The EU Tax Omnibus Proposal: What Changes for Withholding Tax, ATAD and Reorganisations

On 24 June 2026, the European Commission published a Direct Taxation Omnibus proposal (COM(2026) 560) that would amend six major EU tax directives simultaneously, alongside a DAC recast (COM(2026) 308) consolidating nearly a decade of automatic exchange rules. These are legislative proposals, not yet law: unanimity in the Council is required, and adoption is targeted for 2027–2028 at the earliest. Businesses operating across EU jurisdictions should begin assessing how the proposed changes to withholding tax relief, anti-avoidance rules and tax-neutral reorganisations interact with their current structures.

Context and Legislative Status

The Commission's package represents one of the most ambitious attempts at EU direct-tax simplification since the original Anti-Tax Avoidance Directive entered into force. COM(2026) 560 targets six directives in a single instrument: the Interest and Royalties Directive, the Tax Merger Directive, the Parent-Subsidiary Directive, ATAD (Directive (EU) 2016/1164 as amended by Directive (EU) 2017/952), the EU Tax Dispute Resolution Directive, and the FASTER Directive. The DAC recast – COM(2026) 308 – runs in parallel, consolidating DAC1 through DAC9 into a single instrument.

A separate development equally relevant to tax risk management is the formal discontinuation of the Unshell Directive (informally known as ATAD 3): ECOFIN confirmed in June 2025 that the proposal would be withdrawn, removing a layer of substance-related uncertainty that had occupied planning discussions for several years. That said, existing ATAD CFC rules, the general anti-abuse rule and hybrid mismatch provisions of Directive (EU) 2017/952 remain fully in force.

Because unanimity is required under Article 115 TFEU, the timeline remains genuinely uncertain. Businesses should treat the proposals as an important planning signal rather than an imminent compliance deadline.

Withholding Tax: FASTER and the Omnibus Amendments

The FASTER Directive, adopted in 2024 to standardise relief-at-source and quick-refund procedures for withholding tax on dividends and interest paid to non-resident portfolio investors, is itself being amended by the Omnibus. The precise scope of those amendments – which specific procedural timelines or certification requirements are affected – will depend on the final text negotiated in Council. What is clear from the proposal as published is that the Commission intends to align FASTER's relief mechanisms more closely with the revised Parent-Subsidiary and Interest and Royalties frameworks being proposed in the same package.

For corporate groups relying on intra-EU dividend flows, the Parent-Subsidiary Directive amendments are potentially more significant. The proposal introduces changes intended to reduce instances of residual withholding tax where beneficial ownership conditions are met, while preserving member states' ability to apply the general anti-abuse rule. The interaction between treaty-based withholding tax relief and directive-level relief will need to be reviewed carefully once the final text is known, particularly for structures where the applicable tax treaty offers a different rate or condition than the directive.

Groups with Irish holding structures, for instance, should consider how proposed amendments interact with Ireland's existing implementation of the Parent-Subsidiary and Interest and Royalties directives. Our analysis of tax structuring considerations for Ireland covers the current framework in more detail.

ATAD: What the Omnibus Proposes to Change

Directive (EU) 2016/1164, as amended by Directive (EU) 2017/952, currently contains five key mechanisms: the interest limitation rule, exit taxation provisions, the general anti-abuse rule (GAAR), controlled foreign company (CFC) rules, and the hybrid mismatch rules. The Omnibus does not propose to dismantle these. Rather, it proposes targeted amendments aimed at reducing compliance friction while maintaining the substantive anti-avoidance architecture.

