This article was first published in EFAMA's Fact Book 2026.
Omnibus on taxation and a Savings and Investment Union for all
As we progress through 2026, the European tax landscape has reached a profound turning point. For over a decade, European Union tax policy was defined by the pursuit of transparency and the implementation of anti-abuse measures, leaning heavily on directives like the Anti-Tax Avoidance Directives (ATADs) and the various iterations of the Directive on Administrative Cooperation (DACs). Today, however, tax policy agendas reveal a shifting focus toward simplification, competitiveness, and the reduction of administrative burdens. This pivot offers renewed hope for a consensus among Member States to finally build a true Savings and Investment Union (SIU).
Overcomplex and excessive legislation is a primary factor jeopardising EU competitiveness in a shifting geopolitical world. The wake-up calls from Mario Draghi, Enrico Letta, and others are finally reflecting in the functioning of EU institutions and action plans. Yet relevant policymakers and actors shaping legislative procedures still overlook a crucial reality: we must urgently close the gap between European savers, investors and capital markets.
We must move beyond legislation that focuses solely on risk and penalising bad actors. The EU is a champion in legislating; Member States are champions in delivering challenging packages. We have regulations, directives, implementing acts, delegated acts, guidance, and court rulings. We have it all - and we have likely exceeded our needs in terms of legislative volume, forgetting those we are fundamentally supposed to be protecting. Our focus should be on European savers and investors.
Concerns about EU competitiveness and the challenges of harmonising Member States' tax systems should be seen as inherent features of the Union. We need to accept that we are not a federation. The Union will likely never take that shape, and each country's core tax sovereignty will remain untouched. However, Member States can agree to align their tax policies to respect EU fundamental freedoms, ensuring taxation does not act as a barrier to the free movement of capital. People - savers and investors - are supposed to be the alpha and omega of the Union.
There is no such thing as “EU tax sovereignty”, and it may be impossible to have a single tax system in the EU. Accepting this and the reality of how slowly we move is critical. In March 1968, Michel Debré (French Minister for the Economy and Finance), the President in office of the Council, gave a press conference explaining that the agenda included an important Commission report on harmonising direct taxes. He noted that the Commission would soon launch a study on measures planned by the United States that could jeopardise trade negotiations. Nearly sixty years later, we are having the exact same conversations.
The pressure on competitiveness is here to stay. International allies can become competitors, and vice versa. In the field of taxation, Member States have tried for decades to eliminate tax frictions, recycling decades of initiatives that are still being debated today. Recently, the implementation of Digital Services Taxes (DSTs) and the OECD-level agreement on Pillar Two have put similar pressure on international negotiations. The discussions of tax policy are and will always be challenging. Instead of embarking on endless discussions, when we don’t have the luxury of time, Member States must act together and focus on pragmatic, realistic work in taxation to advance and continue protecting our fundamental freedoms.
For investment funds and asset managers, the journey to influence EU tax policy has always focused on ensuring Member States respect the fundamental principle of tax neutrality. Yet, a common misunderstanding persists among policymakers regarding the difference between double taxation and tax frictions. Many assume that if a bilateral tax treaty exists, or domestic legislation addresses tax concerns raised by the industry, the problem is solved. In reality, double taxation is merely the legal conflict; tax friction is the economic drag. Even if an investment fund is legally entitled to a reduced withholding tax (WHT) rate, the administrative cost of proving it - the red tape, the duplicate reporting, the complex reclaim procedures - often exceeds the value of the tax itself.
In a European market managing tens of trillions of euros, this friction acts as an invisible, regressive hidden cost. Tax inefficiencies and barriers to the free movement of capital create a massive liquidity drag, directly eating into the compounding returns of European retail investors. In addition, eliminating double taxation on paper is meaningless if compliance costs render the mechanisms for eliminating double taxation inaccessible in practice.
