Nové daňové iniciativy EU

New EU tax initiatives

On 12 September 2023, European Commission (EC) presented new tax initiatives in the following areas:

1. BEFIT;
2. Transfer Pricing;
3. Simplification option for SMEs (“HOT”).

1) BEFIT initiative update

EC proposes a new, single set of rules to determine the tax base of groups of companies (see further HERE).

The BEFIT initiative (Business in Europe: Framework for Income Taxation) is supposed to reduce tax compliance costs for large businesses, primarily those who operate in more than one Member State.

Main principles of the proposal, which builds on the Pillar Two rules, include:

Which companies should this apply to?

A BEFIT group will generally be formed by a parent company and subsidiaries in which it holds, directly or indirectly, at least 75% of the ownership/profit rights. The BEFIT rules are obligatory for EU headquartered groups with annual combined revenues of at least EUR 750 million. BEFIT applies to groups with non-EU headquarters if the relevant EU part has either at least EUR 50 million annual combined revenues or accounts for at least 5% of the total group revenue. Groups below these thresholds may opt-in for BEFIT provided they prepare consolidated financial statements. If BEFIT is applicable, it will apply to all EU-based entities and permanent establishments that meet the 75% ownership requirement.

Common rules to compute the tax base at entity level

Companies that are members of the same group will generally derive their tax base in accordance with a common set of tax adjustments (e.g. excluded income, non-deductible expenses, depreciation rules) to their financial accounting statements (i.e. a starting point is the financial accounting net income/loss as stated in the consolidated financial accounts).

With respect to transactions between BEFIT group members and other associated enterprises outside the BEFIT group, a so-called simplified approach to transfer pricing compliance is introduced.

We also understand that withholding taxes should generally not be imposed on intra-BEFIT group transactions.

Aggregation of the tax base at EU group level

Preliminary tax bases of members of the group will be aggregated into one single tax base.

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.

It is our understanding that a permanent allocation method may later be developed that can be based on a formulary apportionment using substantive factors.

We also understand that Member States may apply deductions or base increases to their allocated parts.

How will BEFIT be administered?

One group member (typically UPE) is expected to file the group's information return with the tax administration of one Member State. Each group member is expected to file its individual tax return with its competent local tax authority.

Effectiveness

These new rules are proposed to apply from 1 July 2028.

2) Transfer Pricing

EC proposes harmonising transfer pricing rules within the EU and ensuring a common approach to transfer pricing problems.

It incorporates the arm's length principle and key transfer pricing rules into EU law (e.g. harmonization of rules for corresponding adjustments or determination of arm’s length range), clarifies the role and status of the OECD Transfer Pricing Guidelines and creates the possibility to establish common binding rules on specific aspects of the rules within the EU (see further HERE).

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

The document suggests that EC may further supplement the rules by e.g. laying down certain documentation templates/requirements or safe harbours.

3) Simplification option for SMEs

EC proposes giving SMEs (micro, small and medium enterprises) operating cross-border exclusively through permanent establishments the option to interact with only one tax administration for purposes of corporate income tax – that of the Head Office.

SMEs would therefore calculate their corporate income taxes based only on the tax rules of the Member State of their Head Office. SMEs would file one single tax return with the tax administration of their Head Office, which would then share this return with the other Member States where the SME is operating. The Member State of the Head Office would also subsequently transfer any resulting tax revenues to the countries where the permanent establishments are located.

The scope of these rules would be limited to standalone SME entities with permanent establishments and would not be extended to SME groups with subsidiaries.

These new rules are proposed to apply from 1 January 2026.

If you have any questions, please contact the authors of this article or the EY tax team with whom you regularly work.

Authors:

Libor Frýzek

Karel Hronek