25 February 2025 European Commission announces initiatives to improve competitiveness and adopts 2025 Work Programme
On 11 February 2025, the European Commission (the Commission) adopted its 2025 Work Programme (the Programme), accompanied by a Communication on Implementation and Simplification, along with five Annexes detailing new, pending, withdrawn and repealed proposals, as well as the Commission's annual plan for evaluations and fitness checks. This follows the release of the Competitiveness Compass on 29 January 2025, in which the Commission announced its priority actions to reignite economic dynamism in Europe. The Programme outlines the initiatives the Commission will pursue in the first year of its mandate, emphasizing key deliverables across the seven priority areas identified in the political guidelines, including enhancing the EU's competitiveness. The Programme also offers insights into the forthcoming Omnibus packages, which are part of the Commission's simplification efforts. While the Programme does not directly address tax matters, several tax initiatives are covered in the accompanying Annexes. These indicate that nearly all existing proposals, such as Unshell (Directive to prevent the misuse of shell entities for tax purposes) and BEFIT (Directive on Business in Europe: Framework for Income Taxation), remain pending with only two recommended for withdrawal — the proposal to streamline provisions under the Directive on Administrative Cooperation (DAC) released in 2020, and the recast of the Interests and Royalties Directive, and one under the Annex of evaluations (Anti-Tax Avoidance Directive). New tax-specific initiatives are not announced for 2025, although tax-related proposals are likely to be included in the broader horizontal proposals. On the same day, the Commission also published the accompanying Communication on Implementation and Simplification. With the aim of enhancing competitiveness by reducing administrative burden, this Communication outlines the actions and tools necessary to improve implementation and facilitate simplification of EU rules. It also includes the announcement of several "Omnibus packages." Furthermore, the Communication emphasizes the Commission's efforts to explore new ways of cooperating with Member States to reduce administrative burdens, particularly by promoting greater consistency in the transposition and application of European Union (EU) rules. From 6 to 9 June 2024, EU citizens voted in the European Parliament (the Parliament) elections, marking the beginning of a new five-year legislative cycle in the EU. This process culminated in the Von der Leyen II Commission taking office on 1 December 2024, with a term lasting until 31 October 2029. Competitiveness has been established as a key priority for the new legislative period and will be central to the new Commission's agenda. To explore ways to enhance EU's competitiveness, two significant reports were commissioned by the previous Commission: Enrico Letta, former Prime Minister of Italy, was tasked with drafting a report on the future of the single market, while Commission President Ursula von der Leyen commissioned Mario Draghi, the former President of the European Central Bank and former Italian Prime Minister, to issue a report on European competitiveness. On 1 April 2024, Letta published his report, "Much More Than A Market," which aims to guide EU leaders in discussions to strengthen the single market and its impact on competitiveness. Subsequently, on 9 September 2024, Draghi, presented his report on "The future of European competitiveness" analyzing the state of European competitiveness amid a rapidly changing geopolitical landscape and global economy, offering recommendations for enhancement. During the process of installation of the new Von der Leyen II Commission, the mandates given to the respective Commissioners made clear that the analyses and proposals on a way forward in these reports would be taken into account in the formulation of the agenda of the new Commission. On 29 January 2025, the Commission released the Competitiveness Compass (the Compass), a Communication that serves as a roadmap for the Draghi report and outlines the Commission's competitiveness agenda for the next five years. The Compass structurally follows the Draghi report and proposes the flagship actions for three transformational pillars to boost competitiveness (closing the innovation gap, a joint roadmap for decarbonization and competitiveness, and reducing dependencies and increasing security), along with complementary measures on horizontal enablers applicable across all sectors. Altogether, the Compass provides the agenda on what major initiatives and proposals are to be expected from the Commission. The actions outlined in the Compass are anticipated to have a substantial effect on taxation, starting with the introduction of the 28th legal regime by the first quarter of 2026. This new regime aims to simplify regulations and reduce barriers for innovative companies operating within the Single Market by providing a single regulatory framework, including on tax. Furthermore, the Clean Industrial Deal and the Action Plan on Affordable Energy, which will be proposed in the first quarter of 2025, are designed to provide state aid for clean technology industries. This will be complemented by a new State Aid framework that is expected to be proposed in the second quarter of 2025. In addition, the Compass advocates a new approach to competitiveness that integrates industrial policies, investment and reforms under a unified vision, supported by large-scale simplification and a governance framework to enhance coordination between the EU and Member States. Each year, the Commission adopts its annual Work Programme, outlining the key policies and legislative initiatives