The DAC penalties that Germany, Estonia, Latvia, Lithuania and Hungary apply to tax-reporting failures are now under formal Commission scrutiny, and the timing could hardly be more awkward for the Irish Presidency. The Commission sent letters of formal notice to the five capitals in its October infringement package, arguing that national sanctions under the Directive on Administrative Cooperation are not effective, proportionate or dissuasive. On the DAC penalties question, each government has two months to reply before Brussels decides whether to escalate to a reasoned opinion.
The legal basis is Council Directive 2011/16/EU, the backbone of automatic tax information exchange between member states. It obliges national authorities to share data on cross-border arrangements, financial accounts and income, and it relies on each country to punish those who withhold the information. The Commission points to the European Court of Auditors reports 03/2021 and 27/2024, which both warned that weak penalties undermine the whole system. If a reporting intermediary can treat low DAC penalties as a cost of doing business, the exchange of information loses its deterrent effect.
The same package shows that enforcement is not limited to sanctions. Czechia received a reasoned opinion for failing to transpose Directive (EU) 2025/872, known as DAC9, which governs the exchange of Pillar Two top-up tax information returns. Exchanges on in-scope multinational groups were expected from June 2026, and Prague has two months to comply before the Commission can take the case to the Court of Justice and ask for financial sanctions. The Commission clearly treats the global minimum tax as a test of administrative credibility.
The DAC penalties cases land while ministers are negotiating the DAC recast, which would fold DAC1 to DAC9 into a single text with targeted amendments. An early-September compromise from the Irish Presidency would exempt multinational groups already covered by Pillar Two from DAC6 reporting, with that change deferred to 1 January 2031. It would also remove the so-called A hallmarks and keep extended reporting deadlines of 90 days. Stakeholder feedback on the recast is due by 1 December, and capitals are aiming for agreement in mid-December.
The European Parliament will weigh in later. Rapporteur Francisco Assis of the Socialists and Democrats supports simplification but wants tougher anti-avoidance rules, including wider exchange of data on capital gains and beneficial ownership. Parliament only gives an opinion on this file and cannot amend the proposal, and its plenary vote is scheduled for 15 February 2027. That sequence leaves finance ministers the decisive role, and unanimity is required.
There is a clear tension between the two tracks. Lighter reporting for large groups may reduce paperwork, yet the DAC penalties cases tell member states that the Commission expects robust deterrence from the rules that remain. A simpler directive with toothless sanctions would give tax authorities less information and fewer ways to act on it. Business groups that welcome the recast should expect scrutiny of how each capital sets DAC penalties.
For the five governments in the dock, the practical choice is between raising penalty ceilings and defending existing schemes as proportionate. Hungary and the Baltic states may argue that their rules work in practice, while Germany may point to its federal structure. The Commission has made its position plain, and the DAC penalties question will shape how seriously the 2026 recast is taken in the capitals that will have to apply it.
