On 12 September, the European Commission published the «Proposal for a council directive on Business in Europe: Framework for Income Taxation» (BEFIT). Its two main objectives are ambitious: to reduce tax compliance costs for large cross-border companies in the EU and to harmonise transfer pricing rules within the EU.
Objectives
There are currently 27 different corporate tax regimes in the EU for groups of companies with an annual consolidated income of more than EUR 750 million. This forces multinational companies to face high complexity and costs in their operations. In addition, it gives rise to problems such as profit shifting, tax avoidance, litigation, double taxation cases…
Now, the proposed BEFIT Directive seeks to introduce a common framework for corporate taxation across the EU. The objectives are:
- Simplify the practice and management of corporate taxation in the internal market.
- Create a level playing field.
- Strengthening legal certainty.
- Reduce tax compliance costs for large companies operating in more than one Member State by up to 65%.
- Encourage companies to operate on a cross-border basis.
- Stimulate investment and business growth in the Union.
- Facilitate the national tax authorities’ assessment of taxes due to them.
What the BEFIT Directive proposes
The proposed BEFIT Directive foresees that its rules will be mandatory for groups operating in the EU with combined annual revenues of EUR 750 million or more, and where the ultimate parent entity owns at least 75% of the ownership rights or rights giving entitlement to benefits.
In these cases, companies that are part of the same group:
- They shall calculate their tax base on the basis of a common set of tax adjustments.
- They will aggregate their tax bases into a single aggregated tax base. Cross-border loss relief will thus apply, as losses will be automatically offset against cross-border profits.
- They will be entitled to a percentage of the aggregate tax base calculated on the basis of the average of the taxable results of the three previous tax years.
The proposal builds on the OECD/G-20 international tax agreement on a global minimum level of taxation and the Pillar Two Directive adopted at the end of 2022.
What the BEFIT Directive is NOT
The Proposal for a BEFIT Directive does not entail a change or harmonisation of tax rates. It simply proposes a system of common computation of the tax base of groups of companies so that, subsequently, each Member State applies the corresponding rate.
When will the BEFIT Directive enter into force
The BEFIT Proposal for a Directive replaces two previous Commission proposals, which are withdrawn. These are BICIS (Common Consolidated Corporate Tax Base) and CCCTB (Common Consolidated Corporate Tax Base).
At Confianz we always recommend companies to anticipate tax changes. So now you need to know that, if the BEFIT Directive is approved as currently proposed, EU member states will have to transpose it by 1 January 2028 at the latest. Thus, the new rules will apply from 1 July 2028.