for the year. The 2025 Work Programme builds on commitments from the Political Guidelines and mission letters from Commission President Von der Leyen, emphasizing the need for the EU to unite in addressing major challenges such as security, climate change and competitiveness. In the context of simplification, the Programme outlines the upcoming Omnibus packages, which are designed to streamline various pieces of legislation and address priority sectors identified by stakeholders and highlighted in the Draghi report. These packages will focus on maximizing simplification by considering the interaction between different legislative measures, including the streamlining of sustainability reporting, due diligence, and taxonomy (first omnibus package). Additionally, they aim to (1) facilitate the implementation of the Invest EU Programme and the European Fund for Strategic Investments by simplifying reporting (second omnibus package) and boosting investment and (2) create a new category of small mid-caps with adapted requirements (third omnibus package). Information on the fourth and fifth Omnibus packages is provided under the "Communication on Implementation and Simplification" heading, below. Although further simplification initiatives will be explored in the future, including a potential Omnibus in the area of defense, there is currently no reference to the inclusion of tax provisions in the upcoming Omnibus packages. Given that this is the 2025 Programme, any initiatives for simplifying tax legislation will likely be anticipated in future annual Commission Programmes, potentially as early as 2026. Further, announcements of the responsible Commissioner indicate that his service has initiated a review of existing EU tax rules with the potential to "declutter" the relevant legislative framework. It is expected that the Commission will also consider the feedback it has received during its recent evaluations of DAC and the Anti-Tax-Avoidance Directive (ATAD). In addressing competitiveness as a priority, the Programme highlights several key initiatives that have already been announced in various forums, including press releases, speeches, and meetings:
Finally, the Programme indicates that the Commission reviewed all pending EU proposals and assessed whether they should be maintained, amended, withdrawn or repealed based on the policy priorities under the new mandate and their likelihood of being adopted in the near future. These proposals were then classified under the relevant Annexes (see below), and it is now up to the Parliament and the Council to communicate their views, before the Commission decides whether to proceed with the intended withdrawals. Along with the 2025 Programme, the Commission published five annexes: Annex I: New Initiatives; Annex II: Annual Plan on Evaluations and Fitness Checks; Annex III: Pending Proposals; Annex IV: Withdrawals; and Annex V: Envisaged Repeals. Tax proposals are included in Annexes II, III, and IV. However, while not explicitly referenced, it is likely that tax provisions will also be incorporated into horizontal initiatives related to competitiveness, such as the Clean Industrial Deal and the Single Market Strategy. Under Annex I, the Commission outlines several upcoming initiatives, including five Omnibus proposals (see Appendix I below). The Annexes suggest only two tax proposals for withdrawal, while the remaining are categorized as pending. This is despite limited progress on several proposals, including (1) Unshell (Directive to prevent the misuse of shell entities for tax purposes), which has stalled in the Council due to Member States' varying positions on its provisions; (2) DEBRA (Directive for a debt-equity bias reduction allowance), which Member States have put on hold; and (3) the Transfer Pricing Directive, which faces ongoing opposition from Member States, while an alternative approach involving the establishment of a Joint Transfer Pricing Platform is under consideration, contingent upon the withdrawal of the original proposal. Additionally, despite the Commission's having communicated that it is committed to implementing Pillar One within the EU and evolving international developments, the Commission keeps its two early digital taxation proposals on the table: (1) a 2015 proposal introducing a digital levy for significant digital presence in the corporate income tax, and (2) a 2018 proposal for an EU-wide digital services tax. Furthermore, BEFIT is included among the proposals in Annex II, along with the Financial Transaction Tax, which has not garnered sufficient support from the Member States since being proposed by the Commission in 2013. An overview of the pending tax proposals can be found in Appendix II, below. The two initiatives intended to be withdrawn, according to Annex IV, are the proposal to streamline provisions under the DAC released in 2020, deemed obsolete by the Commission due to significant amendments since its conception, and the recast of the Interests and Royalties Directive, which is also considered obsolete as its scope has been partially covered by the Minimum Tax Directive. However, a new DAC codification proposal will be forthcoming, and the remaining issues from the original Interests and Royalties Directive will be addressed in an upcoming Omnibus package as part of the simplification process. Finally, in its Annual Plan on evaluations and fitness checks (Annex II), the Commission only includes one tax incentive — the evaluation of ATAD with an indicative finalization timeframe now set for the fourth quarter of 2025, rather than the third quarter previously mentioned on the public consultation website. A consultation on DAC2-6 was completed in 2024. On 12 February 2025, the Commission also issued a Communication on Implementation and Simplification, outlining its