EU Gateway newsletter

Relevant for: Tax directors, compliance teams, and intermediaries subject to DAC6 reporting obligations, as well as multinational groups

The European Commission’s second evaluation of the Directive on Administrative Cooperation (DAC) confirms that the framework remains robust and effective, facilitating the exchange of substantial volumes of tax information increasingly used for risk assessment and compliance purposes. The DAC’s overall benefits are estimated at around EUR 6.8 billion per year, with private CbCR (DAC4) contributing approximately EUR 5.6 billion annually in tax revenues for the EU Member States.

For context, the DAC is the EU’s legal framework for administrative cooperation in direct taxation. It underpins automatic exchange of information between EU Member States covering areas such as financial accounts, tax rulings, country-by-country reporting, and mandatory disclosure of certain cross-border arrangements (DAC6). If you are doing business in the EU, you may have experienced the complexity of assessing whether an arrangement is reportable under DAC6 - this has been a common challenge across the EU.

The evaluation identifies areas for improvement to reduce administrative burden and enhance consistency across EU Member States. These include simplifying the DAC without undermining its objectives, improving the penalties framework, facilitating automatic reconciliation of DAC data with national systems, and ensuring consistent application across the EU.

EU Gateway observation: As expected, the evaluation confirms that DAC6 is the most challenging part of the DAC due to its complexity and broad drafting, especially the main benefit test and certain hallmarks. This is not new, and the same applies to the fact that this complexity has led to inconsistent interpretation, legal uncertainty, and administrative burden, with overreporting and underreporting unlikely to disappear without harmonized tax policy. To address this, the Commission plans to eliminate duplications and streamline burdensome reporting obligations, clarify and simplify DAC6 hallmarks, and publish EU-level guidance on interpretation. We remain curious about the status of this EU-level guidance and whether it will ultimately be binding on EU Member States.

We also read in the consultation “The Commission will also explore the feasibility of integrating into the simplified DAC framework the principles and concepts extensively examined by Council under the former UNSHELL proposal.” This means that the substance indicators - such as physical presence, staff - will likely become relevant in light of exchange of information within the EU. Let’s get ready for a new round of debates among EU Member States on whether these substance indicators can be embedded in EU law, although when it concerns mere exchange of information EU Member States may be less likely to block these rules. 

See also PwC Tax Policy Alert with the observations of our global tax policy team. 

Relevant for: companies operating in the EU.

In our previous issue, we reported that the European Commission will withdraw four direct tax proposals: Unshell (ATAD 3), DEBRA, the Financial Transaction Tax (FTT), and the Transfer Pricing Directive. But withdrawal is only part of the story. The Commission is now preparing an ambitious “omnibus on taxation” package, expected by mid-2026, under the motto simplification. The goal is to make EU tax legislation easier to apply and reduce compliance burdens for businesses and tax administrations.

What could this mean in practice? The package is expected to include streamlined provisions for key EU directives such as the Anti-Tax Avoidance Directive (ATAD), the Parent-Subsidiary Directive, the Interest and Royalties Directive, and the Merger Directive.

The initiative follows strong calls from the European Council to “drastically reduce administrative, regulatory and reporting burdens” and aligns with the Commission’s 2026 Work Programme. Ministers have already exchanged views on this during the ECOFIN meeting on 13 November 2025, signalling that simplification is firmly on the agenda.

EU Gateway observation: If delivered as promised, this could be the most significant clean-up of EU direct tax law in years. At the same time, we see it as an opportunity to make the rules easier to apply and to adjust them based on lessons learned from their implementation. Think about provisions under ATAD currently under evaluation by the European Commission, such as the interest deduction limitation rule. For instance, in our overview of ATAD I and II, we have seen that EU Member States have implemented the rules differently. But have too many implementation options become a curse? When some EU Member States adopt a strict approach - e.g. applying a lower cap €1 million instead of €3 million, or no cap at all for the deductibility of interest costs - this may be seen as less aligned with the need for simplification of tax legislation in the EU. 

Relevant for: companies operating in the EU. 

Don’t get too excited - or too worried. We flag this because you may see headlines elsewhere: the Parliament’s resolution is not legally binding.

For the record, BEFIT aims to create a single corporate tax framework for large EU groups, replacing the current 27 national systems. It would set common rules for calculating the tax base of companies that prepare consolidated financial statements and pay corporate income tax in an EU Member State. See our EU Gateway publication here for more information about BEFIT and our observations to the proposal. 

EU Gateway observation: In the end, it is the EU Member States that must approve BEFIT unanimously - and that process is slow… and slow… and slow… kind of like waiting for your coffee to brew when the machine decides to “descale” first. Apart from that; don't we have a single corporate tax system with Pillar Two? Might BEFIT be the replacement of Pillar Two, if  Pillar Two comes crashing down?

• On 30 October 2025, the Court of Justice of the EU (CJEU) rendered its judgment in the appeal of Fugro (C‑146/24 P) to the judgment of the General Court (T-143/23) regarding the action for annulment brought by the company against the Pillar Two Directive. The CJEU confirmed that the General Court correctly held the action for annulment inadmissible on the grounds that the company is not individually affected by the Pillar Two Directive. See here for EUDTG newsalert for more information about the judgment and dont forget that we have a pending referral to the CJEU on the compatibility of the UTPR rule with EU law. 

• German Supreme Tax Court refers question to CJEU on “Switch-Over” Clause: The German Supreme Tax Court has referred a preliminary question to the CJEU regarding the compatibility of the “switch-over” clause in Section 20(2) of the Foreign Tax Act with the freedom of establishment. The Court expressed doubts for tax years 2007 and 2008, noting that the clause references CFC taxation rules but does not allow taxpayers to demonstrate economic activity (the “motive test”) in the host EU Member State. This option, available under CFC rules, has been denied since 2008, raising concerns about potential infringement of EU law. See PwC Germany newsalert on this topic. This might be a case to follow, because it is not exceptional within the EU to have an anti-abuse rule that does not allow for an “economic activity” rebuttal.