13. September 2023

New proposals of the European Commission to simplify tax rules and reduce compliance costs for cross-border businesses

On 12 September, the European Commission adopted a key package of initiatives to reduce tax compliance costs for large, cross-border businesses in the European Union.

The proposal, called “Business in Europe: Framework for Income Taxation” (BEFIT), will make life easier for both businesses and tax authorities by introducing a new, single set of rules to determine the tax base of groups of companies.

The proposal, which builds on the OECD/G20 international tax agreement on a global minimum level of taxation and the Pillar Two EU Directive, will include:

  1. Common rules to compute the tax base at entity level

All 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.

  1. Aggregation of the tax base at EU group level

The tax bases of all members of the group will be aggregated into one single tax base. This will entail cross-border loss relief, as losses will automatically be set off against profits across borders, as well as increased tax certainty in transfer pricing compliance.

  1. Allocation of the aggregated tax base

By using a transitional allocation rule, 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 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, directly or indirectly, at least 75% of the ownership rights or of the rights giving entitlement to profit. In addition, the rules will be optional for smaller groups which may choose to opt in as long as they prepare consolidated financial statements.

Member States should implement the transfer pricing rules by 1 January 2026.

More information is available on the European Commission Website.

The ASCG is currently conducting a study to evaluate the application of IFRS in Germany. The European Commission’s current BEFIT proposal reconfirms the importance of such an evaluation. Details on the process and content of the study can be found on our related ASCG’s project page. (in German only)

The new proposed rules are to be aligned as far as possible with the rules of the EU Minimum Taxation Directive. The ASCG is working intensively in its technical committees, in particular in the Tax Working Group, on new rules on minimum taxation and their implementation in Germany. Please find more information on these activities and the background on the ASCG’s respective project website (in German only).