New, simpler rules that could reduce tax compliance costs by up to 65% for businesses that operate in the EU have just been proposed by the European Commission.

The proposal, Business in Europe: Framework for Income Taxation (BEFIT), is a key package of initiatives to reduce tax compliance costs for large, cross-border businesses in the European Union. It will also make it easier for tax authorities by introducing a new single set of rules to determine the tax base of groups of companies.

“Today’s proposals aim to make it easier for businesses large and small to operate in the EU, reducing tax compliance costs and freeing up resources for them to invest and create jobs,” said Paolo Gentiloni, EU Commissioner for Economy. “Our proposals will also facilitate tax authorities’ efforts to ensure that companies pay what is rightly due. After the adoption of the EU Directive ensuring a minimum effective tax rate for large multinational groups, today we take another key step towards simpler, clearer and more cost-effective tax systems in the EU.”

27 different tax systems

Today, the European Union deals with 27 different national tax systems, each with its specific rules, which can make it costly for companies to comply. Which, according to the Commission, can discourages cross-border investment in the EU, and put European businesses at a competitive disadvantage compared to other companies outside EU countries.

With BEFIT, the European Commission is set to reduce the compliance costs for large businesses that operate in more than one member state, and to make it easier for national tax authorities to determine the right taxes. It is hoped that the simpler rules will reduce tax compliance costs up to 65%.

The BEFIT proposal will mean that:

• Companies that are members of the same group will calculate their tax base in accordance with a common set of rules.
• 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.

“The Commission is taking another step towards simplifying the EU’s tax laws and making them fairer for companies active in more than one Member State. SMEs will be able to use one set of rules for filing their tax returns, instead of dealing with 27 different national regimes. This will save them in compliance costs and stimulate more cross-border investment and competitiveness,” said Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People.

Mandatory for large entities

The new BENIT rules will be mandatory and apply for entities operating in the EU with an annual combined revenue of at least €750m ($805m), and where the ultimate parent entity holds at least 75% of the ownership rights or of the rights giving entitlement to profit.

Smaller entities may choose to opt in as long as they prepare consolidated financial statements, which could be of particular interest to SMEs.

The rules build on the OECD/G20 international tax agreement on a global minimum level of taxation, and the Pillar Two Directive which was adopted at the end of 2022. BEFIT will replace the Commission’s CCTB (common corporate tax base) and CCCTB (common consolidated corporate tax base) proposals, which now have been withdrawn.

“Today’s proposals aim to make it easier for businesses large and small to operate in the EU, reducing tax compliance costs and freeing up resources for them to invest and create jobs.”

Paolo Gentiloni, EU Commissioner for Economy

Also included in the package is a proposal on transfer pricing, with the aim of harmonizing and ensuring a common approach to transfer pricing rules within the EU.

It is set to increase tax certainty and reduce the risk of litigation and double taxation. It will also make it harder for companies to use transfer pricing for aggressive tax planning purposes.

“In corporate taxation, today’s proposals build on work done by the OECD/G20 to establish a common set of rules to determine the tax base of companies and to address problems related to transfer pricing – such as profit shifting, tax avoidance and double taxation – so as to improve tax certainty while reducing opportunities for aggressive tax planning,” Dombrovskis continued.

Once the BEFIT proposal is adopted by the Council, it is set to come into force on July 1, 2028, with the transfer pricing proposal following on January 1, 2026.