The EU Commission aims to continue simplifying rules with a new "Omnibus law"—this time focusing on corporate taxation. On 24th June, it will present a package of measures designed to declutter legal regulations on taxation. This is urgently needed from businesses' perspectives, as the EU Commission has established a dense regulatory framework in corporate taxation over the past decade.

Starting with the BEPS process (Base Erosion and Profit Shifting) initiated at the beginning of the previous decade, in 2016, the Commission introduced comprehensive measures against tax evasion (Anti Tax Avoidance Package). Through these measures, it integrated the international standards of OECD and G20 into binding EU legislation to close loopholes in the EU single market and restrict profit shifting practised by multinational corporations.

The regulation was detailed, covering transactions between parent and subsidiary companies, interest payments, licensing fees, mergers, and withholding tax deductions. Unsurprisingly, procedures for dispute resolution became increasingly important. Some relevant legal norms are more than 20 years old. Then, in 2022, the minimum tax directive was introduced to ensure EU companies pay at least 15% tax on their profits worldwide.

The German Chamber of Commerce and Industry (DIHK) has criticised for years that many laws are not coherently aligned with each other. For businesses, adhering to all regulations flawlessly is practically impossible. With the Tax Omnibus, the Commission aims to reduce the resulting bureaucracy costs for businesses and tax administrations across Europe by approximately seven billion euros, including over five billion euros for companies.

How can businesses be relieved of tax bureaucracy?

Firstly, through exemptions: Companies subject to minimum tax should be freed from the rules governing the additional taxation stipulated in the Foreign Tax Law. Moreover, only profit distributions within corporate groups crossing EU borders should be subject to the withholding tax.

Secondly, thresholds defining the scope of affected businesses should be adjusted or eliminated. For instance, removing the minimum shareholding requirement for connected undertakings under the Interest and Royalties Directive could enable more firms to benefit from withholding tax exemptions. Similarly, under the Parent-Subsidiary Directive, the restriction of deducting participation costs could only apply in cases of significant involvement of over ten percent.

What the DIHK demands

Dispute resolution procedures should be accessible to more businesses and conducted more efficiently. Following the extension of the personal scope, dispute resolution could benefit all companies affected by profit double taxation. The initiative for one-time reporting of company data (Once-Only Principle) should be consistently implemented and extended to all government sectors.

Moreover, the options available to member states in implementing EU directives should be narrowed to prevent further legal fragmentation within the EU. The Commission's proposals should now be swiftly deliberated and adopted to ensure that the announced reliefs are quickly realised for businesses. Leveraging affected companies' expertise during the advisory process will enhance the practical applicability of these new regulations. Reducing burdens and enhancing competitiveness must be the order of the day.