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Directive on Administrative Cooperation � Pillar Two � Unshell � BEFIT Directive � Transfer Pricing Directive � Tax Decluttering and Simplification

On June 20, 2025, the final scheduled meeting of the Economic and Financial Affairs Council of the EU (ECOFIN Council) under the Polish Presidency of the Council took place.

During the meeting, the ECOFIN Council approved a to the European Council providing an overview of the progress achieved in the Council on a range of indirect and direct tax measures. This entails an update on legislative actions, including the adoption of the Directive providing for information exchange with respect to Pillar Two (DAC9), and Directive proposals such as Unshell, Transfer Pricing and BEFIT. The report further provides an update on non-legislative actions, including the EU tax decluttering and simplification agenda and developments at OECD and UN level.

On January 1, 2025, Poland succeeded Hungary in holding the Presidency of the Council of the EU during the first half of 2025. The Polish Presidency opened the new five-year EU institutional cycle, setting the direction of the EU’s activities for the coming years.

According to the published by Poland, key priorities in the field of direct taxation included:

• work on the amendments to the Directive on administrative cooperation in the field of taxation aimed at ensuring exchange of information on data relating to Pillar Two (DAC 9);
• action to support EU competitiveness by tackling harmful tax competition.

For more information, please refer to E-News Issue 204 (December 2024 ECOFIN report) and Issue 205 (Priorities of the Polish Presidency of the Council).

The ECOFIN Council report to the European Council (the ECOFIN report) published on June 20, 2025, details progress made in the area of direct taxation during the first half of 2025, as follows: 

Recent amendment to the Directive on Administrative Cooperation (DAC9)

On October 28, 2024, the Commission issued a proposal for a Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC9).  The proposal introduces a standard template for the Top-up tax information return (closely following the GloBE Information Return template developed by the OECD) and provides the option of central filing of the Top-up tax information return in the EU, where the EU Ultimate Parent Entity or designated filing entity files on behalf of the group in an EU Member State.

The report notes that the ECOFIN Council adopted the Directive on April 14, 2025, following political agreement on a compromise text on March 11, 2025, and subsequent legal-linguistic revisions. On May 6, 2025, the Directive was published in the EU Official Journal. For more information, please refer to E-News Issue 212.

Misuse of shell entities (Unshell Directive proposal)

On December 22, 2021, the EC issued a proposal for a Directive aimed at fighting the use of shell entities and arrangements for tax purposes (Unshell). The initial proposal set out a list of indicators to filter entities at risk of being misused for tax purposes. High-risk entities would then be required to report on a series of substance indicators through their annual tax return. Companies failing to meet the substance indicators would be deemed to be ‘shell� entities, potentially triggering tax consequences. Since then, the text of the Directive has been subject to discussions in the Council working groups. Several compromise texts were submitted, but Member States were not able to reach consensus on the initiative.

During the Hungarian Presidency of the Council (second half of 2024), a new approach was presented, leading to drafting suggestions on key topics like scope, hallmarks, and reporting obligations. However, delegations in the Council working groups requested further clarifications regarding the relationship of the proposal with the Directive on Administrative Cooperation (DAC) and stressed the need to avoid creating an excessive administrative burden for businesses and authorities.

The report notes that, during the working party discussion in May 2025, it emerged that the analysis of the Unshell proposal in the Council should be discontinued in light of the current EU tax simplification efforts (see below for more information), which was broadly welcomed by delegations.  According to the report, many delegations were instead of the view that the aims of the Unshell proposal could be achieved with clarifications or amendments of the hallmarks in the Council Directive 2018/822 on the disclosure of cross-border arrangements (DAC6). The report suggests that those clarifications and amendments to DAC6 could be examined once the Commission has finalized its analysis of the functioning of the DAC, which is currently ongoing. A report on the conclusions of this examination is expected to be published in the coming weeks, with a legislative proposal for the recast and potential amendment of the DAC to follow in the first quarter of 2026.

Transfer Pricing Directive Proposal

The ECOFIN report provides a status update on the Transfer Pricing Directive proposal, which was released by the European Commission in September 2023. The proposal aims at implementing common TP rules into EU law, including the incorporation of the OECD arm’s length principle and a reference to the ‘OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations�.

The report highlights that a large majority of Member States previously did not see the possibility of further progress on the proposal in its current form. According to the report, the Polish Presidency made an attempt to seek views on whether there was any change in the Member States� positions. The report notes that while a few Member States consider that some procedural aspects related to transfer pricing could potentially be set out in a Directive, achieving a compromise on this basis does not seem feasible. However, the report stresses that Member States fully support the general objective of reducing complexity, costs and administrative burden for both taxpayers and tax authorities in the area of transfer pricing.

According to the report, Member States continued to discuss in parallel the option of establishing a new EU Transfer Pricing Platform aimed at determining consensus-based non-legally binding solutions to practical transfer pricing issues. The report notes that Member States have expressed divergent views as regards fundamental parameters of the platform, including its mandate and structure, the form of working results and the possibility of political commitment to implement and review agreed solutions. Whilst no agreement was reached, the report notes that Member States are ‘positively predisposed� to the idea of a consensus-based non-legally binding platform that is aimed at reducing complexity and administrative burdens in the area of transfer pricing.

