On 12 September 2023, the European Commission adopted the Business in Europe: Framework for Taxation (BEFIT) proposal.
BEFIT is a proposal for a new legislative framework for corporate taxation in the EU. It introduces common rules for computing the taxable results of group members which operate in the internal market.
The overall aim is to simplify tax rules and to ensure a level playing field for businesses in the EU. The framework builds on international developments in the field of corporate taxation, such as the OECD/G20 Inclusive Framework Two-Pillar Approach and reflects the realities of the modern economy.
How will it work?
All members of the same group (the ‘BEFIT group’) calculate their tax base in accordance with a common set of rules applied to their already prepared financial accounting statements.
The tax bases of all members of the group are aggregated into one single tax base, with losses automatically set off against cross-border profits.
A team of Member State authority representatives (the ‘BEFIT team’) assesses and agrees on the content and treatment of the BEFIT Information Return.
Each group member where the multinational group is present is allocated a percentage of the aggregated tax base, calculated on the basis of the average of its taxable results in the previous three fiscal years.
Each Member State can then adjust the allocated tax base of the gropu members resident for tax purposes in their territory following their own national rules, and tax the outcome accordingly, at their national corporate income tax rate.
Why this proposal?
Currently, large cross-border groups must comply with up to 27 different national tax systems in the EU, making it difficult and costly for them to do business across the internal market.
This complexity creates an uneven playing field and increases tax uncertainty and tax compliance costs for businesses operating in more than one Member State. It also discourages cross-border investments, putting EU businesses at a competitive disadvantage compared to businesses operating in markets of a comparable size elsewhere in the world.
The BEFIT proposal builds on the OECD/G20 international tax agreement on a global minimum level of taxation, and the EU Directive on minimum effective taxation (‘Pillar 2’) which enters into application on 31 December 2023.
Who is in scope?
The new rules will be mandatory for groups operating in the EU with an annual combined revenue of at least €750 million. For groups headquartered in third countries, their EU group members would need to have at least €50 million of annual combined revenues in at least two of the last four fiscal years, or at least 5% of the total revenues of the group. This ensures that the requirements of the proposal are proportionate to its benefits.
Smaller groups may choose to opt in as long as they prepare consolidated financial statements. This option could be of particular interest to SME groups that operate cross-border, as they may have fewer resources to dedicate to compliance with multiple national corporate tax systems.
Next steps
The Commission’s proposal must be agreed unanimously by all EU Member States in the Council before it can become law.
Documents and legal texts
- Proposal COM (2023) 532 for a Council Directve on Business in Europe: Framework for Income Taxation (BEFIT)
- Impact Assessment Report SWD (2023) 308 accompanying Proposal COM (2023) 532
- Executive Summary SWD (2023) 309 of Impact Assessment Report SWD (2023) 308
- Press release | Taxation: new proposals to simplify tax rules and reduce compliance costs for cross-border businesses
- Q&A | BEFIT and transfer pricing