Points raised in the proposal include:

• Interest limitation rule: The existing earnings-based cap on deductible net borrowing costs is retained. The Omnibus proposals address certain interaction issues identified in practice, particularly for financial groups and infrastructure financing, though the precise recalibration awaits the final legislative text.
• CFC rules: The current Chapter III framework – covering both the entity approach and the transactional approach – remains in place. The proposal focuses on reducing compliance burden for groups already subject to Pillar Two global minimum tax obligations, where the CFC analysis substantially duplicates work already completed for GloBE purposes.
• General anti-abuse rule: The GAAR under Article 6 of ATAD is not substantively altered. Judicial interpretation by the CJEU, which has developed a body of case law on the concept of wholly artificial arrangements, continues to govern application. Groups should monitor CJEU developments as part of ongoing tax audit preparedness.
• Hybrid mismatch rules: The Directive (EU) 2017/952 framework remains unchanged in the current proposal. These rules, which target D/NI and DD outcomes across borders, continue to require detailed instrument-level and entity-level analysis in any cross-border financing structure.

For an in-depth look at the current ATAD interest limitation and CFC rules as they stand, our firm has published a dedicated analysis at ATAD: Interest Limitation and CFC Rules in the EU.

If you are currently reviewing your group's ATAD exposure or planning a reorganisation ahead of the proposed changes, we welcome an initial discussion. Please contact us at info@ferrazwhitmore.com or visit our contacts page.

Tax-Neutral Reorganisations: A Broader Scope

One of the structurally significant proposals in COM(2026) 560 is the extension of tax-neutral treatment to all reorganisations recognised under EU company law, not only those currently covered by the Tax Merger Directive. The existing Directive covers mergers, divisions, partial divisions, transfers of assets and exchanges of shares involving companies from different member states. The Omnibus proposal would extend equivalent tax neutrality to a broader category of transactions, aligning the tax treatment with the legal forms available under EU company law as it has evolved.

In practical terms, this matters for corporate groups engaged in cross-border restructuring within the EU. Currently, a reorganisation that falls outside the Merger Directive's defined categories may trigger exit taxation, capital gains charges or withholding tax at the member state level, even where the economic substance of the transaction is equivalent to a qualifying merger. The proposed extension would, if adopted, remove that asymmetry for transactions structured using recognised EU company law forms.

The interaction with exit taxation rules under Article 5 of ATAD will need careful analysis. Under the current ATAD framework, a transfer of assets, tax residence or permanent establishment business outside a member state triggers a taxable event at market value. The Omnibus proposal does not appear to repeal this mechanism but rather to create a broader category of transactions eligible for roll-over treatment. The boundary between qualifying and non-qualifying transfers will be a critical drafting point as the proposal moves through Council.

For groups considering structural changes involving EU entities – whether driven by post-acquisition integration, group simplification or investment fund restructuring – our corporate law practice works alongside the tax team to assess the legal form and tax treatment in parallel.

DAC Recast and Mandatory Disclosure: Key Changes

COM(2026) 308 consolidates DAC1 through DAC9 into a single directive, an administrative rationalisation that does not in itself change substantive reporting obligations but is intended to reduce the complexity of navigating overlapping instruments. Two substantive changes in the recast are particularly relevant for international groups:

• DAC6 reporting exemption for Pillar Two groups: The mandatory disclosure obligation under DAC6 for cross-border arrangements meeting certain hallmarks would be removed for groups that fall within the scope of the Pillar Two global minimum tax. The rationale is that the GloBE information return already captures the relevant information. This would reduce compliance cost for large multinationals, though smaller groups below the Pillar Two threshold would remain within DAC6's scope.
• Extended intermediary reporting deadline: The proposal extends the standard reporting deadline for intermediaries from 30 days to 90 days. This is a practical improvement for complex cross-border arrangements where legal privilege questions, multi-jurisdictional analysis and chain-of-intermediary identification require more time than the current 30-day window allows.
• Hallmark D2 substance criteria: The proposal empowers the Council to set substance criteria for hallmark D2 – which relates to arrangements that undermine reporting obligations – through implementing act rather than requiring full legislative amendment. This creates a more agile mechanism for keeping the hallmark current, but it also means that the substantive threshold may shift without full parliamentary scrutiny.

