European Commission proposes directive to calculate the tax base of companies

European Commission proposes directive to calculate the tax base of companies

On 12 September 2023, the European Commission (EC) published a proposed directive, entitled, “Business in Europe Framework for Income Taxation” (BEFIT), which contains a common set of rules for calculating the tax base of large EU groups and allocation of the tax base between group members. BEFIT replaces the previously proposed common consolidated corporate tax base (CCCTB) and common corporate tax base (CCTB) and is designed to facilitate compliance and reduce related costs for groups operating in the EU.

It should be noted that, along with the proposed BEFIT directive, the European Commission also published proposals for harmonised transfer pricing rules within the EU and a head office tax system for micro, small, and medium-sized enterprises (SMEs).

Covered entities

A group for BEFIT purposes generally would be one where the ultimate parent entity (UPE) holds, directly or indirectly, at least 75% of the ownership rights of its subsidiaries. BEFIT would be mandatory for groups operating in the EU that prepare consolidated financial statements and have annual combined revenues of EUR 750 million or more in at least two of the previous four fiscal years. The BEFIT rules also would apply to non-EU-headquartered groups where the combined revenue of the group in the EU either exceeds 5% of the total group revenues based on the consolidated financial statements or EU 50 million in at least two of the last four fiscal years. The application of the BEFIT rules would be optional for smaller groups provided they prepare consolidated financial statements. 

Determination of the BEFIT tax base 

The calculation of the BEFIT tax base would start with the determination of the preliminary tax results of each BEFIT group member based on financial accounts prepared under accepted accounting standards in an EU member state or IFRS. Subsequently, these results would be subject to several adjustments, such as the exclusion of profits or losses from permanent establishments and the exclusion of shipping income subject to a national tonnage tax regime. Certain items would have to be added back if they were already deducted or had not been included in the financial statements, such as financial assets held for trading, corporate taxes that have already been paid and Pillar Two top-up taxes, common depreciation rules introduced by BEFIT and fines, penalties and illegal payments (e.g., bribes). 

Aggregation and allocation

After the preliminary tax results for each BEFIT group member have been calculated, they would be aggregated into a single tax base. As a consequence, the cross-border set-off of losses throughout the BEFIT group would be allowed. Moreover, withholding taxes would not be applied on interest and royalty payments within the group if the beneficial owner of the payment is a BEFIT group member. Finally, in the first seven years of application, the BEFIT tax base would be allocated to the group members using a “baseline allocation percentage” based on the average taxable results of the previous three fiscal years.


The proposal addresses the administration of BEFIT, including rules on the creation/termination of a group, the fiscal year, requirements for filing the BEFIT information return, audits, etc. A One-Stop-Shop would allow covered groups to file their information return with only one EU tax administration. This return would have to be filed within four months of the end of the fiscal year with the tax authorities of the member state in which the filing entity is resident and would need to contain information on the group, its ownership structure and each group member (i.e., BEFIT tax base, allocated baseline percentage, etc.). Nonetheless, each individual BEFIT group member would still need to file a local tax return so that the local tax authorities could ensure that the adjustments to the BEFIT tax base were applied correctly. 

Next steps

The proposed directive will be sent to the European Parliament and the European Council for consultation and review and will ultimately require the unanimous approval of all 27 member states to be adopted. 

As BEFIT builds on the OECD/G20 international tax agreement on a global minimum tax and the EU Pillar Two Directive, the Commission expects that the BEFIT proposal will be adopted by the European Council. If so, member states would have to transpose the BEFIT directive into their national legislation by 1 January 2028 with the directive applying as from 1 July 2028.