plans for the next five years to facilitate the practical implementation of EU rules, reduce administrative burdens and simplify regulations. The Communication identifies key actions to enhance implementation, including the Commission's closer collaboration with Member States by developing an implementation strategy to support them during the finalization of legal acts, effectively addressing challenges in transposition and application. Additionally, to foster better engagement with stakeholders, each Commissioner will hold at least two annual dialogues to assess progress and pinpoint key issues, with the insights gathered to be included in annual reports, the first of which is anticipated in early 2025. Lastly, the Commission remains committed to ensuring compliance by continuing to initiate infringement procedures as necessary. The Communication presents various tools and actions focused on simplification. It outlines the five upcoming Omnibus packages, encouraging the Parliament and Council to fast-track these proposals without revisiting other legislative components:
The Commission also set new targets to reduce overall administrative costs by 25% (35% for small and medium-sized entities), moving beyond just reporting requirements, with annual progress reports to monitor this initiative. Furthermore, the gradual stress-testing of EU legislation will evaluate individual rules and policy areas to identify simplification opportunities, reduce costs and consolidate rules with the aim of assessing the entire EU acquis (i.e., entire body of written and unwritten EU laws and EU political aims, as well as Member States' obligations, rights and remedies) for duplications and inconsistencies. Concrete simplification measures will be incorporated into the Commission's annual Work Programmes. Furthermore, in 2025, the Commission will propose a streamlined long-term budget for the EU that aligns with EU priorities, also improving access to funding. In that regard, a communication titled "The Road to the Next Multiannual Financial Framework" was released on 12 February 2025. The Commission will also engage with businesses to gather feedback on the impact of EU rules, identify issues and evaluate whether simplification measures deliver the expected benefits and cost savings. Following its publication, the 2025 Work Programme was presented to the Parliament during its February Plenary session and will also be presented to Member States at the General Affairs Council on 25 February 2025. Based on this Programme and the priorities set by other institutions, the Commission, Parliament, and Council may develop a Joint Declaration outlining the EU's legislative priorities for 2025, along with Joint Conclusions on overarching term priorities. The Commission will translate most proposals outlined in the Work Programme into legislative texts, which are then subject to approval by the Council and, depending on the subject matter, the Parliament. Many initiatives that the Commission announces are likely to evolve from non-legislative publications into legislative proposals in the coming years. The horizontal proposals such as the Clean Industrial Deal, the Savings and Investment Union and the Single Market Strategy may include tax-related measures to be introduced as part of comprehensive, horizontal packages. Potential proposals to remove cross-border tax obstacles for investment will be particularly relevant for investors, as well as for industries that seek funding for their decarbonization strategies or innovation. The development of the 28th legal regime will be a significant step for the internal market, as an EU-wide corporate regime would be made available, requiring policymakers to consider business feedback on previous corporate tax proposals like the Common Consolidated Corporate Tax Base and the recent BEFIT. The precise implications of the proposals will depend on the support they attract from the European Parliament and Member States. While the Von der Leyen Commission has been seeking support from the Member States and main political families in the EU, adoption and implementation of new legislation will require broad support, which could be challenging given the level of cooperation and coordination needed for these initiatives. The likelihood of adopting these proposals and their potential implications are influenced by ongoing discussions regarding the EU budget and the EU's relations with major trading partners such as the US and China, and its relative competitive position compared to these countries. These factors will likely impact strategic priorities and the level of desired cooperation between EU Member States. However, although the Programme emphasizes the need for the EU to leverage partnerships and assert its strategic interests, it currently makes no reference to the EU's geostrategic positioning in relation to the United States (US) after the recent announcements of the US administration (see EY Global Tax Alert, US issues Executive Order on BEPS 2.0, dated 23 February). As these developments are very recent, it is likely that the priorities and urgencies of the EU may shift, accelerate or decrease depending on how these geopolitical developments play out. As the new Commission's agenda is translated into concrete proposals, the potential inclusion of tax provisions within these broader horizontal initiatives makes it difficult to identify and assess specific tax implications. Consequently, effective monitoring and analysis will be essential to navigating these developments. Additionally, because all competition-related matters require input from businesses and investors, this is a critical moment for companies to engage with EU policymakers to ensure their perspectives are included in the decision-making process.
Document ID: 2025-0552 | ||||||
