UK and International Tax news

European Commission Launches Framework For An EU Corporate Tax System

Friday 15th September 2023

The European Commission has issued their proposal “Business in Europe: Framework for Income Taxation” (BEFIT), which will introduce a new, single set of rules to determine the tax base of groups of companies in the EU.

The BEFIT proposal builds on the OECD/G20 international tax agreement on a global minimum level of taxation and the Pillar Two Directive adopted at the end of 2022.

It replaces the CCTB (common corporate tax base) and CCCTB (common consolidated corporate tax base) proposals, which are withdrawn.

All corporate members of the same group will calculate their tax base in accordance with a common set of tax adjustments to their financial accounting statements.  The tax bases of all members of the group will be aggregated into one single tax base. This will entail cross-border loss relief, as losses will automatically be set off against profits across borders, as well as increased tax certainty in transfer pricing compliance.

Each member of the BEFIT group will have a percentage of the aggregated tax base calculated on the basis of the average of the taxable results in the previous three fiscal years.

The new rules will be mandatory for groups operating in the EU with an annual combined revenue of at least €750m, and where the ultimate parent entity holds at least 75% of the ownership rights or of the rights giving entitlement to profit.

The rules will be discretionary for smaller groups, which may choose to opt in as long as they prepare consolidated financial statements. This might be of particular interest to SMEs.

Once adopted by the Council, the BEFIT proposal should come into force on 1 July 2028

The EC has also confirmed a proposal aiming at harmonising transfer pricing rules within the EU. These are expected to increase tax certainty and mitigate the risk of litigation and double taxation. The proposal should also reduce the opportunities for companies to use transfer pricing for aggressive tax planning purposes.

The transfer pricing proposal is expected to enter into force on 1 July 2026.

If you would like more information on the above, please contact Keith Rushen on 0207 486 2378.

 

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