To resolve this, policymakers must approach the investment chain through a strict three-layer architectural lens. If the SIU is to function efficiently, taxation should only occur at the final stage. Looking at it from top to bottom, the first layer is the capital markets. Here is where funds purchase equities or bonds on behalf of end investors and participants in the collective investment vehicles. This is where withholding taxes must be relieved instantly at the source to prevent yield leakage. Then, we have a second layer where the fund vehicles are managed and where absolute efficiency is required. The funds must operate as a neutral pass-through entity, free from entity-level taxation and redundant cross-border reporting requirements. The only layer where it is appropriate to view as a point of taxation is at the bottom, where, in a third layer, we will find the end investors. This is where the fiscal relationship between the citizen and the state should live, optimised by long-term incentives.
When we fail to protect this three-layer principle, we violate our industry’s tax neutrality. Consider two retail investors: The first buys shares in a foreign company directly. They are taxed once in their home country, often utilising a simple tax credit for any foreign tax withheld. The second investor, seeking professional management, diversification, and ESG alignment, buys a UCITS fund that holds the exact same shares. Because that fund suffers WHT leakage at the first layer, the second investor receives a lower net return. By failing to ensure tax neutrality, we inadvertently penalise citizens for choosing regulated, diversified collective investments. If a citizen is taxed more heavily for using a fund than for trading individual stocks, the core objectives of the Retail Investment Strategy (RIS) are structurally undermined.
Fixing this requires a comprehensive approach to the very first layer of taxation. The FASTER Directive offers a beacon of hope by streamlining procedures and introducing digital tools (e.g. common digital tax residence certificates (eTRCs)). However, this simplification is an interim measure, not the final destination. The ultimate objective must be for all Member States to grant relief at source by law. Where there are no complex reclaim systems and a single relief-at-source system is coupled with digital verification (such as the eTRC) and robust procedural automation, we can eliminate the risks of fraud (and the costs of WHT fraud cases). And this should not be seen as deregulation – Member States can follow the same logic that allowed them to agree on the FASTER proposal. We do this in a realistic, pragmatic and step-by-step basis. Member State by Member State, rebuilding the trust of each system as we move forward.
Beyond procedures, we must address the second layer by decluttering regulations. The upcoming Omnibus on Taxation initiative should serve this purpose. Rather than creating new tax exemptions, this initiative is a unique opportunity to recognise that highly regulated funds (e.g., AIFMD/UCITS-compliant) are tax-neutral vehicles. This is an opportunity to eliminate costly legal disputes over treaty eligibility and fix the systems by leveraging the "regulatory fortress" of EU funds to prevent tax abuses while securing tax neutrality. Simultaneously, tax authorities must make effective use of the tax tools at their disposal. By onboarding all the tax compliance obligations arising from the EU tax framework (e.g., DACs, ATADs, Pillar Two), the industry has reached a compliance ceiling. The price of tax integrity should be limited by the principle of proportionality. Tax authorities are not suffering from a lack of data; they are suffering from an inability to consolidate it. We should aim to establish a "report once" framework, so that tax authorities can automate verifications and phase out the burdensome, inefficient paper-based procedures of the past.
Finally, simplifying the back-end plumbing must be paired with clear strategies to empower investors. Complex tax reporting is a major barrier to financial literacy. To ensure a widespread adoption of the Commission's recommendations on Savings and Investment Accounts (SIAs), Member States should utilise the fiscal space created by a more efficient, digitalised tax system to offer targeted tax incentives at the investor level, rewarding the patient, long-term capital Europe desperately needs. Ultimately, the Savings and Investment Union will not be built on new regulations alone, but on the removal of the old architectural flaws in our tax systems. By respecting the three-layer principle, demanding relief at source via the Omnibus initiative, and fully digitalising compliance, we can ensure that European savings finally become the true engine of European economic growth. This is how we turn the needle: working together in the same direction, we can build a Savings and Investment Union for all.
Author: António Frade Correia
