATAD establishes a common EU framework of anti-avoidance rules, including provisions on interest limitation, exit taxation, controlled foreign companies (CFCs), hybrid mismatches and a general anti-abuse rule (GAAR), introduced through two directives: ATAD I (Council Directive (EU) 2016/1164), which builds on the OECD BEPS initiative to harmonize anti-avoidance measures across Member States, and ATAD II (Council Directive (EU) 2017/952), which further expands the hybrid mismatch rules, including those involving third countries.

The current ATAD framework combines minimum standards under which Member States may apply stricter rules (e.g., applying a stricter interest limitation than the 30 percent EBITDA threshold) with areas offering design choices (e.g., the choice between two CFC models) and optional provisions or exemptions (e.g., group ratio and equity escape rules, standalone entity exclusions, or exclusions for certain loans and infrastructure projects). For more details on how Member States have implemented the provisions of the ATAD, please refer to a report prepared by KPMG’s EU Tax Centre: ATAD Implementation Overview 2024.

The preamble of the Omnibus proposal notes that the results of the ATAD evaluation highlighted that discrepancies in key concepts and definitions, as well as the coexistence of different models and options in the ATAD, have resulted in fragmentation of the EU legal framework for taxation, legal uncertainty for taxpayers and increased compliance burdens. In addition, the preamble notes that, in light of Pillar Two implementation in the EU, the ATAD should be adjusted to avoid overlaps and redundancies in scope, objectives and effects, including situations of double taxation and duplicative reporting obligations resulting from the coexistence of the two frameworks.

In addition, the preamble to the proposal highlights the importance of promoting investment in research and development (R&D) across the internal market in order to support innovation and facilitate the green and digital transition. It also points to a fragmented landscape of national R&D tax incentives and the absence of a common minimum level of support across the EU, which, according to the EC, may distort investment decisions and place the EU at a competitive disadvantage compared to major trading partners. According to the preamble, this should be addressed by introducing a common framework in the ATAD for the tax treatment of certain R&D expenditure.

Against that background, the draft proposes the following amendments to the ATAD:

EU-wide R&D allowance

The draft proposes the introduction of an EU‑wide R&D allowance, as a minimum standard. Key features include:

• Full deductibility of research and development (R&D) qualifying expenditure (i.e., capital expenditure on plant, machinery and tangible assets used directly for R&D or to support R&D facilities). The proposal defines R&D activities as consisting of: i) basic research: experimental or theoretical work undertaken primarily to generate new knowledge, without a specific practical application in view; ii) applied research: original investigation undertaken to generate new knowledge for specific practical objective, and iii) experimental development: systematic work, drawing on knowledge gained from research and practical experience to develop or improve products or processes. Taxpayers can either immediately deduct qualifying expenditure in the tax period in which it is incurred or deduct it over any of the four subsequent tax periods.
• Qualifying expenditure must be used for R&D for a minimum of three years, ensuring that the measure supports genuine R&D activity. Recapture rules are introduced for situations where the assets are disposed of, demolished or cease to be owned, leading to the withdrawal of the allowance and potentially to balancing charges.
• The proposal further requires adjustments to be made to the calculation of EBITDA under the Interest Limitation Rule, to ensure that the new R&D allowance does not decrease the taxpayer’s EBITDA and therefore negatively impact the level of interest available for deduction.

As a result, the draft Directive proposes to change the name of the ATAD to ‘Council Directive […] laying down rules on the tax treatment of research and development expenditure and against tax avoidance practices that directly affect the functioning of the internal market’.

