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EU takes steps to streamline tax compliance for businesses

Complying with tax rules is expensive for businesses, as they have to navigate 27 different tax systems, each with its own rules. Not only does this discourage companies from making cross-border investments in the EU, but it also means that they are at a competitive disadvantage compared with companies in other parts of the world.

The European Commission has adopted an important set of initiatives aiming to reduce compliance costs for large cross-border companies in the EU.

Economic Affairs Commissioner Paolo Gentiloni said: "The proposals are mainly aimed at making it easier for businesses - large and small - to operate cross-border within the EU and at enabling tax authorities to ensure that businesses pay appropriate taxes. Following the adoption of the EU directive to ensure a minimum effective tax rate for large multinational groups, this is another important step towards fairer and simpler taxation in the EU".

Savings of up to 80 million euros per year

The proposal, entitled "Business in Europe: Framework for Income Taxation" (BEFIT), aims to simplify life for businesses and tax administrations by introducing a single regulatory framework for calculating the tax base of groups of companies. This measure should reduce compliance costs for large companies operating in more than one Member State. At the same time, it should be easier for tax authorities to assess the taxes due. This simpler system could save businesses operating in the EU up to €80 million a year.

What does it signify

BEFIT means

Companies from the same group calculate their tax base according to common rules. The tax bases of all members of the group are combined into a single tax base.

For each member of the BEFIT group, a percentage of the aggregated tax base is calculated, corresponding to the average of taxable results over the three previous tax years. 

Transfer pricing structure

The package also includes a proposal to harmonize transfer pricing rules in the EU and ensure a common approach to addressing transfer pricing issues.

This proposal will enhance legal certainty in the tax area and reduce the risk of litigation and double taxation. In conjunction with anti-abuse rules, the package will also limit companies' ability to use transfer pricing for aggressive tax planning.

Next steps

If the proposals are adopted by the Council, they will come into effect on July 1, 2028 (BEFIT) and January 1, 2026 (transfer pricing proposal).

This article is from the 1/2024 issue of the magazine "Life Abroad".

The magazine is published four times a year free of charge with many informative articles on foreign topics.

It is published by the BDAE, the expert for protection abroad.