2023-09-12-KPMG_s_EU_Tax_Centre-Euro_Tax_Flash_from_KPMG_s_EU_Tax_Centre_9页_414kb

Background

The European Commission (EC) proposed the BEFIT Framework for Income Taxation and a separate Transfer Pricing Directive to address corporate tax rules for EU-based entities. These proposals stem from the CCCTB initiative, transitioning to a system aimed at providing a common corporate tax base for groups with global revenues exceeding €750 million. The BEFIT proposal also includes profit allocation, while the TP proposal seeks to harmonize transfer pricing rules based on OECD principles.

BEFIT Proposal

The BEFIT Directive establishes rules for determining a common corporate tax base, starting with financial accounts adjusted for tax purposes. Key features include:

• Scope applies to groups with €750 million in annual combined revenues, with optional application for larger groups submitting consolidated financial statements.
• Profit allocation to group members is based on a baseline percentage using average taxable results, with potential adjustments for non-arm's-length transactions.
• Transfer pricing simplifications: Low-risk transactions are deemed arm's-length, and a "traffic light" system assesses risk for external related-party transactions.
• Filing requirements: A one-stop-shop for group returns with a BEFIT Information Return filed by the ultimate parent entity, and individual tax returns by group members.
• Other provisions include local adjustments, foreign tax credits, and a BEFIT team for coordination.

Transfer Pricing Proposal

This Directive incorporates the OECD arm's-length principle into EU law, including core TP rules such as documentation, comparability analysis, and specific methods (e.g., comparable uncontrolled price method). It applies to transactions between associated enterprises and requires Member States to align with OECD guidelines, with rules enforced through penalties and harmonized procedures.

Next Steps

• Public consultation is planned starting September 12, 2023, with BEFIT to be transposed by January 1, 2028 (effective July 1, 2028), and TP by December 31, 2025 (effective January 1, 2026).
• Approval requires Council unanimity, and process includes parliamentary opinions.

ETC Comment

The BEFIT proposal faces challenges in Member State agreement on profit allocation. The EC avoided a formulary apportionment method in favor of a baseline allocation initially. Related proposals like a debt-equity balance reduction allowance are separate and under review. The TP proposal complements other EU measures like DAC3 and DAC6, while BEFIT and a SME head office tax system are part of a broader effort to simplify and harmonize EU tax rules.