Business in Europe: Framework for Income Taxation (BEFIT) - a BusinessEurope position paper
Key messages
- BusinessEurope supports the Commission’s initiatives to improve the corporate income tax system in the EU. Nevertheless, the proposed BEFIT directive does not deliver the Commission’s goals of simplifying the tax landscape and reducing compliance costs in the EU. This is attributed to several key factors:
- Whilst common corporate tax rules have the potential of improving the EU’s tax landscape, operating the proposed BEFIT regime in parallel to national tax systems and with material divergences from the OECD’s Pillar Two Framework significantly increases compliance, complexity, and administrative burden, deterring business investments and job growth.
- Whilst the proposal allows for offsetting cross-border losses in the EU, the benefits from this important element have been significantly reduced when compared to the earlier proposal for a Common Consolidated Corporate Tax Base (CCCTB). This is an inevitable outcome of the global minimum tax rules.
- Whilst there is potential for significantly reduced transfer pricing through a formulary apportionment of profits, the same cannot be said for the proposed transitional method of allocating profits. The transitional method and the traffic light approach for transfer pricing compliance introduce further complexity and do not deliver the necessary tax and legal certainty for ensuring effective relief from double taxation. Consensus on a formula remains a distant prospect.
- Given the significant complexities introduced by, and the remaining work necessary for completing, the G20/OECD Inclusive Framework’s Two-Pillar solution, global rules should now be allowed to stabilise in order for businesses and policy makers to have the opportunity to thoroughly assess their effectiveness and appropriateness over time.
- In light of these complexities, European businesses should have the ability to exercise a choice in determining whether the proposed BEFIT regime is a viable strategy for them to achieve administrative simplification and the proposed reduction of 65% in their tax compliance costs.