Riga: Weak DAC tax penalties have landed Germany, Estonia, Latvia, Lithuania and Hungary in infringement proceedings. On 1 October 2026 the European Commission sent each of them a letter of formal notice, arguing that the sanctions they apply under the Directive on Administrative Cooperation are too low to deter breaches.
The directive, known as DAC, governs how national tax authorities share information about cross-border arrangements, platforms and multinational groups. The system works only if the data arriving from other countries are complete and reliable. The Commission says that weak DAC tax penalties undermine the quality of those data, because a company that faces a small fine for a late or missing report has little reason to change its behaviour.
EU law requires penalties to be effective, proportionate and dissuasive. According to the Commission, the five systems fall short on those tests. It says the sanction levels cannot deter non-compliance by international corporate groups or by individuals who use cross-border tax schemes. It also finds that the national rules do not take enough account of the severity, scale and repetition of a violation, the economic capacity of the offender or the economic incentive behind the breach.
That list of criteria shows what the Commission wants to see in reformed DAC tax penalties. A fine that suits a small firm will not trouble a multinational group, so penalties need to scale with turnover or with the gain from hiding information. Repeat offenders should also pay more than first-time offenders. National legislators can design these features in different ways, as long as the final outcome deters misconduct.
The five governments now have two months to respond and fix the shortcomings. If their answers do not satisfy the Commission, it can issue a reasoned opinion, which is the next step before a possible referral to the Court of Justice of the EU. The reports reviewed give no figures for the current penalties in any of the five countries, so the size of the gap remains a question for the national replies.
The dispute over DAC tax penalties arrives at a busy moment for tax cooperation. In January 2026 the Commission opened separate proceedings against member states that missed the 31 December 2025 deadline to transpose DAC8, which covers crypto-asset information, and DAC9, which covers the exchange of Pillar Two information. Transposition and enforcement are two sides of the same effort, and the Commission now presses on both.
For businesses, the message is clear. Reporting duties under the directive will not soften, and national authorities may soon hold stronger tools to punish errors. Tax departments in Riga, Tallinn, Vilnius, Budapest and Berlin should watch the national debates closely, since new sanction schedules could follow within months. The outcome of the DAC tax penalties dispute will show how seriously the Union treats the integrity of its tax information network.