BEFIT Directive Proposal

The ECOFIN report also provides a status update on the BEFIT Directive proposal, which was released by the European Commission in September 2023. The proposal provides for common rules for determining the corporate tax base for EU-based entities that are part of a group with global consolidated revenues above a certain threshold. The BEFIT Directive would also include provisional rules for the allocation of profits to relevant Member States, with a permanent mechanism to be agreed within a specified time frame. Once allocated to the relevant jurisdictions, the profits would be subject to the corporate income tax rate of the respective Member State.

The June 2025 report refers to previous ECOFIN reports summarizing discussions on the BEFIT proposal in the Council working group. Previously, several concerns were brought forward by Member States on the interplay with existing tax legislation (including national corporate tax rules, Pillar Two rules, EU anti-abuse measures), as well as on the scope and determination of the preliminary tax result of in-scope groups. In addition, discussions specifically focused on the proposed rules on tax depreciation, timing and quantification, aggregation and allocation of the BEFIT tax base, the “traffic light� system for transfer pricing compliance, and administrative provisions. It was also previously suggested by several Member States to give priority to certain elements of the proposal, as a way forward.

According to the report, the Polish Presidency decided to focus on several other tax policy and legislative priorities (including DAC9 and the EU tax decluttering and simplification agenda) with an objective of marking progress on those initiatives. Therefore, discussions on the BEFIT proposal did not progress during the first half of 2025.

Conclusions on the tax decluttering and simplification agenda 

The ECOFIN report refers to the ECOFIN Council conclusions on a tax decluttering and simplification agenda with a view to contributing to the EU´s competitiveness. which were approved by the Council on March 11, 2025.

The Council's conclusions guide the European Commission on future tax initiatives, emphasizing the need for a reduction of administrative and reporting burdens, while maintaining efforts against tax fraud, evasion, and avoidance. The Council calls for the Commission to review existing EU legislation to eliminate outdated and overlapping rules, particularly focusing on the Directive on Administrative Cooperation (DAC) and the Anti-Tax Avoidance Directive (ATAD). The conclusions advocate for clearer tax legislation and consistent application of EU tax rules, suggesting the development of guidelines in collaboration with the Member States. Additionally, the Council emphasizes the importance of applying simplification principles in future legislative proposals and increasing Member State involvement in the process.

For more details, please refer to E-News Issue 208 and Euro Tax Flash .Ìý

International developments

The report notes that the High-Level Working Party on Tax Questions (HLWP), at the initiative of the Polish Presidency, discussed the state of play and a number of technical options for a way forward with respect to the global implementation of Pillar Two. In this context, the report refers to discussions at OECD / G20 Inclusive Framework (IF) level and stresses the objective of ensuring the economic competitiveness of the EU and of its Member States, as well as levelling the playing field for all multinational enterprises concerned. It is noted that discussions are expected to continue both at a technical and a political level. For more information, please refer to E-News Issue 213.

Additionally, the report refers to the negotiations on the United Nations Framework Convention on international tax cooperation, following the UN General Assembly's resolution¹ in November 2024.ÌýAccording to the report, EU Member States abstained from the vote on the resolution (for more information, see E-News Issue 204). The report further notes that the Intergovernmental Negotiating Committee held an organizational session in respect of the UN’s Framework Convention on International Tax Cooperation in February 2025. According to the report, delegates agreed on procedural arrangements and areas of focus, namely taxation of income from cross-border services, and the prevention and resolution of tax disputes (see E-News Issue 207 for more details).

Denmark will take over the Presidency of the Council as from July 1, 2025, followed by Cyprus in the first half of 2026.

Whilst the Danish Council Presidency program has not yet been published, the 18-month of the Council previously jointly prepared by Poland, Denmark and Cyprus provides insights on the trio’s common priorities. This includes, amongst others, continuing the Council’s work on customs, combating tax evasion and avoidance, as well as reducing the administrative and regulatory burden, including reporting obligations, and reform administrative processes for businesses, particularly small and medium-sized enterprises (SME) and start-ups.

The decluttering and simplification agenda has been a top priority for the Polish presidency and is expected to remain a focus for the upcoming presidencies. During the March 11 ECOFIN meeting, the Danish Minister of Finance highlighted that they look forward to discussing new measures aimed at reducing compliance costs and administrative burdens. Similarly, the Cypriot Minister of Finance expressed support for the reduction of administrative regulations and reporting burdens, noting that simplification will be a priority during the Cypriot Presidency in the first half of 2026.

 As part of its work on evaluating the functioning of the direct tax Directives, potential overlaps between different existing requirements, and identifying outdated and overlapping tax rules, the Commission has been consulting with EU Member States, business associations and other stakeholders on several EU Directives  � including the DAC, the Parent � Subsidiary Directive, the Interest and Royalties Directive, the Merger Directive and Dispute Resolution Directive. In parallel, the Commission has engaged a consultancy firm to provide an evaluation of the ATAD � with the evaluation expected to be finalized in the fourth quarter of 2025.

It appears that the European Commission is looking into making specific adjustments to the abovementioned Directives, potentially coupled with Commission guidance on the interpretation of existing rules, rather than aiming for a comprehensive change and simplification of the EU tax system. It is expected that, in addition to the recast and amendment of the DAC, the Commission will publish an omnibus proposal to amend multiple direct tax Directives in the first quarter of 2026. This exercise does not address any opportunities to simplify the Pillar Two rules, which can only be achieved through the OECD Inclusive Framework.

Should you have any queries, please do not hesitate to contact ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø’s EU Tax Centre or, as appropriate, your local ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø tax advisor.