The European Commission is due to propose an amendment to European Union tax rules relating to exemptions from withholding tax on interest, royalties and dividends paid between associated companies in different Member States, as part of a legislative package expected at the end of June: by amending six European directives, the aim is to simplify the direct taxation of businesses (“Omnibus on Taxation”).
The EU institution believes that the proposed measures will help tackle the complexity of the applicable legislation, since national tax administrations sometimes apply the rules divergently and the international context has evolved. They will also be able to reduce compliance costs for businesses, as well as the administrative burden for tax administrations.
The work strands include the revision of the Interest and Royalties Directive (IRD – 2003/49) and the common system of taxation applicable in the case of parent companies and subsidiaries’ directive (PSD – 2011/96) which could, according to the European Commission, generate annual savings of €5.3 billion out of an estimated total of €7 billion for the whole legislative package.
According to a draft legislative proposal seen by Agence Europe, and notably revealed by Taxnotes, the European Commission will propose simplifying the substantive and procedural conditions for benefiting from withholding tax exemption. The exemption would therefore apply regardless of the level of shareholding held between associated companies from different Member States – the current legislation provides for a minimum level of participation.
Other legislative amendments relate to the fight against double non-taxation and limiting the use of prior authorisations to benefit from the withholding tax exemption. The annexed list of company forms falling within the scope of the IRD directive will also be updated, with the European Commission able to act in this area by means of delegated acts.
In parallel, a revision of the FASTER directive (2025/50) will make it possible to align its scope with the broadened scope of the IRD and PSD directives.
ATAD. Another project that the European Commission is expected to suggest starting is the revision of the ‘Anti Tax Avoidance Directive’ (ATAD), which combats aggressive practices leading to tax avoidance (2016/1164).
In order to address the economic competitiveness challenges posed by the fragmentation of national tax regimes relating to research and development, the EU institution suggests introducing an EU-wide R&D allowance. A measure such as this would ensure the full deductibility of certain eligible R&D expenditure, namely investment in plants, machinery and tangible assets used directly for that purpose.
Valid for a minimum of three years, the exemption for research expenditure should be claimed in the year of the investment itself, or in the following four years.
Moreover, the revision of the ATAD directive will specify that the exemption from the rule on controlled foreign companies will concern undertakings already subject to the directive (‘pillar II’ - 2022/2523) transposing the OECD agreement on the minimum taxation of multinationals into the EU. European SMEs will also be exempted from the ATAD directive.
With the specific simplification measures in this legislative text, the European Commission estimates the possible annual savings to be €265 million. (Original version in French by Mathieu Bion)