A look into EU’s new tax compliance proposals

3 mins read

In a significant move towards simplifying and harmonising tax regulations within the European Union (EU), the European Commission (EC) has unveiled a novel proposal known as ‘Business in Europe: Framework for Income Taxation’ (BEFIT). The BEFIT framework introduces a unified set of rules designed to streamline the determination of the tax base for groups of companies, heralding potential cost reductions in tax compliance of up to 65 percent for businesses operating within the EU, as outlined by the EC.

The complexity of navigating 27 distinct national tax systems has long been a source of financial burden for companies, effectively discouraging cross-border investment within the EU. This not only amplifies compliance costs but also places European businesses at a competitive disadvantage when compared to their global counterparts.

Under the BEFIT proposal, mandatory adoption awaits groups operating within the EU with a combined annual revenue of at least €750 million, provided that the ultimate parent entity retains a minimum ownership stake of 75 percent or possesses entitlement to at least 75 percent of the profit rights.

Importantly, the BEFIT framework supplants the European Commission’s prior proposals, namely the common corporate tax base (CCTB) and common consolidated corporate tax base (CCCTB) initiatives.

So, how does this pioneering tax compliance proposal function in practice?

Companies falling within the same corporate group will harmonise their tax base calculations according to a standardised set of rules. These aggregated tax bases will then merge into a unified, consolidated tax base.

Each member of the BEFIT group will contribute a proportion of the aggregated tax base, derived from the average taxable results of the previous three fiscal years.

While the BEFIT framework primarily targets larger enterprises, there is also a provision aimed at providing relief to small and medium-sized enterprises (SMEs), albeit on a discretionary basis. SMEs may voluntarily opt into these regulations, subject to the condition that they prepare consolidated financial statements.

In tandem with the BEFIT proposal, the European Commission has introduced a complementary initiative focused on harmonising transfer pricing rules across the EU. Paolo Gentiloni, Commissioner for Economy at the European Commission, emphasised the potential benefits of these proposals in terms of “reducing tax compliance costs and freeing up resources for them to invest and create jobs.” He underscored the significance of these steps towards establishing more streamlined, transparent, and cost-effective tax systems throughout the EU.

Subject to approval by the Council, the regulatory proposals are slated to come into effect on 1 July 2028 for BEFIT and 1 January 2026 for the transfer pricing proposal, marking a pivotal transition towards a more integrated and efficient tax environment within the EU.