International Tax

BEFIT - Business in Europe: Framework for Income Taxation

Sasha Kerins
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The European Commission (“the Commission”) held a public consultation in respect of a new proposed corporate tax system referred to as Business in Europe: Framework for Income Taxation (“BEFIT”). This public consultation closed at the end of January 2023.

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According to the Commission, the initiative aims to introduce a single corporate tax rulebook for the EU, based on a common tax base and allocation of taxable profits to Member States based on a pre-defined formula. Once allocated, the taxable profits would be subject to the corporate income tax rates of the relevant Member States.

The initiative also aims to reduce tax compliance costs and create a coherent approach to business taxation throughout the EU.


The BEFIT proposal was first announced in 2021 as part of the Commission’s Communication on Business Taxation for the 21st Century to promote a robust, efficient and fair business tax framework within the EU. The Commission’s stated objective is to provide a new framework for income taxation for businesses in order to boost competitiveness of the single market, reduce compliance costs and support investment in the EU.

BEFIT will be informed by work on previous failed EU initiatives – the 2011 Common Consolidated Corporate Tax Base (“CCCTB”) and the two 2016 Common Corporate Tax Base (“CCTB”) and CCCTB proposals. Furthermore, to ensure cost efficiency, it is intended that BEFIT should be consistent with, and where possible build on, the principles that underline the two-pillar approach agreed by the Organisation for Economic Co-operation and Development (“OECD”).

Objectives and policy options

Under the public consultation, the EU Commission sought feedback from stakeholders in relation to five key “building blocks” of BEFIT as set out below.

  1. Scope – The first option would see groups with consolidated global revenues exceeding €750 million falling within the scope of BEFIT. It is worth noting that this threshold is in line with the scope of the proposed EU minimum tax directive (Pillar Two). Alternatively, the Commission proposes a broader scope for BEFIT which lowers the threshold below €750 million and potentially allows small and medium sized enterprises to voluntarily opt-in. The Commission aims to include limited sectoral carve-outs but will examine how the BEFIT formula for profit allocation (see point three below) would be best applied to the financial services sector.
  2. Tax base calculation – One option is to establish the tax base by using the income reported in the financial statements as a starting point. This tax base would then be subject to a limited number of tax adjustments. The list of adjustments would be comprised of items which are responsible for a significant part of the corporate tax base (around 90%). 

Alternatively, the Commission proposes a second option for a comprehensive corporate tax system with detailed rules for all aspects of taxable profit determination. However, this option would necessitate Member States administering two comprehensive sets of corporate tax rules in parallel (i.e. BEFIT and their national rules), and would likely not achieve the Commission’s objective to reduce the tax compliance burden for EU businesses.

  1. Allocation of taxable profits – The first formula proposed by the Commission takes three factors into account, namely: (i) tangible assets, (ii) labour (possibly a combination of staff numbers and payroll) and (iii) sales by destination. An alternative formula being considered by the Commission includes intangible assets as a factor, in addition to the three above mentioned factors, to cater for the digitalisation of the global economy.
  2. Allocation of profit to related entities outside the group – As EU law only applies to activities occurring within the EU, current transfer pricing principles would continue to apply to transactions with related entities outside the consolidated group subject to BEFIT. The Commission is also considering a simplified approach to transfer pricing for such entities.
  3. Administration – The Commission notes that the administration aspect of BEFIT is an integral part of the system. One of the key goals of BEFIT is to reduce compliance and administrative costs for taxpayers and Member States, so the design of this building block will require careful consideration. In particular, the consultation questionnaire considers potential tax filing simplification (e.g. a single EU corporate tax return), simplifications around interactions with tax authorities (e.g. co-ordination of audits) and alternative dispute resolution methods.

Timelines and next steps

The Commission’s indicative timetable for a legislative proposal on BEFIT is the third quarter of 2023. It is worth noting that any proposed directive would require unanimous approval in the European Council (i.e. approval by all 27 Member States).


The BEFIT proposal is similar to previous EU proposals which sought to introduce a common corporate tax base (i.e. the CCCTB / CCTB). These proposals have long been controversial and were resisted by a number of Member States.

While the Irish government has indicated that it will continue to engage actively on this issue, it was noted in the Tax Strategy Group Corporation Tax Paper, July 2022[1] that matters of direct taxation remain a Member State competence under the treaties, and tax harmonisation is contrary to that principle.

We would expect other Member States to hold similar views. The EU Commission may find it challenging to obtain unanimous approval for BEFIT from all 27 Member States. Furthermore, many Member States will likely see implementation of the Pillar Two minimum corporate tax directive as the priority for 2023.

Finally, in our view, it would seem premature to proceed with BEFIT given that there is global agreement in principle on the OECD’s Pillar One initiative, which also provides a formulary approach for profit allocation. It would seem logical at this stage to allow for the Pillar One and Pillar Two process to conclude before implementing a further set of complex rules, which clearly have some overlap.

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[1] TSG 22 - 03 Corporation Tax