The fine line between simplification and standardisation in EU tax law

In March 2025, the Council of the European Union approved the so-called tax decluttering and simplification agenda, an initiative aimed at rationalising and modernising the complex regulatory framework of EU taxation. Its main objective is to make the applicable legislative landscape clearer, more coherent, and more functional, easing the compliance burden on taxpayers and promoting a more efficient application of tax rules across Europe.

This initiative comes at a time when tax obligations – especially for companies operating in multiple jurisdictions – have become increasingly dense, technical, and costly to comply with. The proliferation of directives, regulations, special regimes, and reporting mechanisms – many of them overlapping or poorly coordinated – has resulted in a system that is difficult to interpret, even for experienced professionals. The council’s initiative therefore represents an effort to eliminate redundant rules, simplify compliance obligations, and clarify legal concepts that currently generate uncertainty and litigation.

Among the key points of this agenda is the intention to revise directives such as the DAC (the Directive on Administrative Cooperation), the common VAT system, and withholding tax regimes applicable to dividends and interest. The proposal calls for the following measures, among others:

• The standardisation of reporting formats;

• Alignment of deadlines among EU member states;

• Digitalisation of tax residency certificates; and

• The elimination of duplicate reporting requirements that affect cross-border businesses.

This movement runs parallel to other ongoing reforms, such as the VAT in the Digital Age package and the Faster Directive, and is motivated by a growing consensus on the need to align administrative efficiency with tax fairness and economic competitiveness.

The practical implications of this agenda for businesses are significant.

There is a clear potential for reducing compliance costs, minimising errors caused by overlapping obligations, and increasing predictability in processes such as reimbursements, offsetting, and reporting of intra-EU operations. For multinational groups – particularly those that include SMEs – the current system represents a disproportionate burden, requiring the outsourcing of specialised services in each jurisdiction, constant adaptation to local changes, and exposure to penalties in cases of non-compliance with technical requirements. Harmonising procedures could facilitate centralised tax management and foster greater transparency in relations with tax administrations.

The simplification process may generate additional challenges, however, especially if not accompanied by rigorous legal coordination across the various national legal systems. Many domestic tax regimes were designed based on their specific economic, social, or political contexts, and are structured to serve local objectives, such as investment promotion, regional development, or support for strategic sectors. The imposition of uniform rules at EU level may require profound changes to these regimes, posing risks of internal inconsistency or even incompatibility with national constitutional principles, particularly those enshrining the legality of taxation or the requirement of parliamentary approval for tax measures.

Another sensitive issue relates to the use of common legal concepts in different contexts but with divergent meanings. Terms such as “permanent establishment”, “beneficial owner”, or “tax residence” are currently interpreted differently across member states, which has led to considerable uncertainty and controversy in the field of international taxation.

Poorly calibrated simplification may paradoxically exacerbate existing complexity, creating an illusion of uniformity where substantial divergence persists.

Moreover, the transition to harmonised digital formats requires substantial investment by national tax authorities, many of which face technical, budgetary, and operational constraints that may hinder effective implementation of the new rules.

There is also a risk that this simplification agenda, however well intentioned, may result in an additional regulatory layer, unless existing rules are clearly repealed or replaced. Experience shows that the EU legislator sometimes adds new obligations without fully removing outdated ones, undermining the declared goal of reducing bureaucracy. The key to the success of this initiative lies in the ability to structurally rethink the EU’s fiscal governance model, ensuring not only the technical coherence of legal instruments but also their enforceability and acceptance by taxpayers.

It is also worth noting that the simplification agenda is part of a broader movement to transform European taxation, in response to internal and external pressures that demand greater integration, transparency, and effectiveness. The digitalisation of tax systems, enhanced cooperation in combating tax evasion, and the growing interconnection between fiscal policy and environmental or social objectives require a new legislative approach – less fragmented and more outcome-oriented.

In this context, legislative simplification is an essential condition to ensure that taxation remains a legitimate public policy tool, capable of financing the welfare state without undermining competitiveness or public trust.

The EU’s tax simplification agenda is a timely and potentially transformative initiative, but its success will depend on a careful balance between political ambition and legal precision. Only a prudent, legally sensitive, and technically consistent implementation can ensure that the simplification effort translates into genuine tax justice and administrative efficiency.