Interest Limitation Rules (ILR)

With respect to the Interest Limitation Rules, the following amendments are proposed:

• EBITDA threshold: The proposal makes the 30 percent EBITDA amount mandatory, disallowing Member States from setting lower thresholds to reduce the deductibility of exceeding borrowing costs. In order to address the procyclical effect of the interest limitation rule, the proposal provides that the interest limitation would not apply to a taxpayer whose EBITDA is reduced by 50 percent in a given tax year.
• Exclusion of third-party loans: The proposal excludes from the scope of the interest limitation rule third-party loans, reflecting the view that BEPS risks primarily arise from intra-group debt, subject to the condition that they are used to fund the borrowing taxpayer’s own activities. However, a third-party loan would not qualify where it is used by the borrowing taxpayer for on‑lending within the group or where the loan is used (directly or indirectly) to fund capital or other equity contributions within the group.
• De-minimis threshold: The proposal makes the de-minimis EUR three million minimum threshold. In addition, the proposal introduces an automatic annual adjustment of the threshold based on inflation. The proposal removes the option to exclude standalone entities, which the EC considers redundant in light of the third-party loan exclusion and the increased de-minimis threshold.
• Exclusions: The proposal introduces several exclusions and targeted adjustments to the application of the interest limitation rule:
  • Group escape rule: The proposal makes the group escape rule (full deduction of exceeding borrowing costs if the taxpayer’s level of leverage is aligned with that of the group, subject to conditions) mandatory, to address the concerns of capital-intensive sectors which are highly leveraged for legitimate reasons.
  • Infrastructure and public-benefit projects: The proposal broadens the scope of the optional long‑term public infrastructure project exclusion to cover a broader range of public‑benefit projects¹⁰.
  • Other excluded sectors/projects: The proposal introduces a mandatory temporary exclusion for the defense sector for investments initiated in the first five tax periods following January 1, 2029¹¹.
  • Definition of the term ‘financial undertakings’: The proposal updates the definition of “financial undertakings” to align with recent EU financial regulatory frameworks, including MiFID II, AIFM, UCITS and related legislation. This is relevant for determining the scope of entities that may benefit from specific treatments or exclusions under the ILR.
• Carry-forward rules: The proposal requires Member States to allow the carry‑forward without time limitation of non-deductible exceeding borrowing costs and unused interest capacity. It would remain the Member States’ choice to also provide rules to carry back non-deductible exceeding borrowing costs, for a maximum of three years.
• Diverging rules: a new provision is introduced with the aim of preventing Member States from maintaining or adopting national rules within the scope of the IRL article that diverge from the rules laid down in the Directive.

CFC Rules

With respect to the CFC rules, the following amendments are proposed:

• The proposal introduces an exemption from CFC rules for taxpayers subject to Pillar Two. This reflects the fact that the objective and effects of CFC rules and of the Pillar Two income inclusion rule (IIR) substantially overlap, as both aim to ensure that low-taxed income earned through foreign subsidiaries is subject to a minimum level of taxation at the level of the parent. In particular, the Pillar Two regime achieves this outcome through a minimum effective tax rate of 15 percent applied on a broad income base, covering both passive and active income, while CFC rules typically target low-taxed passive income.
  
  
  • As a result, applying both sets of rules in parallel would not only duplicate their policy function but may also lead to:
    • Economic double taxation, as the same income could be taxed under CFC rules and then again through a top-up tax under Pillar Two IIR; and
    • Significant compliance burdens, as taxpayers would need to perform overlapping calculations, tracking similar income bases under two distinct regimes.
  • To address these issues, the proposal provides a carve-out for groups subject to Pillar Two. However, this carve-out does not apply in specific cases where Pillar Two may not fully ensure effective taxation, notably where:
    • the group is headquartered in a jurisdiction which operates a qualified ‘Side‑by‑Side’ regime, meaning that the IIR is not applied at group level; and
    • the low‑taxed CFC is not subject to a Qualified Domestic minimum top-up tax (QDMTT) or where a refund or direct or indirect financial benefit is granted in relation to a QDMTT that the taxpayer is subject to.
• The proposal introduces an exemption from the CFC rule for small and medium‑sized groups¹². This reflects their limited exposure to BEPS risks and the fact that CFC rules are rarely triggered for SMEs, meaning their application can create disproportionate compliance and administrative burdens.
• The proposal makes Model A (categorical passive-income approach) mandatory, deleting the option to implement CFC rules by applying Model B. This aims to reduce fragmentation and improve legal certainty, as the coexistence of two models has led to divergent implementation across Member States. Based on the Preamble to the Proposal, the Commission considers that Model A is more effective and easier to administer, while Model B overlaps with transfer pricing rules and offers limited added value in practice.
• The proposal requires Member States to introduce the exemption to exclude from their scope entities or permanent establishments where one third or less of the income accruing to the entity / PE is derived from passive income categories. Similarly, Member States are required to introduce the exemption to exclude financial undertakings where one third or less of the passive income from the entity / PE is derived from transactions with the parent entity / head office or its associated enterprises.
• The Omnibus introduces a new provision with the aim of preventing Member States from maintaining or adopting national rules within the scope of the CFC article that diverge from the rules laid down in the Directive.

