The European Union's new Tax Omnibus proposal would let companies immediately write off the full cost of tangible assets used in research and development, but it excludes the intangible assets central to much R&D work, according to a report published by the Tax Foundation on August 3, 2026. The proposal, announced June 24 by the European Commission, aims to create an EU-wide minimum standard for full expensing—a tax treatment that allows businesses to deduct capital investments in the year they're made rather than spreading deductions over multiple years. While the measure represents a step toward boosting investment and growth across the bloc, the report finds it won't put EU member states on equal footing with their main trading partners.
The proposed EU standard covers qualifying tangible assets directly used for or supporting R&D activity, including some land and buildings, but leaves out intangible assets like software development costs, acquired patents, and intellectual property licenses. By contrast, the US permanently restored full expensing for domestic research expenses in 2025, including software development, and now allows companies to write off 100 percent of machinery and equipment costs immediately—a policy Tax Foundation modeling estimates will raise long-run GDP by 0.6 percent, capital stock by 1.0 percent, and wages by 0.5 percent. The UK's full expensing regime, made permanent in 2023, applies to machinery and equipment broadly and is projected to lift GDP by 0.9 percent, capital stock by 1.5 percent, and wages by 0.8 percent. Among EU countries, only Estonia, Latvia, and Lithuania currently offer full expensing for all or broad asset classes, while the average weighted capital allowance across other member states sits at around 69.2 percent—meaning businesses can't recover roughly 30.8 percent of the net present value of their capital investment costs.
The report notes that the proposal's central weakness is its narrow scope, which excludes intangible assets that are "central to R&D activity," covers only a small share of total investment, and creates distortions between tax-preferred and other assets. The authors point out that the broad-based regimes in the US and UK apply full expensing to entire asset classes—such as plant, machinery, and industrial buildings—which are easier to define and large enough to produce a significant economic effect. According to the report, the EU proposal "falls short of restoring full competitiveness" with the US and UK, particularly because it doesn't allow immediate expensing for software development costs, which both the US and UK R&D regimes permit.
Full expensing works by eliminating the tax penalty on capital investment that arises when businesses must spread deductions over many years, during which inflation and the time value of money erode their real value. The report explains that when deductions arrive gradually under traditional depreciation schedules, they raise the cost of capital and discourage investment, making firms more hesitant to commit funds. Accelerated depreciation policies achieve a high investment impact at relatively low fiscal cost because each deduction can only be claimed once—accelerating depreciation simply shifts the timing of write-offs without increasing total deductions, and because the rules apply only to new investments, firms gain upfront while tax revenue from returns on existing assets remains unaffected. The report warns that narrowly targeted policies confined to specific asset classes create delineation problems and distortions, producing significant administrative and compliance costs and causing businesses to misallocate funds toward tax-preferred assets. Tax Foundation Europe modeling shows that if Germany moved to full expensing for all machinery and equipment, it could potentially raise GDP by 1.6 percent, capital stock by 2.5 percent, and wages by 1.4 percent—roughly double the gains from making its current accelerated depreciation policy permanent.
The report recommends that member states go beyond the EU minimum floor by extending full expensing to entire asset classes and strengthening other cost-recovery rules, such as the treatment of net operating losses, to support investment and innovation. The authors suggest that replacing existing R&D preferences—which currently provide an average tax subsidy of 17 percent on R&D expenditures for large companies across the EU—with R&D expensing would let countries capture the proposal's economic benefits while avoiding the costs of preferential tax treatment. The report also notes that pairing accelerated depreciation with more flexible loss-carryover rules is essential, since firms embarking on capital-intensive projects often face early-stage losses that lag profits by years, and strict time limits or ceilings on loss offsets raise the after-tax cost of capital and deter investment. While the EU proposal represents a "second-best measure" and a positive step forward, the report concludes that a broader common approach extending beyond R&D-specific assets would do more to support competitiveness and reduce fragmentation across the Single Market.