European Commission Proposes to Simplify Tax Rules for Cross-Border Companies

On September 12, the European Commission introduced a proposal for a Council Directive to reduce tax compliance costs for large, cross-border businesses in the European Union.

This package, called “Business in Europe: Framework for Income Taxation” (BEFIT), aims to present new rules for businesses and tax authorities to determine the tax base of groups of companies. This will reduce compliance costs for large businesses who operate in more than one Member State and allow them to track tax payment deadlines more conveniently. The simpler rules could reduce tax compliance costs for businesses operating in the EU by up to 65%.

BEFIT and the SME Relief Package, which we have covered earlier, complement each other: the SME Relief Package aims to offer simplification for SMEs with limited presence abroad, while BEFIT focuses on large corporate groups with wide cross-border activity.

Key Principles

Companies that are 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.

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.

BEFIT will simplify cross-border investment in the EU, making European businesses more competitive as compared to others elsewhere in the world.

Scope of Use

The 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 Commission’s CCTB (common corporate tax base) and CCCTB (common consolidated corporate tax base) proposals.

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% of the ownership rights or of the rights giving entitlement to profit.

The rules will be optional for smaller groups, including SMEs, which may choose to join the reform as long as they prepare consolidated financial statements.

Changes for Transfer Pricing

The package also includes a proposal to improve transfer pricing rules within the EU and ensure a common approach to transfer pricing. This will mitigate the risk of litigation and double taxation, as well as lessen the opportunity for companies to use transfer pricing for aggressive tax planning purposes.

Next Steps

Once adopted by the Council, the proposals should come into force on July 1, 2028 (for BEFIT) and on January 1, 2026 (for transfer pricing changes).

Press release 

Text of a proposal for a Council Directive

Q&A about BEFIT and Transfer Pricing

Read more:

European Commission Introduces New Measures to Support SMEs