EU tax compliance proposals to streamline business investment

A new proposal, ‘Business in Europe: Framework for Income Taxation’ (BEFIT), from European Commission (EC) introduces a simpler, single set of rules to determine the tax base of groups of companies. According to the EC, the new rules could reduce tax compliance costs for businesses operating in the EU by up to 65 percent.

National tax authorities will also be to determine more easily which taxes are rightly due.

With 27 different national tax systems, tax compliance is costly for companies and discourages cross-border investment in the EU, the EC stated. Ultimately, this puts European businesses at a competitive disadvantage compared to other companies worldwide.

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

This proposal replaces the EC’s common corporate tax base (CCTB) and common consolidated corporate tax base (CCCTB) proposals, the EC declared.

How will the new proposal for tax compliance work?

Companies that are members of the same group will calculate their tax base in line with a common set of rules. The collated tax bases will be combined into one single tax base.

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

SMEs are also set to benefit, although the rules will be discretionary. These groups may choose to opt in as long as they prepare consolidated financial statements.

Transfer pricing proposal

As part of the EC’s package of initiatives to reduce tax compliance costs, there is a proposal specifically aimed at harmonising transfer pricing rules in the EU.

According to Paolo Gentiloni, Commissioner for Economy at the European Commission, the proposals will help in “reducing tax compliance costs and freeing up resources for them to invest and create jobs” and therefore is “another key step towards simpler, clearer and more cost-effective tax systems in the EU.”

Once adopted by the Council, the regulatory proposals are planned to come into force on 1 July 2028 (for BEFIT) and on 1 January 2026 (for the transfer pricing proposal).

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