EU tax simplification package cuts withholding tax and scraps CFC overlap for Pillar 2 groups

The European Commission adopted a tax simplification package on 24 June 2026 that directly affects how Maltese businesses structure cross-border payments, handle compliance, and plan investment.

At the core are two proposals: the Direct Taxation Omnibus and the Recast of the Directive on Administrative Cooperation (DAC). Together they amend six major tax directives and consolidate nine existing DAC directives into a single instrument.

The package broadens withholding tax exemptions on cross-border dividends, interest, and royalty payments by removing minimum shareholding requirements. Pension institutions will benefit from a full exemption on dividend withholding tax, regardless of their legal form.

The current pre-authorisation system for claiming withholding tax relief is replaced with a self-assessment model at source, backed by tax authority controls. Where eligibility cannot be verified at time of payment, the FASTER Directive's relief-at-source and quick-refund procedures will apply.

For Malta's many multinational and iGaming groups, the anti-tax avoidance revisions matter most. The ATAD interest limitation rules are streamlined to a fixed deduction limit of 30% of EBITDA, removing previous implementation options. Low-risk third-party borrowing and market-based financing are excluded from the rule.

The package eliminates the costly overlap between Controlled Foreign Company (CFC) rules and the Pillar 2 global minimum tax. Taxpayers within the scope of Pillar 2 are exempt from CFC rules for the relevant tax period, removing duplicate compliance where both regimes address the same risks.

Malta's corporate restructuring market also gets a boost. The Merger Directive is expanded to cover cross-border conversions, meaning mergers, divisions, and asset transfers can proceed tax-neutrally without triggering immediate tax liability.

On dispute resolution, the proposal simplifies the complaint process. The requirement for simultaneous submission of complaints is replaced with a 30-day filing period. Competent authorities must give affected persons 30 days to fix deficiencies before rejecting a complaint, and rejected complaints can be resubmitted within statutory time limits.

A new common minimum standard for R&D investments allows companies to deduct qualifying expenditure in full in the year it is incurred or spread the deduction over four tax periods. This applies to R&D-related tangible assets used for research for at least three years.

The DAC Recast brings targeted simplifications for reporting obligations. Under DAC6, entities within Pillar 2 scope are exempt from reporting where no benefit reduces taxation below 15%. Reportable arrangements are now limited to those actually implemented, and Category A Hallmarks are removed. The reporting deadline for intermediaries is extended to 90 days.

For digital platform operators, DAC7 reporting sees the activity threshold abolished and the monetary reporting threshold raised from €2,000 to €3,000. The change aims to exclude low-value transactions to reduce administrative burdens for sellers, platforms, and tax authorities.

Country-by-country reporting under DAC4 and DAC9 is also streamlined, though specific details on the single filing mechanism were not provided in the proposal summary.

The simplification package comes as the EU attempts to balance competitiveness against the complexity created by successive tax directives and uneven implementation across Member States. For Malta, where cross-border structuring, financial services, and digital business form the backbone of the economy, the changes remove several longstanding friction points.