Publish Date

Oct 18, 2022

BEFIT: EU Corporate Income Tax

A&M Tax Advisor Weekly

The European Commission is assessing support for an EU-Directive to simplify the rules for corporate income taxation within the EU. The proposed mechanics include a common tax base for businesses active in more than one EU Member State. Taxable profits are to be allocated to those EU Member States based on a formula. This publication describes the various policy options that are being explored.


The European Commission has launched a Public Consultation covering Policy Options for a single corporate income tax rulebook for the EU. This rulebook will be based on a common corporate tax base and an allocation of profits between EU Member States based on a formula. This follows up on the European Commission’s Communication on Business Taxation for the 21st Century. The initiative is referred to as BEFIT, which stands for Business in Europe: Framework for Income Taxation. The initiative primarily aims to reduce the compliance burden for businesses active in more than one EU Member State, as well as to tackle certain tax optimization strategies.


The European Commission is assessing support for an EU-Directive to implement BEFIT and is gathering feedback on the following ‘building blocks’:

  1. Scope – The first option under consideration is a consolidated revenue threshold of EUR 750 million for a group of companies to fall under BEFIT. This threshold is similar to, for example, the EU’s (proposed) Pillar 2 Directive. Alternatively, the European Commission suggests a lower (currently undefined) revenue threshold and possibly allowing a group of companies with a consolidated revenue below such threshold to voluntarily opt-in. The European Commission expresses a preference for limited sectoral carve-outs.
  2. Tax base calculation – All companies in a group falling under BEFIT would be required to use commercial financial statements as a starting point for the tax base calculation. Such tax base would be subject to a limited number of tax adjustments. Alternatively, the European Commission considers a comprehensive corporate income tax system with detailed rules for all aspects of taxable profit determination. This alternative would likely not meet the primary objective of the BEFIT-initiative to reduce the compliance burden for businesses within the EU.
  3. Formula for allocating taxable profits – The first formula option presented by the European Commission does not take into account intangible assets and would only consider (1) tangible assets excluding financial assets unless in a sector-specific formula, (2) labor and (3) sales by destination. Alternatively, the European Commission considers incorporating intangible assets into the formula (e.g., a value based on research and development expenses, marketing and advertisement), next to the three factors already mentioned. The European Commission is examining how the profit allocation formula would be best applied in the financial services sector. The call for feedback from the European Commission shows that other variables in the formula are possible.
  4. Allocation of profit to related entities outside the group – As EU law in principle only applies to activities occurring within the EU, current transfer pricing principles would need to continue to apply to transactions with related entities outside the consolidated group of companies subject to BEFIT. The European Commission is also considering a simplified approach to transfer pricing.


The current Public Consultation runs until 5 January 2023. The European Commission aims to adopt an EU-Directive proposal in the third quarter of 2023. Such EU-Directive proposal will be subject to another Public Consultation before it can be adopted. It is therefore to be expected that the first version of the EU-Directive proposal will be published in the first half of 2023.


BEFIT is similar to prior EU-proposals for a common tax base. It remains to be seen whether the European Commission will be successful this time around. EU Member States did not manage to come to an agreement in the past, mainly because of the profit allocation formula. However, this time the European Commission intends to build on the principles that underlie the OECD’s two-pillar approach, which has a broad(er) consensus.

The exact impact on the investment management industry remains unclear at this stage. As the consolidated tax base would be the starting point, intercompany transactions within such group would no longer be recognized. This in itself is big change compared to current tax rules. Ultimately the impact will be largely dependent on the applied revenue threshold.

The OECD’s two-pillar approach likely provides for an indication of the rules that will be included in the EU-Directive proposal (e.g., the tax adjustments to the financial statements).

If you would like to exchange views or discuss, please feel free to get in touch with your usual A&M adviser, Roel de Vries or Nick Crama.