European Commission publishes Communication on Business Taxation for the 21st century

Executive summary

On 18 May 2021, the European Commission (the Commission) published the anticipated Communication on Business Taxation for the 21st Century (pdf) (the Communication). The Communication, the release of which has been a moving target since its announcement in January 2020, sets out the Commission’s short-term and long-term vision to provide a fair and sustainable European Union (EU) business tax system and support the recovery. A roadmap for the design of the Communication was open for consultation in March and the feedback received can be accessed here.

Among the corporate tax reforms proposed in the Communication, the Commission announced its plan to propose in 2023 a new framework for business taxation in the EU, the “Business in Europe: Framework for Income Taxation” (referred to as BEFIT), which will provide a single corporate tax rulebook for the EU, based on a common tax base and formulary apportionment of profits to Member States. This new proposal will replace the pending proposal of a Common Consolidated Corporate Tax Base (CCCTB), which will be withdrawn.

In the communication, the Commission also comments on the EU approach to BEPS 2.01 and outlines how the global agreement will be implemented in the EU. Although the Communication does not include details on the EU Digital Levy,2 a proposal for which is expected to be published on 14 July 2021, it reiterates the fact that it will be designed in such a way that it is independent of the forthcoming global agreement at the OECD.

Detailed discussion

Following some introductory remarks (section 1), the Communication contains three main sections:

Implementation in the EU of a global agreement (section 2)

In the Communication, the Commission reiterates the strong support of the EU for a global consensus-based solution by mid-2021 within the framework of the OECD. Once agreed, the global agreement will need to be implemented in the EU.

  • The Commission will propose a Directive for implementation of Pillar One in the EU to ensure its consistent implementation in all EU Member States, including those that are not Members of the OECD and do not participate in the Inclusive Framework.
  • The principal method for implementing Pillar Two will also be an EU Directive that reflects the OECD Model Rules with the necessary adjustments. The Communication notes that the implementation of a global agreement on minimum effective taxation will also have implications for existing and pending EU Directives and initiatives, including the Anti-tax Avoidance Directive (ATAD), the Interest and Royalties Directive (IRD) and the EU Code-of-Conduct listing process.
Going beyond the OECD agreement, targeted solutions for the next two years (section 3)

This section sets out the Commission’s tax agenda for the next two years, focusing on the dual priorities of ensuring fair and effective taxation and promoting productive investment and entrepreneurship. The Communication includes the following actions that build on the roadmap set out in the Tax Action Plan, presented by the Commission in July 2020:3

  • Action 1 (by 2022): The Commission will table a legislative proposal for the publication of effective tax rates (ETRs) paid by large companies, based on the methodology under discussion in Pillar Two of the OECD negotiations. The proposal aims to improve public transparency around the real ETR experienced by large EU companies.
  • Action 2 (by Q4 2021): The Commission will table a legislative proposal setting out EU rules to “neutralize the misuse of shell entities for tax purposes,” i.e., companies with no or minimal substantial presence and real economic activity. Such proposal would encompass actions such as requiring companies to report to the tax administration the necessary information to assess whether they have substantial presence and real economic activity, denying tax benefits linked to the existence or the use of abusive shell companies, and creating new tax information, monitoring and tax transparency requirements.
  • Action 3 (adopted on 18 May 2021): Alongside the Communication, the Commission adopted a recommendation on the domestic treatment of losses which will particularly benefit small and medium enterprises. The Recommendation prompts Member States to allow loss carryback for businesses to at least the previous fiscal year. This will benefit businesses that were profitable in the years before the pandemic, allowing them to offset their 2020 and 2021 losses against the taxes they paid before 2020. Member States must limit the amount of losses carried back to €3 million per loss-making fiscal year.
  • Action 4 (by Q1 2022): The Commission will make a legislative proposal creating a Debt Equity Bias Reduction Allowance (referred to as DEBRA). The proposal will aim to encourage companies to finance their activities through equity rather than turning to debt. It will also incorporate anti-abuse measures to ensure it is not used for unintended purposes.
EU Business taxation environment for the 21st Century – a long-term plan (section 4)

As a long-term plan, the Commission will table in 2023 a proposal for BEFIT, moving towards a common tax rulebook and aiming to provide for fairer allocation of taxing rights between Member States. BEFIT will consolidate the profits of the EU members of a multinational group into a single tax base, which will then be allocated to Member States using a formula, to be taxed at national corporate income tax rates. The use of a formula to allocate profits will remove the need for the application of complex transfer pricing rules within the EU for the companies within scope. This proposal is expected to reduce administrative burdens, remove tax obstacles and create a more business-friendly environment in the EU.

The BEFIT will replace the CCCTB proposal that was proposed in 2011. While the principles of a common tax base and of formulary apportionment are already featured in the CCCTB proposal, the Communication notes that there are some differences between the two proposals. The BEFIT will reflect the significant changes in the economy and in the international framework building on the approach taken in the forthcoming global agreement in its proposals for the definition of the tax base. The Commission will also develop a different apportionment formula to better reflect the realities of today’s economy and global developments, in particular by taking better account of digitalization.

The Commission will develop legislative proposals in accordance with the timeline set out above. Whether and in what form the proposals will be adopted is yet to be seen, as the adoption of EU tax legislation will in principle require unanimity among all 27 Member States. It is however expected that the Member States will initiate a discussion on the proposals set out in the Communication before the Commission issues its legislative proposals. This will provide a first view on the changes of adoption of the proposals in the EU.

The Commission also announces in the Communication that it will launch a broader reflection on the future of taxation in the EU, in particular on a sustainable tax mix which may lead to a shift to more green, health and wealth taxation. This reflection will culminate in a Tax Symposium on the “EU tax mix on the road to 2050” in 2022.


With the presentation of its Communication, the Commission has put forward a range of proposals and initiatives to roll out its ambitious tax agenda in the years to come.

Taxpayers are recommended to further monitor the developments and assess the impact of the proposed rules on their business. Interested businesses should also consider sharing their insights and concerns with policy makers through public consultation processes and other opportunities for engagements. 

For additional information with respect to this Alert, please contact the following:

EY Société d’Avocats, Paris
  • Jean-Pierre Lieb
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
  • Klaus von Brocke
Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Marlies de Ruiter
  • Maikel Evers
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • Konstantina Tsilimigka
  • David Corredor-Velásquez
  • Roberto Aviles Gutierrez
Ernst & Young LLP (United States), Global Tax Desk Network, New York
  • Jose A. (Jano) Bustos

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.