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Public consultation on BEFIT, a new framework for EU corporate taxation

The European Commission announced in its communication Business Taxation for the 21st Century a proposal for a new framework for income taxation for businesses. This new proposal is known as Business in Europe: Framework for Income Taxation (BEFIT).

As we informed you in our previous Article, the Commission announced that BEFIT would be a single corporate tax rulebook for the EU, based on the key features of a common tax base and the allocation of profits between Member States by using a formula, replacing the previously proposed CCCTB. Currently more options for the final draft of the BEFIT directive are considered:


Option 1: Groups with consolidated global revenues exceeding EUR 750 million

Under this option, the threshold for a group of companies to fall under BEFIT would be set at EUR 750 million of consolidated global revenues. The definition of ‘a group of companies’ would be aligned with the definition used in the proposal for a directive on pillar 2.

Option 2: Broader scope

A wider scope would cover also SMEs with cross-border activities or those that envisage scaling up and starting to operate across borders soon. These SMEs could opt in to BEFIT to benefit from common EU rules on tax base and the allocation of profits.

Tax base calculation

Option 1: Limited tax adjustments

Under this option, a limited list of tax adjustments would be applied to the income reported in the financial statements of the group entities falling under BEFIT. All companies in a group falling under BEFIT would be required to use financial statements as a starting point for the tax base calculation, prepared in accordance with the same accounting standard, authorised for use in the EU.

Option 2: Comprehensive set of tax rules

An alternative option would be to set up a comprehensive corporate tax system with detailed rules for all aspects of profit/tax determination, rather than building a system based on financial accounting like in option 1. If this option were chosen, Member States would have to run two comprehensive sets of corporate tax rules in parallel, i.e. BEFIT and their national rules (this would not be the case under option 1, where BEFIT rules for tax determination will be simplified).

Formula for allocating taxable profits

The basic principle to follow when deciding on a formulary apportionment is to choose factors that reflect the source of income generation.

Option 1: Formula without incorporating intangible assets

Under this option, the proposal would consider: (i) tangible assets (excluding financial assets unless in a sector-specific version); (ii) labour (possibly, equally shared between personnel and salaries); and (iii) sales by destination.

Option 2: Formula incorporating intangible assets

The alternative option would be to include intangible assets as a factor in the formula, in addition to the three previously mentioned factors.

The allocation of profit to related entities outside the group

In general, EU law applies only to activities occurring within the EU, so the options for action in this area are limited. It is envisaged that the current transfer pricing principles would continue to apply to transactions with related entities resident outside the consolidated group.

Option 1: Simplified approach to transfer pricing

Under this option, the proposal would envisage a simplified approach to the administration of transfer pricing rules based on macroeconomic industry benchmarks. The businesses would however still need to carry out the necessary transfer pricing analysis. The envisaged rules would only provide guidance on tax authorities’ risk approach to businesses’ transactions with related entities outside the consolidated group.

Option 2: Keep current transfer pricing rules

The second option is to keep the current approach to the application of the transfer pricing rules.


One of the key goals of BEFIT is to reduce compliance and administrative costs for taxpayers and Member States, so the design of this building block will require careful consideration.

The BEFIT proposal is subject to public consultation for 12 weeks, until 5 January 2023. It may bring complexity or simplification in the EU tax system, depending on the final combination of the options proposed.

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