The European Commission’s proposed tax simplification package could mark a turning point for real estate investment in Europe.
The package brings together the direct taxation Omnibus and the Recast of the Directive on Administrative Co-operation (DAC). Its aim is to simplify direct tax rules, reduce duplicated reporting and lower compliance costs for businesses operating across borders.
For the real estate industry, that matters because investment structures are often leveraged, multi-jurisdictional and highly sensitive to tax friction.
Currently, the Anti-Tax Avoidance Directive (ATAD) limits the amount of interest that businesses can deduct for tax purposes. The rules generally restrict deductible net borrowing costs to 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA) or EUR3 million, whichever is higher, although Member States may apply stricter limitations through lower percentage or monetary thresholds.
The proposed removal of withholding tax on cross-border payments, simplified ATAD interest limitation rules and fewer restrictions on third-party financing could reduce costs, improve cash flow and make cross-border structures more commercially efficient.
In this insight, Baker Tilly’s global real estate industry group unpacks the proposed reforms and considers whether they could make Europe a more competitive destination for cross-border real estate investment.
Key proposed changes
From 1 January 2029
A mandatory 30% EBITDA interest limitation would apply across the EU, removing Member States' ability to set a lower threshold.
Businesses would be able to fully deduct exceeding borrowing costs where EBITDA falls by at least 50% compared with the previous year.
Qualifying low-risk third-party financing, such as standard bank loans, could be excluded from the interest limitation rules, provided certain conditions are met.
Member States would be required to provide a group escape from the interest limitation rules where specified criteria are satisfied.
The rules would provide greater flexibility for tax-neutral cross-border reorganisations.
From 1 January 2032
The EUR3 million safe harbour threshold would become mandatory across the EU and be indexed annually, preventing Member States from applying a lower threshold.
From 1 January 2037
Qualifying intra-EU dividends and profit distributions would be exempt from tax regardless of the level of shareholding. (Currently, Member States must exempt dividends from tax where the recipient holds at least 10% of the distributing company. Member States may apply a lower threshold.)
A broader withholding tax exemption would apply to qualifying intra-EU interest and royalty payments, with no minimum shareholding requirement, subject to anti-abuse provisions and safeguards against double non-taxation.
Cross-border capital gets easier
The proposed exemption from withholding tax on cross-border payments of dividends, interest and royalties between EU companies could be a major simplification for real estate. In practice, it could make it easier and cheaper to move returns, service debt and repatriate capital across European structures.
That is particularly important for cross-border real estate platforms, where ownership, financing and operating entities may sit in different jurisdictions.
Removing withholding tax friction could reduce trapped cash, shorten refund cycles and give investors greater confidence in how capital flows through a structure.
Leveraged structures become cleaner
The simplification of interest limitation rules under ATAD, including a mandatory de minimis threshold, could also have clear benefits for leveraged real estate investments. Real estate is a debt-sensitive asset class. Small changes in the tax treatment of interest can affect returns, refinancing decisions and the viability of acquisitions or development projects.
Alongside this, the proposed removal of restrictions on third-party financing could give investors more flexibility to structure debt efficiently across borders. The practical benefits are direct: lower cost of capital, faster cash flows, reduced compliance drag and fewer reasons to build complexity into structures simply to manage tax constraints.
The package is estimated to bring savings and reduce compliance costs for businesses by approximately EUR7.9 billion.
Europe-wide impact for investors
The implications are pan-European.
Markets such as Luxembourg, the Netherlands, Poland and Spain could all see meaningful effects, particularly where real estate investment relies on leveraged structures, holding companies, cross-border financing or multinational ownership chains. The opportunity is not confined to one market; it applies wherever tax friction has made European real estate capital harder or slower to deploy.
The proposed elimination of overlaps between controlled foreign company rules and Pillar Two could further reduce complexity for multinational real estate groups and funds. This would not remove the need for strong tax governance, but it could reduce duplicated analysis, conflicting obligations and unnecessary compliance pressure across jurisdictions.
Investors should plan now
The proposals still need to move through consultation and adoption, and unanimous agreement from Member States may shape the final outcome. But global real estate investors should not wait for the rulebook to be final before assessing the potential impact.
Investors should be asking where current structures carry avoidable tax cost, where cash is delayed by withholding tax or refund processes, where interest limitation rules affect leverage, and where third-party financing restrictions influence debt strategy. They should also consider whether existing holding and financing models remain fit for purpose if capital can move more efficiently across the EU.
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