EU Commission: Call for public consultation on BEFIT

On 13 October 2022, the EU Commission launched a public consultation on the Business in Europe: Framework for Income Taxation (BEFIT) in accordance with which the Commission aims to propose a directive by the third quarter of 2023 on a common set of rules for EU companies to calculate their taxable base with an allocation of profits between EU member states based on a formula.

BEFIT is also intended to reduce compliance costs and create a coherent approach to corporate taxation in the EU. BEFIT would be a single corporate tax rulebook for the EU, the key features of which would be a common tax base and allocation of profit between Member States by using a formula (“formulary apportionment”). The design of this proposal is based on the experience gained in working on corporate tax initiatives over the last 10–15 years, especially the Common Consolidated Corporate Tax Base (CCCTB, 2011 and its 2016 update) and the Two-Pillar approach agreed upon by the OECD/G20 Inclusive Framework. The aim of BEFIT is also to complete other EU policies on direct taxation, such as Anti-Tax Avoidance Directive and its amendments.

The five key elements of the BEFIT system are:

1. Scope

Option 1: BEFIT would apply to companies with consolidated global revenues of EUR 750 million or more

Option 2: Lowering the revenue threshold below EUR 750 million to make BEFIT applicable also to SMEs with cross-border activities

2. Tax base calculation

Option 1: Calculation of the tax base with the application of the list of adjustments to the income reported in the financial statements

Option 2: Detailed rules for all aspects of profit/tax determination, rather than building a system based on the financial accounting

3. Formula for allocating taxable profits

Option 1: Formula apportionment without incorporating intangible assets

Option 2: Formula apportionment incorporating intangible assets. Other elements of formula apportionment would be labour (equally shared between personnel and salaries) and sales by destination principle

4. Allocation of profit to related entities outside of the group

Option 1: Simplified approach to transfer pricing based on macroeconomic industry benchmarks

Option 2: To keep the current approach to the application of the transfer pricing rules

5. Administration

The goal of BEFIT is to reduce compliance and administrative costs for both taxpayers and Member States.

The public consultation is open until 5 January 2023 for stakeholders to provide meaningful feedback to help the Commission design the BEFIT directive.

The aim of the public consultation is to collect views from the stakeholders on:

  1. the problem and the need to act,
  2. the scope of the new system,
  3. how to calculate the common tax base,
  4. how to consolidate the tax base and allocate it to eligible Member States,
  5. how to allocate profit between related parties in the group and outside the group.

Once the public consultation is closed, the EU Commission will publish a factual summary report within 8 weeks. We will keep you updated on this topic.

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