General Anti-Abuse Rule (GAAR)

The proposal updates the scope of the GAAR by referring broadly to tax liability instead of corporate tax liability. According to the Preamble, this aims to clarify that the GAAR applies to all taxes to which companies are subject, in particular withholding taxes and Top‑up Taxes resulting from the Directive (EU) 2022/2523 (EU Minimum Tax Directive).

Hybrid mismatch rules

In order to simplify hybrid mismatch rules and ensure their proportionality, the proposal removes rules on imported mismatches from the ATAD¹³ (i.e., denial of deduction to the extent that a payment directly or indirectly funds expenditure that results in a hybrid mismatch between EU and non-EU associated enterprises).

Dispute Resolution Mechanism (DRM) Directive

The DRM lays down rules for the swift and effective resolution of disputes related to the interpretation of tax treaties, covering cases of double taxation affecting both businesses and citizens. The Explanatory Memorandum notes that the proposed amendments aim to enhance the effectiveness, consistency and accessibility of dispute resolution procedures across the EU, while reducing administrative burdens and addressing divergent interpretations among Member States. For further practical insights on the functioning of the DRM, please refer to a recent publication from KPMG Meijburg & Co: Insights from recent KPMG survey: Key conclusions on the EU Arbitration Directive

The following amendments to the DRM are proposed:

• Clarification that where the taxation of more than one person is directly affected by the same question in dispute, each such person qualifies as an “affected person” for the purposes of the Directive. This addresses a gap under the current framework, where it is not explicitly clear whether all taxpayers impacted by a single cross-border dispute (e.g., transfer pricing adjustments) have independent access to the dispute resolution mechanism.
• Several amendments are introduced to clarify and simplify the complaint stage, including:
  • In cases involving multiple affected persons, Member States shall allow either each person to file a complaint individually or one person to file on behalf of all, in order to avoid multiple filings and reduce administrative burdens. Under the current version of the DRM, each affected person must submit a complaint simultaneously to all competent authorities with consistent information, which can result in duplicative filings and administrative complexity in multi-entity cases.
  • The concept of “simultaneous submission” previously included in the Directive is replaced with a 30-calendar-day submission window. Currently, the Directive requires complaints to be submitted “simultaneously” to all concerned Member States, but this concept is not clearly defined and has been interpreted differently in practice, ranging from submission on the same day to more flexible timing. The proposed 30-day window provides greater certainty by allowing each affected person to submit the complaint to the competent authorities of the Member States within 30 calendar days from the first filing.
• Competent authorities would be required to inform the taxpayer without delay where no agreement can be reached, rather than wait for the expiry of the two-year mutual agreement procedure (MAP) period, which is currently the case.
• The grounds for rejecting a complaint are clarified, including cases where the complaint lacks essential information, does not relate to a question in dispute, is submitted outside the applicable time limits, or is not filed in the required language or with consistent information across all competent authorities.
• At the same time, safeguards are introduced, including a 30-day period to remedy deficiencies and the possibility of resubmitting a complaint provided it is lodged within the three-year period prescribed by the Directive.
• The proposal requires competent authorities to raise any objection relating to an independent person of standing¹⁴ no later than the moment when the final decision is agreed by all competent authorities and provides that objections raised after that point have no effect on the agreed decision.
• The scope of the arbitration commissions is extended to include disputes relating to the admissibility of complaints. Under the current Directive, such commissions are generally limited to resolving the substantive question in dispute (i.e. the double taxation issue), while decisions on the admissibility of complaints (e.g. whether a complaint meets the required conditions) are taken by the competent authorities of the Member States concerned. The proposed change would therefore allow disputes on admissibility to also be reviewed at commission level, strengthening taxpayer safeguards and ensuring a more consistent approach across Member States.
• It is clarified that qualification requirements apply only to independent persons of standing and not to representatives of competent authorities.
• The proposal provides that other dispute resolution procedures are suspended upon submission of a DRM complaint and terminated only once the complaint has been accepted by all competent authorities.
• The proposal requires the EC to evaluate the functioning of the Directive by December 31, 2030 and every five years thereafter, and requires Member States to provide yearly statistical data to the EC. The Commission would be empowered to adopt implementing acts defining the data to be reported, as well as the format and conditions for its communication, with such data to be published in anonymized form.