From a transfer pricing and tax structuring perspective, the interaction between DAC6 disclosure obligations and contemporaneous documentation requirements for intercompany transactions remains an area requiring careful coordination. Groups should ensure that internal processes for identifying reportable arrangements are reviewed in light of the proposed changes, even before they are adopted.

The EU R&D Allowance

The Omnibus package introduces a new EU-wide R&D allowance as part of the amended ATAD framework. The proposal is designed to provide a degree of harmonisation in the tax treatment of research and development expenditure across member states, reducing the disparity that currently exists between jurisdictions with generous R&D credit regimes and those with more limited provisions. The detailed parameters of the allowance – its scope, qualifying expenditure definitions and interaction with state aid rules – will be determined in the legislative process. Groups with significant R&D activity distributed across member states should flag this element for further monitoring.

Strategic Implications and Planning Considerations

The Omnibus package, if adopted in substantially the form proposed, would represent a meaningful shift in the EU's direct tax architecture. Several strategic considerations are relevant now, even before adoption:

• Reorganisation timing: Groups considering cross-border reorganisations within the EU may wish to model their transactions against both the current Merger Directive framework and the proposed extended tax-neutral treatment, to identify whether delaying a transaction until the new rules are in force would materially reduce the tax cost. This analysis requires careful attention to exit taxation risk in the interim period.
• DAC6 compliance review: Groups within Pillar Two scope should begin documenting their position on the proposed DAC6 exemption, while maintaining current reporting obligations until any change is formally adopted and implemented at member state level.
• ATAD CFC and interest limitation: Where the Omnibus proposes to reduce duplication between ATAD and Pillar Two compliance, groups should not assume that relief is automatic. Member state implementation will determine the practical scope of any simplification, and tax audit risk remains until implementing legislation is in place.
• Withholding tax relief procedures: Beneficial owners relying on directive-level relief or treaty-based relief should review whether their existing certification and documentation procedures are robust under the current framework, and model how proposed changes to FASTER and the Parent-Subsidiary Directive might affect them.
• ATAD 3 withdrawal: The discontinuation of the Unshell Directive removes a specific risk that had been factored into holding company planning in several jurisdictions. However, existing CJEU case law on substance and the GAAR under ATAD Article 6 continue to apply. Groups should not treat the withdrawal as a signal that substance analysis is less important – rather, the framework for that analysis has reverted to the existing directive and treaty-based tools.

Open Questions and Legislative Outlook

Several significant questions remain open and will be resolved only through the Council negotiating process and, ultimately, member state implementation:

• The precise boundary between reorganisations eligible for the proposed extended tax-neutral treatment and those that remain subject to exit taxation under ATAD Article 5.
• The implementing act process for hallmark D2 substance criteria and what procedural safeguards will apply to changes made by Council without full legislative amendment.
• The scope of the EU R&D allowance, its interaction with existing national regimes, and whether it constitutes a minimum standard or a harmonised ceiling.
• How member states that have implemented ATAD above the minimum standard – for example, with stricter CFC rules or broader hybrid mismatch provisions – will adjust their national legislation.
• The timeline: unanimity in the Council is rarely straightforward on direct taxation, and the 2027–2028 target could extend if substantive disagreements emerge on any of the six directives being amended simultaneously.

The EUR-Lex repository and the European Commission's taxation and customs directorate page are the primary sources for tracking the legislative progress of both COM(2026) 560 and COM(2026) 308 as they move through Council working groups.

Our team monitors the progress of the Omnibus package and related EU tax developments on an ongoing basis. If you would like to discuss how these proposals may affect your group's structure, reorganisation plans or compliance obligations, please reach out at info@ferrazwhitmore.com or through our contacts page.

Sources

• European Commission, European Commission proposes landmark tax simplification package to streamline compliance and boost investment (24 June 2026): taxation-customs.ec.europa.eu
• Council Directive (EU) 2016/1164 (ATAD), as amended by Directive (EU) 2017/952
• COM(2026) 560 – Direct Taxation Omnibus
• COM(2026) 308 – DAC Recast
• Facts last verified: 22 September 2026

Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.