EU Gateway: BEFIT proposal and our observations

12/12/23

This EU Gateway publication with the title "BEFIT proposal: a new company tax system in the EU" focuses on the European Commission's BEFIT proposal and its connection to the Pillar Two system and explores four aspects of BEFIT that have both positive aspects and challenges for EU and non-EU companies.

Take a look here at our EU Gateway publication.

What does it mean for you?

The Directive proposal BEFIT, short for “Business in Europe: Framework for Income Taxation”, has been put forth by the European Commission on 12 September 2023. If adopted, it will enact substantial alterations to the corporate tax systems of the EU27, impacting both domestic, EU, and non-EU headquartered groups conducting business in the EU.

For BEFIT to be adopted, a consensus is required among all EU Member States. In such a case, BEFIT would apply in parallel with the Pillar Two rules in EU27 and national corporate income tax systems.

Based on our research, we have concluded that compliance under Pillar Two would not automatically ensure compliance under BEFIT. This is because the starting point of Pillar Two and BEFIT fundamentally differs.

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The publication

We have identified four elements from the proposal that present both positive and challenging aspects simultaneously:

1. Administrative burden for companies

BEFIT has the potential to reduce the administrative burden for companies by providing a harmonized company tax system within the EU. However, it's also argued that BEFIT may increase the administrative burden as groups will need to file the BEFIT return and continue to file tax returns locally.

2. Legal certainty for companies

BEFIT could enhance legal certainty for EU and non-EU groups when doing business in the EU by providing a standardized tax system. However, disparities between BEFIT and Pillar Two could undermine legal certainty. Compliance with Pillar Two does not inherently also ensure compliance with BEFIT and vice versa.

3. Simplicity of the tax system in the EU

BEFIT could ensure a simpler tax system within the EU as companies would not have to navigate different tax systems and tax administrations. However, the implementation of BEFIT could complicate the tax system in the EU by introducing multiple parallel company tax systems within the EU Member States. The concurrence with other initiatives such as Pillar Two, Pillar One, the EU Transfer Pricing Proposal, and the Head Office Taxation System Proposal further adds complexity.

4. Aggregation into a single BEFIT tax base

The aggregation of results across the borders of the EU Member States would make intra-EU netting of taxable bases possible. However, the aggregation of BEFIT results may be offset by the Pillar Two system, potentially triggering a top-up tax.