FASTER Directive

The Explanatory Memorandum to the Tax Omnibus acknowledges that, although the proposal extends the withholding tax exemptions under the PSD and the IRD, practical challenges may arise where securities are held through financial intermediaries and nominee accounts. In such cases, the paying company often lacks sufficient information on the identity of portfolio investors to determine, at the time of payment, whether the conditions for the exemption under the PSD or the IRD are met. As a result, exemptions cannot be applied at source and recourse to refund mechanisms remains necessary. Recourse is therefore made to the procedures laid down in the FASTER Directive (Council Directive 2025/50 on faster and safer relief of excess withholding taxes), which introduces a harmonized EU framework aimed at improving the efficiency of withholding tax relief procedures on cross-border investment income¹⁵.

The Directive seeks to reduce administrative burdens, improve legal certainty for investors, and strengthen safeguards against tax abuse. Under the current text of the FASTER Directive, Member States are allowed to exclude from the fast-track procedures cases where a full exemption is claimed. To address this limitation in the context of the proposed changes to the PSD and IRD, the proposal amends the FASTER Directive to require fast-track procedures to also apply, on a mandatory basis, to refund claims in respect of income qualifying for withholding tax exemptions under the PSD and the IRD, provided the payments would also fall within the scope of FASTER.

The legal basis for the EC’s Tax Omnibus proposal is Article 115 of the Treaty on the Functioning of the EU (TFEU), which requires unanimous approval in the Council, following non-binding opinions by the Parliament and any relevant Committees.

According to the roadmap to achieve ‘One Europe, One Market’, the European Parliament, the Council of the EU and the European Commission have set a target to agree on the Tax Omnibus proposal by Q4 2027.

The EC proposes that Member States should transpose the Tax Omnibus proposal into domestic law by December 31, 2028, and that the provisions of the Directive should apply as of January 1, 2029. However, Member States will only be required to apply certain amendments starting with:

• January 1, 2037, for a significant number of amendments to the PSD and the IRD. This later application date covers the removal of the shareholding threshold and minimum holding period requirements under both Directives, the extension of the PSD withholding tax exemption to payments made to pension funds, the introduction of streamlined withholding tax relief procedures under both Directives, and the IRD protective clause targeting payments to non-EU jurisdictions that do not- levy/apply a zero corporate income tax on interest/royalty income;
• January 1, 2032, for the changes to the de minimis threshold related to the IRL under ATAD.

Should you have any queries, please do not hesitate to contact KPMG’s EU Tax Centre or, as appropriate, your local KPMG tax advisor.

Against this backdrop, we invite you to join KPMG’s EU Tax Centre’s June 29 webcast, where we will:

• Unpack the Commission’s proposals.
• Consider the wider EU tax policy context, including interactions with Pillar Two.
• Discuss practical considerations for multinational groups operating across the EU.
• Anticipate timing and next steps, including the legislative process ahead and the likelihood of securing Member State approval.

To register please access this link.