The European Commission's Tax Omnibus proposal could generate annual savings of up to €5.34 billion for businesses by eliminating minimum participation requirements and streamlining administrative procedures for cross-border tax relief, according to a new analysis by the Tax Foundation. The proposal would amend six directives on direct taxation to simplify the EU's tax framework, which currently operates under complex, outdated, or overlapping rules applied unevenly across member states. The Commission estimates the changes would increase the EU's capital stock by 0.07 percent and GDP by 0.04 percent.
The €5.34 billion in projected savings would come from three sources: lower direct compliance costs, reduced opportunity costs when businesses wait for withholding tax refunds, and tax relief that eligible taxpayers currently forgo because claiming it isn't worth the administrative burden. The proposal would remove participation requirements for accessing relief on cross-border dividend, interest, and royalty income, and would extend flexibility for eligible company forms. Member states would no longer be able to require ex-ante attestations of eligibility, directly addressing complaints about the complexity of national exemption and refund procedures. For research and development investments specifically, the Tax Foundation reports the full expensing measure would reduce corporate income tax revenues by 1.9 percent initially, but this would be "almost fully offset over the longer run" as the economy grows larger. The R&D incentive would increase the capital stock by 0.43 percent and GDP by 0.17 percent.
The report finds that the Tax Omnibus would make anti-abuse rules more targeted and less burdensome by removing overlaps between existing frameworks and the new Pillar Two global minimum tax. The analysis states that "companies belonging to small and medium-sized groups, small or medium-sized undertakings, and companies that are part of a group subject to Pillar Two would fall outside the scope" of controlled foreign company rules. For interest deductibility limits, the proposal would make the 30 percent EBITDA threshold mandatory across all member states, preventing countries like the Netherlands and Finland from applying their current lower thresholds of 24.5 percent and 25 percent. The Tax Foundation writes that while pro-growth reforms "may come at unavoidable short-term revenue trade-offs, this should not prevent Member States from making the leap forward, as the positive macroeconomic benefits resulting from such reforms would likely provide some offsets in the long run."
The proposal addresses a fundamental problem: EU businesses face compliance costs and barriers to investment because tax rules are "applied unevenly across Member States, raising compliance costs and weakening the Single Market," according to the report. The Tax Omnibus simplifies the controlled foreign company framework by removing one of two current models and making mandatory exclusions for companies already subject to the 15 percent Pillar Two minimum tax. This matters because without the adjustment, businesses could face double compliance burdens and, in some cases, double taxation. The full expensing provision for R&D tangible assets would allow companies to deduct the full cost of investments in the year they're incurred, rather than spreading deductions over an asset's useful life. This prevents inflation and the time value of money from eroding the real value of deductions, which effectively increases the tax base. However, the Tax Foundation notes that limiting full expensing only to R&D assets can distort investment decisions by encouraging companies to invest in assets that qualify for the benefit rather than those that make the most business sense.
The report concludes that the EU should be "as ambitious as possible when pursuing simplified harmonization rules, as making changes later requires renewed consensus among Member States." Given the challenge of achieving unanimity, the window for comprehensive reform is narrow. The Tax Foundation recommends that where Pillar Two allows it, the Commission and member states should extend the R&D allowance to both tangible and intangible assets used for research and development. The takeaway: the Tax Omnibus represents a meaningful step toward reducing tax complexity and compliance costs across the EU, with measurable economic gains that would compound over time.