Tax Omnibus reform of the Tax Merger Directive: modernising tax neutrality for cross-border reorganisations

The current framework

The Tax Merger Directive provides tax neutrality through the deferral of taxation for certain cross-border reorganisations, ensuring that qualifying mergers, divisions, transfers of assets and share-for-share exchanges can generally be implemented without immediate taxation. However, recent developments in EU company law have introduced new forms of corporate mobility that are not clearly covered by the existing framework, creating uncertainty for businesses undertaking cross-border restructurings.

As a result, certain transactions recognised under the Mobility Directive may not clearly benefit from the tax neutrality protections currently available under the Directive. The proposed amendments therefore aim to improve legal certainty and ensure that tax considerations do not create unnecessary obstacles to legitimate cross-border reorganisations.

Extending the scope to simplified mergers

One of the key proposed amendments is the extension of the definition of a merger to include simplified mergers. Under EU company law, a simplified merger generally involves the transfer of all assets and liabilities of one company to another without the issuance of new shares, typically because ownership remains unchanged. Although economically these are similar to traditional mergers, these transactions do not currently fall clearly within the scope of the Directive.

From a practical perspective, this change may be particularly relevant for multinational groups seeking to simplify legal structures and streamline post-acquisition integrations. Common examples may include:

• elimination of dormant or inactive entities;
• simplification of holding structures;
• centralisation of business activities within a single group company;
• post-acquisition integration projects.

By extending tax neutrality treatment to these transactions, the proposal may reduce uncertainty and provide greater flexibility for businesses undertaking group simplification exercises. At the same time, taxpayers would still need to assess the applicable conditions for tax neutrality under domestic legislation implementing the Directive, as well as any anti-abuse provisions that may apply.

Tax neutrality for divisions by separation

In a division by separation, part of a company's assets and liabilities is transferred to one or more recipient entities, while the transferring company receives shares in the recipient entity. Such transactions are frequently used to separate business lines, isolate specific activities, prepare carve-outs before a sale, or facilitate operational restructuring initiatives.

For groups considering future disposals or strategic reorganisations, greater certainty regarding the availability of tax neutrality may reduce implementation risks and facilitate the execution of separation projects.

A major development: tax neutrality for cross-border mobility operations

Arguably, the most significant feature of the proposal is the introduction of a new framework for cross-border operations, including transfers of registered office and other mobility transactions introduced under the Mobility Directive. The European Commission notes that the current Directive only covers transfers of registered offices involving European Companies (SEs) and European Cooperative Societies (SCEs).

A cross-border conversion generally involves a company transferring its registered office to another Member State while maintaining its legal personality. In other words, the company is not liquidated and re-incorporated but instead changes the Member State whose laws govern it.

The proposed changes are intended to ensure that companies can relocate or adapt their legal structure within the European Union without triggering immediate taxation solely because the transaction involves a cross-border element. The proposal seeks to guarantee the principle of tax neutrality, while preserving Member States' taxing rights and ensuring continuity of tax treatment.

The proposed amendments would therefore expand the scope of the Directive, but businesses would still need to assess the applicable conditions, anti-abuse rules and domestic implementation requirements before relying on tax neutrality.

For multinational groups, this amendment could be particularly relevant where they are reconsidering the location of regional headquarters, holding companies, governance functions or other strategic entities within the EU. This may be particularly relevant for groups seeking to centralise regional decision-making functions, relocate holding structures, or align legal structures with operational substance.

By extending tax neutrality treatment to these transactions, the proposal should provide greater certainty for businesses seeking to streamline their structures.

Updating the list of eligible entities

The proposal also updates the list of company forms covered by the Directive. The objective is to ensure that entities which should naturally fall within the scope of the Directive are expressly included, while granting the Commission the ability to update the Annex in the future as new company forms emerge under national or EU legislation.

Although technical in nature, this amendment may reduce uncertainty for groups operating through less common legal forms and decrease the risk of technical exclusions from Directive benefits.

Why does this matter for businesses?

Unlike the proposed reforms of the Interest & Royalties Directive and the Parent-Subsidiary Directive, which primarily affect withholding tax positions and cash flows, the changes to the Tax Merger Directive have the potential to influence how multinational groups’ structure, simplify and reorganise their operations across the EU.

While the proposed amendments have primarily a technical nature, they have the potential to affect a broad range of restructuring projects undertaken by multinational groups. In recent years, many businesses have expanded through acquisitions, developed complex holding structures, or established multiple operating entities across the EU.

As market conditions evolve, these groups are increasingly seeking to rationalise legal structures, centralise functions and simplify governance frameworks. The proposed extension of tax neutrality to newer forms of cross-border reorganisations and corporate mobility transactions may remove some of the uncertainty that has traditionally accompanied such projects.

Historically, many businesses have associated the Tax Merger Directive primarily with large-scale mergers and acquisitions. In practice, multinational groups increasingly undertake internal reorganisations driven by operational efficiencies, governance considerations and transaction-readiness objectives rather than acquisition activity alone.

In each of these situations, tax neutrality is often a fundamental requirement. Even where no immediate tax liability ultimately arises, uncertainty regarding the availability of Directive protection can complicate planning, delay implementation and increase transaction costs.

For groups that have postponed restructuring projects due to concerns regarding the tax treatment of newer cross-border mobility operations, the proposed amendments may provide an opportunity to revisit those projects and assess whether they can now be implemented with greater legal certainty.

More broadly, the proposed reforms may affect restructuring decisions throughout the M&A lifecycle, from pre-acquisition structuring and post-acquisition integration to pre-disposal separation exercises.

As with any cross-border reorganisation, careful analysis of the relevant conditions and domestic implementation rules will remain essential.

According to the current proposal, EU Member States would be required to transpose the Tax Omnibus measures, including those updating the Tax Merger Directive, by 31 December 2028. Most provisions are expected to apply as of 1 January 2029.

While the proposed reforms remain subject to unanimous approval by the Member States and may evolve during the legislative process, they reflect a clear policy objective: ensuring that tax rules keep pace with the growing range of cross-border restructuring mechanisms available under EU company law. Rather than introducing entirely new forms of tax relief, the proposal seeks to extend the principle of tax neutrality to transactions that are already widely used in practice but do not always fit comfortably within the existing framework of the Tax Merger Directive.